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What Is A Conditional Offer In Real Estate? The Top Guide

What is a Conditional Offer in Real Estate and Its Common Types?

Amanda Byford
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About Conditional Offer in Real Estate

When you are looking to purchase a home, you would usually want to make sure that the home that you are buying is in a good habitable condition. 

You have to sign a sales contract before buying a home before you close on that home where you put an offer to the seller. 

While you are signing the contract with the help of your realtor, you can put a conditional offer to the seller in the sales contract. In this post, we will understand what is a conditional offer in detail.

What Is A Conditional Offer?

A real estate contract is a uniform contract that is completely straightforward where the buyer puts an offer to the seller to purchase the piece of property. 

Most of these contracts involve some sort of contingencies or conditional offers.  

A conditional offer is a clause in a real estate contract that there are certain conditions that must be met by either buyer or the seller in order to continue on towards the closing of the purchase transaction.

If the contingencies in the conditional contract are not met, there might be a breach in the contract and the transaction could fail to close or one or the other party may be released from the agreement.

What Are Common Conditional Offers In Real Estate Transactions?

There are several common conditional offers that we can see on a contract.

I - Financing Conditional Offer:

Financing contingency means that the buyer needs to get a mortgage to close on the transaction. Once the mortgage loan is secured, the condition is removed from the contract. 

If the buyer is unable to get the financing, they can withdraw from the contract without being penalized. 

This conditional offer in a real estate transaction is very important for buyers because sometimes causes a little anxiety. 

If they put forth an honest effort to get financing and it doesn’t work out, the buyer will most likely get their earnest money deposit back and be released from the contract without any penalties.

II - Home Inspection Conditional Offer:

Home inspection contingency means that if there is a home inspection ordered and the house does not pass due to factors like termite, bad electrical wiring, roof damage, etc, the buyer has the right to exit the contract and receive their earnest money deposit back. 

The buyer can request for the repair if the seller accepts the condition. But if the seller does not agree, the condition cannot be removed and the contract can be voided.

III - Sale Of Buyer’s Existing Home Conditional Offer:

The sale Of the buyer’s existing home allows for the sale of the buyer’s current home. The buyer has a specific amount of time to sell his/her current home before buying the new one. 

And the contract would be voided with no penalties if the current home does not sell. This protects the buyer from the situation where he/she have to pay two mortgages at once. 

If the seller accepts the contingency from the buyer to sell their current home, it will sometimes add what is called a kick-out clause. 

The contingency of this type protects the seller where the seller receives the second offer on the home that is more attractive than the first one and would be able to accept the offer without being penalized. 

If the kick-out clause is added and the buyer comes up with a better offer, the buyer under contract would have 48-72 hours depending on the agreement to decide if they can proceed without the contingency.

IV - Appraisal Conditional Offer:

An appraisal contingency is a position in the sales contract that allows a home buyer to back out of the contract if the home is appraised for less than the sales price that is declared in the sales contract. 

In the event that the property is appraised at or above the purchase price, then as a buyer, you are good to go with your lender. 

If the appraisal value comes lower than the purchase price, then as a buyer you have three options. The first option, you can come back to the buyer and renegotiate the difference between the purchase price and the appraisal value. 

The second option, you as a buyer can come up with that difference amount. And the third option is where if the buyer and seller cannot come to an agreement, the buyer can back out of the contract and have your earnest money refunded. 

Lastly, as the buyer and the seller, you can challenge the appraiser if you can find better comparables or if there is any material error or problem in the way the appraisal was conducted.

V - Attorney Review Conditional Offer:

Once both the parties have signed the contract, the attorney for the buyer would be given 24 hours to approve the contract. 

The attorney can give the buyer peace of mind that the contract is in legal order.

Conclusion

It is important to know that conditional offers should be reasonable; however, there are no limits on what kind of conditional offers that buyer or seller can ask for. There could be some unconventional conditions. 

However, it is important to note that too many contingencies could be a turn-off for the seller if you were a buyer writing a contract. 

You don’t want to lose a seller and you don’t want to lose a buyer because of some unreasonable conditional offers. 

Work closely with your real estate agent when the market is competitive and there are a lot of buyers looking to purchase properties where the fewer contingencies the better.

Amanda Byford

Amanda Byford has bought and sold many houses in the past fifteen years and is actively managing an income property portfolio consisting of multi-family properties. During the buying and selling of these properties, she has gone through several different mortgage loan transactions. This experience and knowledge have helped her develop an avenue to guide consumers to their best available option by comparing lenders through the Compare Closing business.

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