Risks in dealing with "subject to sale" offers
When you are selling your home, you may receive an offer subject to the sale of the buyer's home. Such offers can be good if the buyer is serious and realistic about the value of his home, but you must be aware of the risks involved.
A longer than usual completion date (the date when the buyer pays for your house) is common in order to allow the buyer time to sell his house. This means you may not get the sale proceeds when you need them to purchase another property. If you are not buying another home, then an offer with a longer completion date is worth less to you than an offer with a shorter completion date because you lose investment interest while you wait for the sale proceeds.
A buyer may make an offer on your property that is higher than fair market value because the buyer is hoping his house will sell for an unrealistically high price. When the buyer finds that he cannot get the price he needs for his home, he must either collapse the offer on your property or ask you to accept a lower price than originally agreed.
A subject to sale offer usually gives the buyer one or two months to sell his home, during which time your home is effectively off the market, and other good buyers will look elsewhere. There is usually a notice clause in these offers whereby you can give written notice to the buyer (usually 72 hours) to remove all subjects or lose the offer. Nonetheless, other buyers will often refuse to look at your home, saying they do not want to be in competition or that they will wait to see what happens with the offer.
Subject to sale offers are often higher in price than cash offers in order to tempt a seller to accept and to offset the added risks. If you receive two offers at the same time, one cash and the other subject to sale, you would likely choose the cash offer, all things being equal. The subject offer would have to be considerably higher to get your attention, and some sellers will go for such offers in hopes that they will work out. A higher price is always appealing, but remember the old adage about a bird in the hand being worth two in the bush. A contract to purchase is not binding until all conditions are removed by the buyer.
Offers with a subject to sale clause may include a subject to financing clause. This means that the mortgage lender will appraise the value of your property, and if the buyer has offered a price that is higher than the appraised value, the financing may not be approved. Offers usually fall within a price range called "fair market value". The objective is to get an offer at the top end of this range, bearing in mind the checks and balances of the lender's appraisal.
Another risk in accepting a subject to sale offer which is higher than fair market value is that if it does not go through, the seller may be left with the false impression that the property is really worth that higher figure. When a good cash offer comes along, which may be at the high end of the range of fair market value, the seller may reject it in the mistaken belief that it is a poor offer.
Your circumstances may permit dealing with a subject to sale offer, but be aware of the risks and you will avoid unpleasant surprises.
