In the current hot market conditions, a common theme keeps occurring – I really like this property but it is going to multiple offers. Can I make a no subject offer?
I am going to address this issue here and give my advice on how to do this to limit any risks.
To begin, I would certainly advise against making a no subject offer. If you do this, and your offer is accepted, you cannot change your mind. You have no way to back out. No way to change your mind.
In a typical purchase scenario, you would make an offer with conditions. If the offer is accepted, you will have a certain time frame to satisfy yourself with these conditions. These conditions are usually things like a satisfactory building inspection, satisfactory financing, etc. During this period of time should any of the conditions not be satisfied you can back away from the offer. No obligation further.
The market today is not typical. It is so heated that many sellers want offers that have little or no conditions.
So how can you make a no subject offer and be assured everything will be okay?
Well, I suggest you do everything that needs to be done prior to the offer being made. Do the inspection. Get the financing 100% confirmed. Do ANYTHING AND EVERYTHING ahead of time to satisfy yourself that the property is right for you. No surprises.
Clients when I tell them this usually say two things:
- Well I was pre-approved for “x” amount and I am staying within that budget. So how can my financing not be approved?
- If I spend money on an inspection and my offer is not accepted, I would have spent money for nothing.
Let’s start with #2. You are spending hundreds of thousands of dollars on a property. Don’t you want to know the condition of it prior to making an offer? Would not any possible deficiencies (new roof required, possible furnace replacement, etc.) not factor into the actual price you would be willing to pay?
This is a must in my opinion. Remember once your no subject offer is accepted, it doesn’t matter that you discover thousands of dollars of repairs are needed and you don’t have the money. You are obligated to complete the purchase.
#1 Yes, you are pre-approved. Depending on whom you are dealing with they may have given you the budget based strictly on the information in the application you filled out. All of that still has to be confirmed and documented. Hopefully you are working with a mortgage broker who has asked you for all of this upfront during the pre-approval stage.
The one factor that most borrowers forget is that for financing lenders must APPROVE THE PROPERTY itself. If they do not like the property for any reason the request for financing can still be declined. What are some reasons they would decline a property? Some typical reasons are past grow op/drug lab, knob & tube wiring, possible major assessments coming in a strata purchase, oil tank on property, etc.
How would you then firm up the financing ahead of time?
This is what I do for a client. I have them send me the property information and ask them what the maximum offer they plan to make will be. I take this information, along with all the required documentation on income, downpayment, etc. and I work with a lender for an approval. AS IF THE OFFER WAS ACCEPTED ALREADY. The lender would verify everything including having the property valuation done. In many cases there is a cost for this as well ($300 and up depending on property) which you are responsible for. Again, a nominal fee in the overall picture.
If all goes well, you would already know your financing is 100% in place PRIOR to making the offer.
This may sound complicated. In reality it is not. All you are doing is what would typically be done once your offer was accepted with conditions. You are just doing things in “reverse” or ahead of time.
Working with a professional is a must. Be confident that once your offer is accepted there are no surprises and possible troubles.
I am here to help, give me a call with any questions!