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In simple words - not a good idea. 

You need to be well aware of all the risks that come with going condition free, and make sure you are making an informed decision.  Don't get caught up in the hype.   Everyone has varied tolerance of risk, so if you’re not prepared for the uncertainty that lies ahead with an ‘all-in’ offer, then subject-free may not be for you.

What is a subject-free offer?

Normally, you offer to buy the house subject to certain conditions being met to your satisfaction, or you will not proceed with purchasing.  Things like making sure you can obtain mortgage financing by a certain date, or that you have a professional home inspection to make sure there are no hidden (and expensive) repairs needed in the near future (such as new furnace or roof).

On the other hand, subject-free offers have zero conditions to be met for the deal to close. These offers are being presented more and more often in the hopes of making an offer more appealing than one with conditions.   

It’s no secret that in today’s rapidly moving real estate market, subjects are seen as dirty little contract provisions that no one wants to deal with. But it’s still important that your decision reflects your personal risk tolerance. Remember, with subject-free offers there are no guarantees.

Think of subjects as being your parachute

Typical subjects (or conditions) include things like financing, inspection, condo document review, and they are put in place to protect you, the buyer, should you ultimately determine that it’s not the best property for you.  As a mortgage professional, I can give you a pretty accurate indicator of the likelihood of you being approved, which will ease your mind a bit. But the final decision is up to the one with the money - your lender.

But nothing is 100%. Things can happen.

For example, what if that house you fall in love with turns out to be a former grow op, or because you had to pay well over the asking price, and the lender wants an appraisal which comes in below the purchase price, or you find out through there is a huge condo assessment coming on the condo building that the lenders won’t like? Or, what if an unexpected and sudden life event happens right in the middle of the offer process (job loss, family tragedy)?

What if you need to sell your current house to buy this property, but the offer you accepted falls through and you can’t sell it in time to close on the purchase? This could end up being a tricky (and expensive) situation if you don’t have the income to qualify for both properties, and it could force you to start looking at lenders with higher appetite for risk and with that appetite, high fees and interest rates that are potentially in the double digits.

Remember that subject-free means you’ve committed to buy that property no matter what

How to minimize your risk with a subject-free offer

There are ways to do subject-free more safely, but even following the steps below won’t eliminate all of the risk.  

  1. Work with an experienced Realtor and mortgage broker (me!!) who are working as a team with you (This is the most important piece of advice, in my opinion.)
  2. Get pre-qualified so you know your limit.
  3. Consider having an inspection done in advance of an offer.
  4. Get independent legal advice and/or consult with a lawyer in advance of making offer.
  5. Be prepared for (and comfortable with) all worst-case scenarios. This can include prepping a parent/family member to be a back-up co-signer, potentially increasing the down payment, or being prepared to go with an alternate lender at higher rates and fees.
  6. Have your insurance broker review the MLS on the property and confirm you will be able to get house and fire insurance on your property, as part of the condition of your mortgage closing will be to have fire insurance in place, and if you can’t get insurance, they won’t provide you with a mortgage.  Many insurance companies won't insure older houses with inadequate wiring (an inspection would have caught this)
  7. Steer clear of subject-free especially if you have less than 20% down. Why? Because Canadian mortgage law requires the mortgage to be insured by one of three mortgage default insurers, and if all three say no, (maybe the condo building has been red-flagged) then you’re out of financing options. 

So, what happens if you go subject-free and then can’t make the deal work? Unfortunately, it probably means saying goodbye to your deposit and hello to a potential lawsuit if the seller can’t sell the property for as much as you were willing to buy it for.

I know it’s tempting to press your mortgage broker for a decision before making a subject-free offer—it’s human nature to want 100% assurance that everything will be fine. But it wouldn’t be responsible or professional to give clients assurances without also highlighting the risks.  Afterall, while i will be able to give you a very good answer, I'm not the one loaning you the money so the final decision is up to the mortgage company.

As brokers, we work for you and have a duty to ensure that you understand exactly what kind of airspace you’re jumping into. 

That said, we know subject-free offers are very common in the current market environment, and as mortgage brokers, we are most equipped to provide you with the best risk-mitigating strategy as you navigate this market.