Sellers often have to accept ‘subject to’ offers on a property. What does this mean for the buyer and seller?
In any sales agreement, there are some clauses that can cause a certain amount of confusion. In terms of property sales, a common clause included in many agreements is that the sale of the property is subject to the sale of another property. This is a suspensive condition, meaning that the sale of a property is contingent upon the sale of another property the purchaser owns. If the sale of the purchaser’s property does not take place, the sale lapses, and therefore no cancellation of such a sale is necessary.
When selling a home on the condition that the sale is subject to the sale of the purchaser’s property, it means that the purchaser needs to sell their property in order to raise funds to pay the seller. Should the purchaser not sell their property, it means that the seller has, technically, not sold their property.
Things can go wrong, which is why the “subject to the sale of another property” clause in any offer to purchase should include a condition to protect the seller. The intention of any seller when they put their home on the market is to sell the house and receive payment as soon as possible. When accepting a “subject to” offer that includes a simple term such as “this offer is subject to the sale of the purchaser’s property, Erf 333 Homestead, within 60 days,” it means that the seller is bound to this one purchaser for 60 days and cannot sell to another buyer within this period. Should the purchaser not sell their property within the allotted time, the seller’s home is placed back on the market.
To protect both the buyer and the seller, the terms and conditions in the offer should state that the “subject to the sale of another property” clause is limited to a certain period of time, which needs to be realistic. The seller should also be able to continue marketing their property within this period. Should the seller receive another offer during this time, they need to give the existing buyer an option to eliminate the subject-to condition. The seller should also have the right to accept an offer with better terms and conditions. This way, both parties’ intentions are clear, and both parties are protected, ensuring that neither wastes the other’s time.
The advantages of the “subject to” clause for the seller would only really apply if they are still allowed to market the property and maintain control over which offers can be accepted. The practitioner should look after the seller’s interests regarding a “subject to” sale.
“Subject to” clauses can be much more advantageous for the buyer, as the purchaser who is not in a position to pay for the home without receiving funds from the sale of their current home is protected by the clause. However, the purchaser should not eliminate this clause unless they have other means to pay for the property.
A disadvantage for the purchaser is that another buyer who has sufficient funds available immediately may come along and buy the property. However, if the procedure is followed properly and all parties abide by the clauses of selling a home “subject to the sale of another,” it should be straightforward. There are a few golden rules that are important to remember in this process:
- The purchaser, who needs to sell their property within 60 days, should put their property on the market at a realistic market value to ensure it sells within the given period. The Property Practitioner selling such a property should provide the purchaser with ample information to establish a realistic market value.
- The buyer should not blame anyone if they are unable to compete with a cash offer. The purchaser should accept that they have not sold their home and that the seller’s intention is to receive the money from the sale of their home as soon as possible.
Another point of importance for sellers to note is that it is common practice, especially in cities where people move from one suburb to another to be closer to schools, etc., that most purchasers are not in a position to purchase other than with a “subject to” condition.
In general, it has been observed that a “subject to” offer normally comes in higher than a cash offer. The reason for this seems to be that the purchaser often believes they can get more for the property than its worth, only to find out later that the unrealistic price cannot be achieved.
