What is a Subject to Sale Offer?

In real estate, a subject to sale offer is one that contains a condition that a buyer adds to their offer to purchase when they want to sell their current home prior to making the offer on their next home unconditional.

A subject to sale offer minimizes the risk that the buyer will have to move into rental accommodation and then move again when they find their new home, or bear the cost of carrying two homes at the same time.

For obvious reasons, a subject to sale offer can provide a lot of comfort to home buyers.  However, in Victoria, offers with a subject to sale condition do not typically put home buyers in the strongest negotiating position when it comes to price, closing dates and other terms.

Subject to sale offers are not as attractive to sellers compared to offers that don’t contain a subject to sale condition, because the seller has no guarantee that the buyer’s current house is going to sell.  As such, when inventory is low and it is a sellers’ market, which we experienced in Victoria for most of 2021 and 2022, subject to sale offers were very seldom accepted by sellers. However, in a buyers’ market when there is an abundance of inventory, or in a balanced market when the ratio of sales to active listings is between 14-20%, we tend to see an increase in subject to sale offers being accepted.

When acting for home sellers there are several factors we discuss with our clients prior to advising on whether they should accept a subject to sale offer.  If they decide to accept a subject to sale offer, we ensure the contract also includes a time clause for the home seller’s benefit.

A time clause is a provision in the contract which gives the seller the right to continue to look for a second buyer for their home, and if they enter into a contract with that second buyer, the seller has the right to give the first buyer a notice. Then the first buyer has a certain number of hours in which to either: (1) remove their subject to sale condition and any other conditions still outstanding under the offer and proceed to purchase the home; or (2) terminate their contract with the seller, in which case the second buyer purchases the home.

When working with home buyers who want to make a subject to sale offer, we will discuss strategies that will help make your offer attractive, but also protect your interests including the length of the subject to sale condition, the time clause, and any other condition of the contract including financing and inspections.  We also suggest that our home buying clients see if they can arrange interim or bridge financing so that if the time clause is “called” before they sell their own home, they can complete the purchase of the new home provided they are prepared to carry the costs of both homes at once.

Each of our clients has their own unique needs, financial situation and risk tolerance which must be considered when it comes to subject to sale offers.  Whether working with a home seller or a home buyer, we can discuss the best strategy based on current real estate market conditions and your unique situation to help you sell your home and/or buy the next one on the most favourable terms.