What is "Subject to Sale"?

The frequent conundrum in real estate is how to transition from the house you're in to the house you want. While it is sometimes possible for a buyer to take on the new home while marketing their current property the costs can be intimidating and may limit your financing options.

Debt to income ratios and lienable assets are prevailing factors in this type of situation. We'll address Debt to Income and qualifying for a loan in a separate blog.

A subject to sale offer is one where an offer to purchase is submitted to the Seller with all of the normal terms, except we also list as a term in the language of the agreement that your purchase is subject to you having a contingent free offer (one that’s accepted, through inspections and appraisal) on or before a set date on your current residence.

Typically, the seller will require a Bump or 48-Hour Clause; this says if the Seller’s receive another offer that they deem more attractive (i.e. cash, more money, combination of both), they can serve us notice that we either have to remove the contingency of subject to sale or step aside and let the other offer become binding for the new buyers, as is noted by the term 48 hour clause; it also sets a time limit for our response. They cannot renegotiate any terms but can ask for what’s called specific performance (remove the contingency or release the property). This is a way for us to come to an agreed upon price on the house and not have to deal with competing bids.

The downside is things like inspections will need to be done and paid for prior to us getting our house under offer. So if we don’t close or get “bumped,” we are out that money. Also, there will be a point where we’ll also need to pay for the appraisal of the property we wish to purchase, which again is paid out regardless of whether or not we close. The buyer does NOT lose their earnest money if they are bumped by another offer.

Normally we would write the offer for a 60 day closing (the longest we can lock an interest rate) and a subject to sale clause of 4-5 weeks. In this case, if we got an offer right away we could certainly move the closing up if the home is vacant. Also, if the sellers have not received any other offers they may be willing to extend our offer but we would have to re-lock our interest rate at some point.

As a subject to sale as a “what if” offer, we do tend to lose a little negotiation power, as we’re asking them for help rather than having our property under offer and being able to write an offer and say, “This is our offer, if you counter it we may take our money elsewhere because we have to close.” There’s an immediacy there that a seller with a vacant house doesn’t want to lose. It doesn’t mean I can’t work a good deal, it just means I have to play the negotiation a little different.

This may have created as many questions as it answered, but that's a good thing! Throw them out and I'll do my best to answer. Have a great weekend and don't miss:

Artapolooza downtown CF- http://preview.tinyurl.com/94hxnr9

UNI vs Central State- http://tinyurl.com/bqdyftq

Pony Club Dressage and Fun Show- http://tinyurl.com/95mjkew

and if you're at Park to Park 2012 Saturday morning please say HELLO!

See you soon!

Steve