What is SBP in Real Estate?

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What is SBP in Real Estate

Sale of Buyer’s Property, otherwise known in real estate as SBP, is becoming a more common clause in today’s changing real estate market. This clause isn’t one you see daily, or that gets talked about a lot. But it is becoming more prevalent in real estate sales transactions as the market has shifted to more of a buyers’ market –as one would expect.

Buyers with an existing home, who are worried that it won’t sell in time or sell for the right price, may choose to add an SBP condition in their Offer to Purchase.

However, it’s important to clearly understand this clause because it has some serious implications.

Should you Include a Sale of Buyer’s Property Clause

Here, we’ll examine whether you should consider submitting an offer with this condition as a buyer or accept a conditional offer as a seller.

For years, if you were trying to buy a home in the GTA, not only would the sale of your property not be accepted as a condition, most of the time, buyers had to make an offer without conditions of any kind.

The only time you’d see an SBP condition would be in certain specialized segments of the market. An example would be buying a $3 or $4 million rural property that had been on the market for six months. If you’re the seller and you get an offer conditional on the buyer selling their home, you’d likely consider it because you don’t have a line-up of other prospective buyers.

The SBP condition allows the buyer up to a specified number of days to sell their property, failing which they can get out of the deal and get their deposit back in full without deductions.

Another clause typically accompanies an SBP condition, allowing the seller to continue to market the home during the 30-day time frame. However, if another buyer comes forward with an offer, even for more money, the original buyer would have a first right of refusal to firm up the offer and purchase the home.

Here’s a case that went to court in Peterborough, Ontario, where the sellers could not accept a better offer for this reason.

As you can see, the clause favours the buyer, who essentially has nothing to lose. If the conditional offer is accepted and their home doesn’t sell for the amount they want, they don’t have to commit to buying the house.

The buyer could get cold feet at any time during the negotiated period. Maybe they have unrealistic expectations of what their home is worth. Maybe they’re only now going to the bank to get mortgage approval and find out the only rate they can get is much higher than anticipated. In this scenario, they can list their home, say they didn’t get any acceptable offers, and be released from the deal free and clear.

On the hand, the seller is now back to square one. If the deal hasn’t gone through, and their home’s been sitting on the market for a month or more with limited exposure, it means dealing with the stigma and potential buyers wondering what’s wrong with it.

Sellers and their agents need to do due diligence. Ask questions and find out who’s representing the buyer, their track record, the type of home they’re selling, and how saleable it is; also, do they have reasonable expectations?

What Happens When Your Home is Sold Conditionally?

If your home is listed as conditional, its exposure will dramatically decrease. When agents see the word conditional, they may not even bother to look at what the conditions are. They’re much less likely to show it to their clients because they think the deal will probably go through, and they don’t want to waste their time.

The SBP clause is a good one to be educated on. Even most courses and programs for real estate agents don’t cover it. It takes a long time to attain the knowledge and experience to become comfortable with this seemingly simple condition.

Inspired? Confused? Comment.

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