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Thinking of buying a property before selling your current home? If the market is favourable to Buyers, you may be able to buy the home with a Sale of Property Condition. Here’s what you need to know.
What it Is: The Sale of Property Condition (also known as SOP)
Toronto Buyers and Sellers are accustomed to properties being “sold conditionally” on the Buyer obtaining financing or conducting a satisfactory home inspection. In these cases, everything about the sale is agreed upon between the two parties, with the exception of one final, specific element of due diligence that the Buyer retains the opportunity to complete–for a short period of time, (and for only that one reason), they have one last window to back out of the deal without penalty. The Sale of Property Condition works in much the same way.
A Buyer makes an offer to buy a home, conditional on them selling their existing property during XX period of time. If they don’t sell their home during that period, the deal dies and the Buyer gets their deposit back. If the Buyer successfully sells their property during the time period, they waive the condition just like they would a financing condition, and the home is considered legally sold and binding.
Important: The Escape Clause?
An escape clause is an important part of the Sale of Property condition. It allows the Seller to continue to market and show the property during the conditional period and gives them the right to accept the second offer, with the original Buyer retaining the right of first refusal. During the right of first refusal period (usually 24-72 hours), the Buyer has a choice: either remove the SOP condition (whether or not they have actually sold their home) and commit 100% to the purchase or walk away from the agreement. For example:
- The Seller accepts an offer to buy their home, conditional on the sale of the buyer’s own property (SOP) from Buyer A, with a 48-hour escape clause. Buyer A has until March 31st to sell their home if the escape clause isn’t activated.
- The Seller continues to market and show the home
- On March 1st, the Seller finds a second Buyer (Buyer B) and accepts an offer to purchase the home conditional on Buyer A not removing the SOP condition.
- The Seller activates the Escape Clause: Buyer A is given 48 hours to remove the SOP condition or walk away from the agreement.
- If Buyer A removes the condition during that 48 hours, Buyer A get the house, and Buyer B is out of luck.
- If Buyer A is unable or unwilling to remove the condition, Buyer A gets their deposit back, and Buyer B is now the successful purchaser.
Note: The second offer from Buyer B doesn’t have to be a higher price or better in any other way – it just needs to be accepted by the Seller for the escape clause to come into effect.
When does it happen?
Usually, the Condition of Sale of a Property happens in a Buyer’s market, when there are more Sellers than Buyers; the Buyers have control and the Sellers are motivated.
Benefits and Risks
From the Buyer’s perspective, buying a home conditional on selling your own home is a great option. It secures the house they want and reduces the risk of them not being able to close or being stuck with two mortgages if they are unable to sell their original property. While they might pay more for that luxury and condition, it can buy peace of mind (and avoid more serious problems if things don’t go well).
From the Seller’s standpoint, the SOP can be a way of solidifying a Buyer when market conditions aren’t in your favour, and you don’t have any other good options to sell to.
How common is the SOP?
While common in much of Ontario’s smaller communities, it’s still exceedingly rare in Toronto. While we’ve seen some Buyers trying to negotiate the Sale of Property condition, the Sellers haven’t been particularly receptive to it. Unless a property has been on the market for a long time and the Sellers don’t anticipate finding another Buyer any time soon, most Sellers would rather continue actively looking for a Buyer while the interested party continues to try to sell their home.
If you’re a Buyer and considering adding the Sale of Property condition to your offer, recognize:
- It’s still rare in Toronto. It might not fly with the Seller and you may be putting the entire negotiation at risk.
- It will come at a price – the Seller is going to command a premium price for accepting the condition.
Talk to your REALTOR about the pros and cons of adding the Sale of Property condition to your offer. A better plan might be to sell before buying and eliminate the risk without having to navigate and negotiate the condition. [Related: Should I Buy or Sell First?]
Tips for Sellers about the Sale of Property Condition
If you decide to accept an offer that is conditional on the sale of the Buyer’s existing home:
- Include an escape clause (24-72 hours is common) to force the initial Buyer to firm up the sale or walk away in the event you find a second buyer (thus allowing you to sell to the second Buyer, ideally without the uncertainty of an SOP)
- Continue to market the property to other Buyers during the conditional period. Expect far fewer showings – most Buyers will see a property is ‘sold conditionally’ and won’t bother making an appointment (particularly right now, as Toronto realtors and buyers are still getting used to this idea). So while an escape clause is helpful, it might not be as beneficial as you’d expect.
- Watch what’s happening to prices. If prices go down during the conditional period, be prepared for your Buyer to renegotiate or walk away…so keep your conditional period reasonable, but as short as possible.
