Understanding ‘Subject To’ Clauses for Real Estate Transactions

Published August 27, 2019 by Real Estate Leads

As is the case with any profession, there’s a whole lot of terminology that newcomers need to get up to speed with understanding, and do so as soon as possible. The bulk of them will be answered thoroughly during your real estate licensee training before you get your license, and as we’ve said so many times knowledge is persuasion power when it comes to both doing your job well AND attracting new clients who will be more likely to see you as reputable IF you obviously know your stuff.

Here at Real Estate Leads, our Canada online real estate lead generation system is an excellent way to put you in those situations – more specifically, where you have the opportunity to convey your real estate expertise to prospective clients. If you’re new to the business, it’s an excellent investment into putting the power of the Internet to work for you and giving you a leg up on meeting people who are genuinely interested in buying or selling a home.

But back to topic, a Subject To is one of the most common qualifying conditions that will be attached to the sale of a home, and as the listing realtor they’re definitely a ‘big deal’ as more often than not failing to meet the Subject To conditions means the offer will quickly be dead in the water. So it goes without saying that having an airtight understanding of them is really going to benefit you.

Subject To ____, Not Subject 2

That heading is chosen there because it’s not that this is the 2nd of a list of subjects. Rather, it’s the sale is subject to (condition being met as stipulated by potential buyer submitting offer). That’s the first important distinction you should be making here.

In terms of property sales, a common clause that is included in many agreements is that the sale of the property is subject to the sale of another property. This is what’s referred to as a suspensive condition, and that means that if the sale of a property is subject to the sale of another one, then if that event does not take place the transaction lapses and the buyer would not have to initiate any further cancellation of transaction proceedings, either through their realtor, the brokerage, or a financial institution.

Most often, this simply means that the purchaser needs to sell his property in order to raise funds to pay the seller. Do note that many realtors will insist that any ‘subject to the sale of another property’ clause in any agreement should include a condition to protect the seller, if that’s who they’re representing.

When accepting a ‘subject t’ offer which includes only a simple term like stating the offer is subject to the sale of the purchaser’s property within, say, 60 days then that will mean that the home’s seller is bound to this one purchaser for 60 days and that they cannot sell to another buyer within that time frame. If the home does not sell to that buyer within the allotted period, the seller’s home then goes back on the market.

Time Limitations are Important

As a means of protecting the buyer and the seller, a good realtor will ensure that the terms and conditions state that the ‘subject to the sale of another property’ clause is limited to a certain period of time. The home seller should be advised to keep on marketing his property within this period. It’s also common if another offer is received within the period to then give the existing buyer an option to eliminate the subject to condition.

It’s also standard for sellers to have the right to accept an offer with better terms and conditions.

Subject To Advantages

Subject To conditions benefit sellers when they are still allowed to market the property and if they are able to maintain control over the offers that can be accepted.

Obviously, there’s much more to gain for potential home buyers. This is especially true when the purchaser is not in a position to pay for the home without receiving funds from the sale of his current home, as mentioned. It’s common knowledge that the purchaser should never eliminate this clause unless he has other means to pay for a property.

In addition, there is always the possibility of another buyer who has sufficient funds available immediately coming along and offering to buy the property. There are 2 rules that come into play with subject to clauses, and they are as follows:

Rule 1:

The purchaser has a fixed time frame where they need to have the property sold by a certain date. They then put the property on the market at a realistic market value in order to sell within the given period. The estate agent selling such a property should give the purchaser ample information to establish a realistic market value.

Rule 2:

This one applies when the buyer is not able to compete with a cash offer. In this instance, the buyer should then accept that they have not sold their home and the intention of the seller is to get the money from the sale of his home as soon as possible..

More often than not, would-be buyers have no other choice but to purchase with a “subject to” condition, so be prepared to work with them – a lot. Understand as well that subject to offers normally come in higher than cash offers, and that puts some pressure on the home owners for obvious reasons. Do they take the sure thing (cash offer) or do they roll the dice and hope the subject to offer works out?

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