Making an offer “Subject to Sale” on a property means that you’re offering to buy a home on the condition that you can sell your own.
Why do buyers make subject to sale offers?
There’s lots of reasons. But the primary one seems to be that they’re fearful of selling and then not finding something else they want to buy.
Does buying subject to sale work?
The short answer is: rarely. Trying to buy subject to sale is the fastest way down the slide to home buyer disappointment. Even more so when it’s a seller’s market. Why? Because a subject to sale offer will almost always be trumped by a subject to finance or cash one. If you’re buying subject to sale, you’re in the minority. Most sellers won’t even consider your offer unless you’re prepared to pay a lot more than everyone else. And if you’ve had your offer accepted at an inflated price, you’ve probably added that extra money to the sale price of your own home, reducing your chances of selling. Alternately, you could find yourself under pressure to take a lower offer than you’d budgeted for. Either way, it’s a financial risk. Ouch.
And then there’s the two business day condition…
If you are one of the lucky minority that’s had a subject to sale offer accepted, it will usually be subject to a two business day condition.
What does that mean? It means that the seller can continue to market their property to other buyers and accept another offer.
If that happens, which it usually does, you’ll be issued with a notice giving you two business days to either remove your subject to sale condition, or, in some instances, make your offer completely unconditional (you need to read your contract!). If you can’t remove the subject to sale condition or go unconditional, your offer comes to an end and the new buyer gets the property. Sucks right?!
So what do you do?
You sell first. Or, you strap in knowing that it’s likely to be a long, and unfun, ride.
But I don’t want to risk being homeless!
You don’t need to. Remember that when you sell your home you can ask for a longer settlement period so that you’ve got time to find another property. There might also be an opportunity to rent your home back – you don’t know who your buyer might be and what their circumstances are. And you’ve always got the option of renting, which might be a great way to try out an area you think you’d like to live in first, before committing to buy. Explore your options and have a Plan B in place so you don’t feel pressured and make the wrong purchase.
What about a bridging loan?
If you’ve got sufficient equity and income, you may qualify for a bridging loan that will enable you to buy a new property subject to finance and then sell yours. You’ll need to consult your bank or broker to see if you qualify. The risk with this strategy is that you’ve bought something else without knowing for certain what yours will sell for. This could mean ending up with a much bigger mortgage than you wanted or can comfortably afford. My best advice is to seek professional advice on the risks and factor in the worst-case scenario when it comes to the potential sale price of your own home. Interest rates may be historically low now, but they’re not going to stay that way.
So what next?
If you’re intent on only buying subject to sale, all good – be aware of the risks, familiarise yourself with the process, and accept that you’re in for a rollercoaster ride. Alternately, you could try to find a property that’s off-market where the seller is in a position and happy to give you time to get yours sold. They’re rare, but they’re around.
For me, I’ll always suggest going the safer route of selling first. That way, you know exactly what you’ve got to spend, be in a strong negotiation position, and dramatically increase your chances of buying your dream home.
Whichever you choose, good luck!
Photo from Canva.
Natalie Hoye is the Founder and Licensee of Red Fox Property Group – a boutique agency doing things differently in the suburbs surrounding Beaufort Street. We call what we do ‘real estate alchemy’: a genuine blend of science and intuition, marketing and magic, head and heart. The Red Fox Way. We’d love to chat with you about your local real estate needs. Call us now on 0405 812 273.