One of the hallmarks of a buyer’s market is the return of a conditional clause called the Sale of Buyer’s Property (or SBP for short).

As the name states, this clause makes the firm purchase of another property conditional upon the sale of their own home.

Here’s the typical wording of the clause.

This Offer is conditional upon the sale of the Buyer’s property known as ___________________. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than

It isn’t unusual for the conditional period end date to be two to three months away, as the buyer wants enough time in a slow market to make sure they can sell their own home at a price that allows them to move forward with the purchase of the other property.

While an SBP can be a useful approach to get a deal done, there are three rules that need to be followed in order for it to make sense for the seller.  Let’s get into it.

Rule #1 – Its gotta be a good offer.

This may seem basic, but it is surprising how often buyer agents don’t understand that in order for a seller to accept a SBP, it needs to be a good offer.  The reason for this is simple – a deal that is conditional for a number of months is inherently less appealing than a firm deal or a deal that has a short conditional period of a few days.  Here’s why:

  • A seller who accepts a SBP is entering into an extended period of uncertainty. They cannot make firm plans for their next steps, as the deal is conditional and may not take place.
  • In many cases, due to the nature of a SBP, the closing is longer than the typical 45 to 60 days you would see from a buyer who is ready to move forward with the purchase. If a longer close works for the seller, than this may not be an issue, but if the seller would prefer to move on quickly, a SBP is unappealing.
  • You’re putting your fate in the hands of other people, specifically the realtor that lists the buyer’s home for sale – and you better hope they know what they’re doing.
  • You’re missing out on the possibility of another buyer who doesn’t require this condition showing up and potentially a better deal.

Given the inherent drawbacks to accepted a SBP, an offer that comes in with this condition needs to make up for it in other ways.  The price, deposit and any other conditions need to be very appealing to make up for the uncertainty of delaying the sure sale of the home for months.

Rule #2 – The buyer’s place being sold better be…well, sellable.

We mentioned above how when a seller accepts an offer with a SBP condition, they’re relying on the agent that the buyer hires to sell the property in question.  Whenever we’re entertaining the possibility of a SBP condition for one of our seller’s we have a very frank conversation about who is listing the buyer’s property for sale.  If it is an inexperienced or discount agent with no track record – or even worse, a poor track record – it makes it even riskier to sign off on the deal with this condition.

In addition to the agent who we’re trusting has the ability to sell the buyer’s home in a timely fashion, we also need to look at the property itself.  The type of property (condo or freehold), the style (detached, semi-detached, townhouse, etc.), the attributes (does it have enough bedrooms, washrooms, parking and so forth) and the condition (updated or just dated) all play into how long it can take for a property to sell.

In essence, if a seller is going to agree to a deal with a SBP condition, they basically need the listing agent for the buyer’s property to present to the seller.  If you wouldn’t ever hire that agent to sell a home, or it’s a property that is largely unappealing to the majority of the market, then saying no to the deal is the best approach.

Rule #3 – The conditional deal has to include an escape clause.

Our final rule has to do with a way to somewhat mitigate the downsides of accepting a deal with a SBP condition.  There is a clause that can and should be inserted in all deals that are conditional upon a SBP, and that is what’s called an escape clause.

Here’s the wording for it.

Provided further that the Seller may continue to offer the property for sale and, in the event the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto. The Buyer shall have __________ hours from the giving of such notice to waive or remove this condition by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction.

The number of hours for an escape clause is typically either 48 or 72 hours, so it gives the original buyer two to three days to either waive the condition and firm up the deal, or they have to let the deal die.

We’ve previously written about escape clauses in detail and you’re welcome to read that article here so you understand how they work.

The great escape!

By including an escape clause in the Agreement of Purchase and Sale along with the SBP condition, it does a few things of benefit to the seller.

  • It allows the property to be marked SCE (sold conditionally with an escape clause) rather than SC (sold conditionally). While many buyers don’t want to see a home that is sold conditionally, for fear of falling in love with a property they can’t buy, a home that is marked SCE is much more likely to be able to be bought.  Escape clauses are only really added for conditional sales with long conditional periods, so it communicates to other agents that this home is still very much available.
  • It puts pressure on the buyer to actually get their home sold. When a buyer knows that at any moment, the seller of the home could receive an offer and negotiate it, it means that the urgency is there for the buyer to price their home aggressively and to seriously make the efforts necessary to get it sold.
  • Finally, and most fundamentally, it allows the home to be continued to marketed in an appealing fashion to other buyers. Good buyer’s agents know that a home that is sold conditionally with an escape clause is likely a deal that was only accepted because the seller had no other options.  If a new buyer arrives with the ability to offer a firm deal in a timeframe that suits the seller, it is often very much of interest to the seller.

While including an escape clause doesn’t mitigate all of the negatives of accepting a deal with a SBP condition, it does make it more appealing for the seller.

If you’re thinking about buying or selling in the current market and want to work with agents who understand how creative solutions can sometimes be the way forward, then get in touch with us!