The 7 Most Common Home Buyer Conditions Explained

November 3, 2022 7:00 am Published by Terry Paranych Real Estate Group

Home buyer conditions are clauses in your real estate contract that allow you to back out of the deal if certain stipulations aren’t met. Sometimes referred to as buyer “contingencies,” these conditions are important as they both streamline the purchase process and help you protect one of your largest investments.

Here’s what you need to know about the top common home buyer conditions and how they may affect your next home purchase.

Making an Offer on a Home

When making an offer on a home, your Real Estate Purchase Agreement will include the following, as per the Canadian Mortgage and Housing Corporation (CMHC):

Your legal name, name of the seller and address of the property being purchased
Purchase amount being offered (purchase price) and deposit amount
Items you’d like to have included in the purchase price (i.e., window treatments, appliances, furniture and/or other fixtures)
Your possession (closing) date
Request for Real Property Report (RPR)
Offer expiration date
Any buyer conditions/contingencies that must be met before the contract is finalized

Making a Contingent Offer When Buying a Home:

Contingencies are determined in a home buyer’s official Real Estate Purchase Agreement. While there are no hard and fast rules on which conditions you may choose to include, too many stipulations may cause a home seller to reject your offer, especially if there are other interested buyers. However, opting to wave contingencies to make your offer more competitive may result in buyer’s remorse. For these reasons (and more), it is critical to partner with an experienced Edmonton REALTOR® who can help you decide which clauses should be included based on current market conditions.

Once your offer is presented to the seller, they may choose to counteroffer. Here too, a qualified agent is an integral part of the process, as they will negotiate with the seller on your behalf and minimize the potential for a rejected offer. If your offer is accepted, you will likely make an earnest money deposit (this will vary, but usually falls between 1 and 5% of the home’s overall purchase price) as a “good faith” payment. The deposit will then be kept in escrow and released to the seller once all contingencies are met.

1. Home Inspection Condition

This condition allows the buyer to hire a professional to inspect the home from top to bottom (within a specific timeframe) and report back regarding any deficiencies they find.

Because home inspections are essential for protecting you from unforeseen problems, this is a standard clause in most real estate contracts. They can provide the buyer with a little more wiggle room during the negotiations process – either by asking the seller to complete the repairs before moving ahead (more on that below) or for a reduction in the home’s overall sale price.

This contingency also provides buyers with a convenient “out” should the inspection reveal any major deal-breakers.

Here are a few common items home inspectors look for during a typical real estate transaction:

Exterior:

Exterior yard space (water drainage and disbursement, grading, retaining walls, pathways, etc.)
Roofing and chimneys
Exterior walls and siding
Garage and/or carport
Foundation
Etc.

Interior:

Windows and doors
Heating and cooling systems
Plumbing and electrical systems
Attic and insulation
Walls
Ceilings
Floors
Basement
Etc.

2. Cost-of-Repair Contingency

The cost-of-repair contingency works hand-in-hand with the inspection condition listed above. This clause specifies how much it will cost to rectify any problems or defects revealed in the home inspector’s report. If the necessary repairs exceed the outlined dollar amount, the buyer may renege on their home buying contract. This contingency may also work conjointly with an appraisal condition.

3. Appraisal Condition

The appraisal clause is typically tied in with the financing contingency mentioned above. As a condition of your mortgage loan approval, your lender will require that the home’s fair market value be appraised – ultimately ensuring that the property’s value is true to the amount of loan you’re applying for.

Should the property prove of lesser value than the home’s sale price, the appraisal condition sees that your interests are protected – either by allowing you to renegotiate the sale price or step away from the deal entirely.

4. Financing Condition

Another common condition for buyers is the financing or mortgage contingency. In a real estate contract, this clause indicates that the home’s purchase depends on the buyer getting a mortgage. Even if you’ve already been pre-approved for a mortgage loan, this is still a critical stipulation, as you will be required to obtain final sign-off from your lender (remember, a pre-approval helps, but it isn’t a 100% guarantee).

This clause may also specify the type of financing you want or need to secure for the home’s purchase in addition to financing terms and the timeframe in which you must receive your mortgage loan.

Besides providing a way out of the contract, this condition will also prevent you from losing any money you may have fronted in the process. This clause works in unison with the appraisal contingency, as the lender will want to know how much the property is worth before issuing a loan.

Note: A home appraisal is not the same as a home evaluation or market assessment. A market assessment is performed by an Edmonton real estate agent and provides an estimate of your home’s value based on location, condition (to be confirmed by an inspection and appraisal) and 30-to-90-day market conditions. For more information, see our previous post: What is a Home Evaluation and Why Do I Need One?

How much is your home worth? Find out with our Free Home Evaluation!

5. Title Condition

A home’s title is a legal record of who has owned the home to date. It also provides information on any judgments or liens on the property that may need to be paid before the transaction can move forward. Should any problems arise, your lawyer will attempt to work these out on your behalf. However, if these issues prove unresolvable, this condition will (once again) allow you to walk away free and clear.

6. Home Sale Condition

It’s not uncommon for buyers to have to sell their current home to come up with a down payment for the new one. This condition allows you to do just that. Under this contingency, if you’re unable to find a buyer for your old home within a certain period, you’ll be able to bow out of the deal without losing any of the funds you may have put down in earnest. There are two types of home sale contingencies:

Sale and Settlement Contingency – This clause depends on the sale and settlement of the buyer’s home. In this scenario, the buyer will have time to market their property, but the seller may continue to list their home. This allows the seller to accept another offer if the buyer cannot sell their property within a specific timeframe (approx. 48 hrs).

Settlement Contingency – A settlement contingency may be applied when a buyer has an offer on their existing home and has set a closing date. This clause typically prevents the seller from taking any additional offers and protects the buyer should the sale of their current home fall through.

Note: Home sale contingencies may work against you in a multiple-offer scenario. If possible, secure the necessary financing before beginning the search for your next home.

7. Home Insurance Condition

The home insurance condition may apply to either the buyer or the seller. This contingency stipulates the home buyer must provide proof of homeowner’s insurance for the property in question. If the buyer is unable to obtain insurance, either the buyer or the seller can back out of the offer. Proof of home insurance may also be required by the mortgage lender before issuing a mortgage loan.

Are you thinking about buying a home in Edmonton? Check out our FREE Edmonton real estate resources!

The Terry Paranych Real Estate Group Buyer Guide – We’ll walk you through the home buying process from start to finish.

20 Common Mistakes to Avoid When Buying a Home – Save money, time and stress when purchasing your next home by avoiding these common home buying mistakes.

A Step By Step Guide For Buying Your First Home – The ultimate guide to buying your first home in Edmonton.

Six Essential Tips That Make Home Buying More Affordable – Our best-kept secrets to making your next home more affordable.

The Terry Paranych Real Estate Group Home Buyer Blog – From mortgage and financial tips to home buying advice and market information, we are the go-to resource for all things home buying in Edmonton.

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Originally published Oct 14, 2020, updated Nov 3, 2022

Photo credits: shutterstock.com

Tags: buying

Categorised in: Buying a Home

This post was written by Terry Paranych Real Estate Group