Real estate contracts: What is the subject to sale condition?

By Sarah Nordien | Associate Director

If you are selling your property and this condition is in the Offer To Purchase (OTP), or you want to (or need to) sell your existing property simultaneously with purchasing a new one, this article is for you. In this article, we delve into the intricacies of the subject to sale condition, its implications, and its benefits.

The subject to sale condition is an example of another common suspensive condition found in OTP’s, particularly in markets where selling one property is often necessary to finance the purchase of another.

This condition essentially states that the purchase of the new property is contingent (conditional) upon the successful sale of the buyer’s existing property.

This condition is generally added for the following two reasons:

1. The primary residence is being sold and a new primary residence is being purchased i.e. an investment property is not being bought.
2. The bank has pre-approved or granted a home loan with the condition that the existing home loan is cancelled.

It allows the buyer to put in an offer for the purchase of a property while their current property is still on the market. This is extremely beneficial where you want to (or need to) use the proceeds of the sale of your current property to purchase a new one. When doing the affordability assessments, the bank sometimes makes a buyer’s home loan approval conditional upon the cancellation of their existing home loan, in which instance the subject to sale condition in the OTP becomes mandatory (with a few exceptions).

Typically, the buyer is given a date by which they need to have successfully sold their existing property, during which period, the seller may or may not agree to keep the new property off the market. If the buyer is unable to sell their property by such date, the parties have the option to either extend the period (unanimous decision) or terminate the agreement (seller may terminate unilaterally).

For buyers this condition offers several advantages, for example, it provides financial security by ensuring they are not obligated to purchase a new property without the funds from their current property’s sale. Also, it reduces the pressure to sell their existing property quickly, allowing them to negotiate better terms and potentially achieve a higher sale price.

While the primary advantage of the subject to sale condition lies with the buyer, sellers can also benefit from this clause. By agreeing to a subject to sale condition, sellers can attract a broader pool of potential buyers who might otherwise be unable to make an offer. Additionally, sellers can negotiate specific terms, such as a higher deposit or shorter contingency period, to minimize their risks.

The subject to sale condition in real estate contracts serves as a valuable tool for both buyers and sellers in the real estate market. By understanding its purpose, mechanism, and benefits, parties can make informed decisions that protect their financial interests. Whether you are a buyer looking to secure your next home or a seller seeking to attract motivated buyers, the subject to sale condition can play a crucial role in achieving a successful and smooth transaction.