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Home Buying 101: Understanding the SBP Condition

SBP

If you’re planning on buying a new Waterloo Region home and selling the one you already own, you may be worried that your home might not sell in a reasonable time for the price you want. If so, you may want to consider buying a home with an SBP (subject to the buyer selling their property) condition in your Offer to Purchase.

SBP’s are somewhat controversial. Much of the time an offer with a house-sale contingency is frowned upon, but sellers today are accepting house-sale contingencies a little more often. The fact is that some sellers are happy to see a good viable offer from great people and are often willing to accept the contingency if everything else lines up.

So why are SBPs so divisive? Here’s a brief look at the “Pros” and “Cons” of using an SBP clause in an offer as a buyer to help you understand a little more

The Pros of SBPs

The condition generally allows you up to 30 days to sell your own home, or you can back out of the purchase and get your deposit back

You now have peace of mind, knowing that if your home does not sell, you can walk away and not be stuck owning two homes

Although the Seller can continue to offer their home for sale during the approximately 30 day time frame an SBP allows, not many buyers want to compete against an SBP offer, as they will assume if the Seller accepted it, it must have been a great price and any other buyer would have to probably equal or beat it with no conditions.

In addition, if another buyer does come forward with an offer that the seller likes, you still have the first right to firm up your offer (by removing your condition) and keep the home.

The Cons of SBPs

Many sellers really do not like this clause, as it ties up their property and you, as a buyer, can still walk away from the deal. In reality, it is rarely accepted by sellers whose home is fresh on the market and is most often used on homes that have been listed for some time.

Because you get to buy the home on what might be seen as a “layaway” plan, the sellers generally want you to pay top dollar, so as a buyer, using this clause often removes your chance to negotiate the price.

The seller can still offer their home for sale and if they get another offer they like, they can bump your offer. You generally have one to two days to firm up your deal and keep the home, or walk away and let the other party buy it instead. This can be frustrating because you are being asked to firm up your offer on a deal where you had little negotiating power on price and you may not have sold your own home yet.

You may have financing and or home inspection conditions in your offer. Since they are generally only about five-day conditions, you have to take care of them. Meaning, for example, paying about $500 for a home inspection and meeting with your lender about financing for a home you might not buy.

All in all, many would say there are probably more “cons” then “pros” for buyers using this condition, but if it helps you sleep at night not worrying about owning two homes, it may be for you.

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