Feature article

How to weigh up conditional offers when selling

Conditional offers aren't all bad, here's how to navigate them.

As house hunters continue to enjoy a buyers’ market in 2023, conditional offers are something vendors should be prepared for as buyers take the time to tick many boxes before signing on the dotted line. As the vendor, you and your agent will work together to compare these conditional offers and choose which buyer is your best bet.

What you’ll learn:

  • How to weigh up a variety of conditional offers on your home.
  • How to eliminate the need for conditions
  • How to make the best of an offer conditional on the sale of a house.

If you’re selling in the current environment, chances are very high that you’ll attract a number of conditional offers on your home (even if you start out with the plan to sell to cash buyers at auction). You can prepare for this scenario by providing potential buyers with as much information on your property as possible prior to them making an offer. It saves them having to go and find it themselves.

Even if you're hoping to sell to a cash buyer, be prepared for conditional offers.

Most common conditions to expect

Conditional offers aren’t all bad. Being open to a conditional offer can enable the buyer to act quickly in a “by negotiation” situation, says Craig Lowe, Managing director of Lowe & Co in Wellington. Rather than waiting for the due diligence process, the buyer can put a conditional offer in and potentially cut out any buyers coming in later.

The most common conditional offers you’ll see are:

  • Subject to finance
  • Subject to seeing the Land Information Memorandum
  • Subject to due diligence
  • Subject to solicitor’s approval
  • Subject to valuation for the lender
  • Subject to a builder’s report
  • Subject to the sale of a property

Buyers are more interested in making conditional offers in the current market because they don’t want to incur the cost of getting a valuation (sometimes $2000) or a builder’s report (up to $1000) if they don’t think their offer is going to be accepted, says North Shore Harcourts agent, Ian Cunliffe. A good agent will also suggest to their vendor client that they shorten the time frames for some elements of the due diligence. “We may reduce the period to get the LIM to seven working days, under general terms this type of due diligence is usually 20 days. A building report and a LIM should be able to be done within 7 working days, while finance can take up to 10 business days,” says Ian.

But the big condition to watch out for is the offer which is subject to the sale of a property, says Ian.

Lean on your real estate agents expertise, they'll explain conditions and any implications to the seller

In this situation, the first thing your agent will do is take a look at the property the buyers intend to sell, and gauge the likelihood of it selling in a difficult market. If it’s a market they don’t know well, they’ll call an active agent in the relevant neighbourhood and ask for their estimate on how easy the home will be to sell.

As the vendor, you’ll also want to know how quickly it will take the potential buyer to get their house ready for sale if it’s not already on the market, says Ray White agent, Scott Wither. Out of a handful of conditional offers on a property at the moment, he estimates around 25% would be offers conditional on the buyers selling their own home.

“We would want to know if they had an agent, and how far away from “market ready” the home is,” he says. If there’s a two week lag time, before the property goes on the market and then six weeks is the shortest time the property will take to sell, that’s a long time for the vendor to wait.

If the conditional buyer is open to your agent or your agent’s firm selling their house, that can be attractive to vendors and their agent team. As Scott says, that gives the vendor confidence that their agent has got control over the process rather than relying on a third party. The Ray White agent warns that once the property is sold the conditional buyer may well change their final offer when they go unconditional so that’s something else to anticipate.

Bonus tip: The vendor and their agent will always negotiate a cash out clause when agreeing a conditional offer which gives the conditional buyer a certain number of days’ notice if they have received another signed contract, and the conditional buyer will have to come up with an unconditional offer if they are to secure the property. Usually the conditional buyer will want 10 days’ notice but for the vendor you’ll want to negotiate a maximum of five days, say agents.

Things you can do to negate the need for conditions

There are steps you can take when preparing the house for sale which will preempt some of the conditions buyers might ask for. So, for instance, getting the building report and LIM report done prior to putting the home on the market, is a good idea. Though of course buyers are still advised to organise their own building report.

“The reason for getting a building report is not to sweep anything under the carpet, it’s about discovery,” says Craig Lowe. And if anything comes up, you can choose to fix it, disclose it, or price anything that needs doing.

Be ready to present absolutely everything, says Scott – the LIM, the property file, the title, the sale & purchase document, as much as possible so when you do get an offer, it’s approved by the bank. Also, says Ian, be very clear on what chattels will stay with the house. If you’re taking a lot with you, buyers will want to know this.

What the REA says about conditional offers

Assessing a variety of conditional offers, you’ll be looking to your agent for their expert advice. Licensed real estate agents are expected to help their clients understand any of the conditions on offer, says Belinda Moffatt, chief executive of the Real Estate Authority.

The real estate professional can explain the conditions to the seller so they know what the implications might be, but the seller should always get legal advice before signing a sale and purchase agreement, and a licensed real estate professional must also recommend this to the seller, she advises.

Offers with conditions are to be expected in a more balanced market or when restrictions, such as more stringent lending criteria, are in place, says Belinda.

The REA chief executive points out that sellers can also add conditions to a sale as well as negotiate conditions put forward by a prospective buyer and the seller’s real estate professional is there to help with this process.

She also encourages buyers to take professional advice before making an offer and to think carefully about the long-term financial implications of the purchase.

“Buyers need to consider whether they can bridge finance between buying a new property and selling their own house (if they have one) and whether they can meet the ongoing costs if interest rates rise, or unexpected house maintenance costs are incurred. This is where due diligence and finance conditions can be a valuable method of consumer self-protection,” says Belinda.