If you're searching for real estate, chances are you've been in touch with a listing agent who informed you about the status of a property on MLS or Realtor.ca as either "Conditionally Sold" or "Sold Firm." Additionally, some conditionally sold properties may have what is called an "escape clause" included in the conditions.
When making an offer on a property, it's common to attach certain "conditions" to the offer. These conditions can vary but typically include one or more of the following: home inspection, financing confirmation, review by a lawyer, or the sale of the buyer's property. Once the seller accepts the offer, the buyer provides a deposit and has a brief period (usually 5-10 business days) to conduct a home inspection, secure financing, and make a decision on if they will be proceeding with the purchase. When all the conditions are fulfilled or have been waived, the deal becomes "firm," meaning the buyer has no option to back out and keep the deposit. If the buyer decides not to proceed, they get their deposit back, and the property will likely to be re-listed on the MLS.
A common question that arises is: Can another buyer make an offer on the same property while the deal is still conditional and not yet firm? Generally, the answer is no. However, there are instances where an "escape clause" allows for another offer during the conditional period. The purpose of the conditional period is to give the buyer the opportunity to make an informed purchase, confirm financing, and inspect the property, ensuring they will proceed with the purchase on the closing day, typically 30, 60, or 90 days later. Without an escape clause, the buyer can fulfill the conditions and make the deal "firm" at any time within that 5-10 business days or whatever the length of the conditional period is.
So, how does the escape clause work? It is written into the offer (Agreement of Purchase and Sale) primarily for the seller's benefit, especially if the buyer requests an extended conditional period of 15 days or more. Often, an escape clause is included when the buyer needs to sell another property before purchasing the seller's property. If there is an escape clause, another potential buyer can submit an offer. If the seller wishes to accept the new offer, they must give the original buyer a chance to waive or fulfill their conditions within a short timeframe (e.g., 24, 48, or 72 hours). At this point, the original buyer can meet the conditions, making the initial offer firm and excluding the new buyer. However, if the original buyer cannot reasonably fulfill their obligations, the seller can proceed with the second buyer, effectively replacing the first buyer. In this case, the seller has "escaped" from the first offer to accept the second offer.
It's important to note that the original buyer always has the option to proceed with the deal, but it may involve financial risks, such as managing two mortgages for a period of time while selling their original home.
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