- Command a premium price. The SOP usually comes at a price…how much more $$ do you want for your home in exchange for accepting the risk that the Buyer’s home won’t sell?
- Work with an experienced realtor! While you might want to help out your cousin who just got their real estate license, this isn’t a common purchase condition right now, and it can go sideways in a number of ways.
- Find out as much as you can about the other home…via your agent. If you’re entertaining a Sale of Property condition, you’ll want to know what kind of property they have to sell, how much money they want for it and the condition it is in.There’s no sense in tying up your property if your Buyer has an unrealistic price in mind for their home or if there are other big objections that will get in the way of them selling.
- Find out as much as you can about the agent selling your Buyer’s own property. What’s their track record? Do they take professional photos? Stage? What kind of marketing do they do, beyond the MLS? If the successful sale of your home depends on an agent you didn’t hire, you’ll want to make sure they are equipped to do the job.
- Know the facts. If the Buyer’s property is already for sale, make sure your agent gets the FULL history of the home – not just the current listing. While it may appear that the Buyer’s property has only been listed for 21 days, this may well be the second or third listing for the home, and it’s been on the market for 150 days. Get all the facts before deciding whether to accept the condition.
Still have questions? Talk to your REALTOR!
Wilf Mandel says:
It’s also why I became Brian Madigan’s unofficial publicist.
Hi there! We accepted a conditional offer on our rental property (buyer has right of first refusal) and now our agent won’t agressively market the property! The way I see it, we’ve placed ourselves at great risk: if the buyer cannot sell his current home and the deal falls through, we lose our tenants and have to float all the expenses of the property without the benefit of rental income. In my view, the realtor should market the property aggressively to other prospective buyers in order to help mitigate this risk. I’ve asked him to lower the asking price on MLS, but he says he can’t do that because it is conditionally sold. That strikes me as odd. Can you advise whether he’s right or wrong about that?
Selling property in Ontario do you have to remove stickers on wall an super clean
Melanie Piche says:
It all depends on what’s in the Agreement of Purchase & Sale, but generally, the property needs to be in the same condition on closing as it was when the buyer made the offer.
As firm buyer B is it possible to pay conditional buyer A a small sum of cash in order to ensure that they pass on firming up and removing their conditions to take the property? Or is this kind of practice highly frowned upon?
Investors are looking at our house and others on our street. Are they reputable?
They have very long closing dates.
My buyer’s 1st offer, was $10,000 under what I was asking. I returned the offer…..saying I wanted listed price, and they accepted.
At the time they made the offer to me, they told me they would be listing their place for $499,900. When they actually listed…..they listed for $525,000
Seems to me that I agreed to a set of conditions, and seeing I didn’t give him that $10K……he just added it to his selling price, thus making his property harder to sell. That equates to us taking more risk.
Is the buyer allowed to do this??
Melanie Piche says:
Usually, the condition and terms of the sale (eg asking price) are outlined in writing in the agreement. You’d have to see what you agreed to in the contract.
Rob Ciccotelli says:
This clause was added to an offer I was making on a property. Can you explain it to me please?
“All Parties agree that in the event the seller is served notice to remove the conditions on the property that they are purchasing, he shall have the right to serve the buyer with 36 hours notice to remove any and all conditions contained in this agreement of purchase and sale. failing which this offer shall become null and void and the buyers deposit will be returned without interest or deduction.”
Brendan Powell says:
As always I’ll start by saying “talk to your realtor” since I don’t know the specifics of your situation.
While I haven’t seen that clause before, it sounds like the sellers themselves are also buying a property, and may have a conditional offer already submitted. It also sounds like that conditional offer may itself have an escape clause in it (see above for escape clauses), and they are nervous that if the escape clause could be triggered by THEIR sellers.
In plain terms: if their seller forced them to quickly “firm up” their own conditional offer to buy (so they would be 100% committed to that purchase), but YOUR offer to buy their house wasn’t yet firm (ie your conditions had not yet been wrapped up), they could potentially get caught having to commit without having the equivalent commitment from you. If you were to back out, they could be on the hook for their buy, but without the money from their sale to pay for it.
what I believe they are trying to do is avoid that by saying: “if THEY make us decide, then we will also need to come to you and ask you to make the same decision.” Unusual in the Toronto market, but understandable.
for a Seller, how do you word “On condition Seller finds suitable accommodations prior to the closing date”?
Melanie Piche says:
Your REALTOR or lawyer will be able to provide wording for that condition!
Karena Kirkham says:
You defined a “buyers market” incorrectly.
A buyers market occurs when there are more sellers than buyers.
Brendan Powell says:
You are correct! Good catch–that has now been fixed.