Sale of Buyer’s Property Condition Explained
SBP, or Sale of Buyer’s Property, is a condition that’s more frequently included in a buyer’s offer when the real estate market is more buyer-friendly than seller-friendly. It may also be more frequently accepted on homes that have been on the market for a while, and for homes with a smaller pool of prospective buyers; a hobby farm, a unique rural property, or a lavish century home are great examples.
Buyers with an existing home who are worried it won’t sell in time or won’t sell for the right price may choose to add an SBP condition to their Offer to Purchase. However, this doesn’t mean the seller will accept the offer or the clause itself.
It’s important to clearly understand this clause because it can have some serious implications for the marketing and sale of your home.
For starters, let’s clarify what it is. An SBP clause:
- Allows the buyer to basically put a temporary hold on the sale of a house they love while they work on selling their
own home. - Establishes a timeframe during which the buyer has to sell their home before the expiry, or waive the condition, otherwise the home becomes available again.
- Often includes a clause permitting the seller to continue marketing the home, and provides the buyer a first right of refusal should an acceptable offer be submitted during the SBP timeframe.
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, but most of the time, buyers had to make an offer without conditions of any kind.
The SBP condition allows the buyer up to a specified number of days to sell their property; failing that, they can get out of the deal and receive their deposit back in full, with no deductions.
How does the first right of refusal work?
Another clause that typically accompanies an SBP condition is the seller’s right to continue marketing their home for sale during the SBP period. Should the seller receive an acceptable offer, they will provide notice to the original buyer, giving them the opportunity to firm up the sale (waive or fulfill the SBP condition) or sign a mutual release. The latter would release both parties, permitting the seller to proceed with the new offer.
PRO TIP: Sellers can not simply accept a new offer during the SBP timeframe, even if it’s more attractive. The original buyer has control of the sale until either the time period for their decision expires, or until they finalize their decision within the timeframe.
The SBP clause in the original offer would have set out how long the buyer has to make this decision, but it’s commonly in the twenty-four to forty-eight-hour range.
As you can see, the clause favours the buyer, who essentially has nothing to lose. If the conditional offer is accepted and their home can’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 –depending on the wording of the Sale of Buyer’s Property clause, it would be very difficult to hold them accountable or prove that their decision was based on something else.
Now, the seller is 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.
Q&A | Sale of Buyer’s Property
Should I accept a condition on the sale of the buyer’s property?
Do you have a lot of interest in the home? How long have you been on the market and do think it’s reasonable that you will get another offer soon? Have other homes been selling? These are all considerations when deciding. If you’ve had good feedback and traffic, holding off on the offer may be wise, but lean on your real estate agent for advice.
What to find out if considering accepting a SBP condition.
Find out the property address, look at photos of it, confirm how much they’re expecting to sell for, ask their real estate agent for samples of other listings, and ask if they’re ready to list or if there will be downtime while they prepare the home. These are all important factors that could influence your decision.
What are the downsides of accepting an SBP condition?
When your home is listed as conditional, general interest from other people will diminish while they wait to see what happens. It’s likely that your real estate agent can’t continue renting staging furniture while the buyer tries to sell, meaning if things don’t come together, you’re incurring additional costs to restage, or you’re listing without staging at that time. If you’re on a time constraint, accepting this type of condition could put you in a time crunch if you end up back on the market
To wrap this up, there are a lot of considerations for both the buyer and, more so, the seller when considering offers with an SBP condition. We encourage you to consult with your real estate agent for their opinion, which will vary based on the type of home, the market you’re in, and the market conditions.
If you are considering buying or selling real estate in the next little while —up to a year down the road —let’s get started today with a free home valuation and a friendly chat to explain how KT can help you achieve your real estate goals.
