We’re all accustomed to hearing the words “condition” and “term” bandied about when discussing contracts. The two words are often interchanged as though they’re synonymous, however there are crucial differences between a condition and a term in an Offer to Purchase.
Put simply, conditions need to be satisfied or waived prior to a specified deadline in order for the sale to go forward, while terms are obligations to be performed as part of the contract.
Conditions have a time and date by which the action must be completed, referred to as the ‘condition date.’ If the condition date passes without the condition being waived, it effectively ends the deal.
In the above excerpt, the buyer has two conditions: a financing condition and a property inspection condition (without a schedule). The buyer has until 9pm May 16th to satisfy their two conditions.
If the buyer is unable to get financing approved or if they are not happy with the outcome of the inspection, they won’t waive conditions and the deal dies. A non-waiver notice may need to be completed.
Reasonable efforts need to be taken to satisfy conditions. If a party does not act reasonably (ie. the buyer neglects to apply for a mortgage altogether), then they are at risk of losing their initial deposit and may be liable for other damages.
On the other hand, if the buyer wants to proceed with the purchase, a notice must be signed outlining the conditions being waived. This signed notice must be communicated back to the other party identified in Section 12 of the contract before the condition date, in this case May 16th by 9pm.
Although less common, sellers can also have conditions written in the Offer to Purchase. Some examples include backup offer situations or if the sellers need to verify some information such as the cost of work that the buyer wants undertaken at the seller’s expense.
Additional terms of sale are obligations that need to be performed by the buyer, seller, or both and are written in section 7.6 of AREA’s residential purchase contract.
A common term added by buyers is that they will be permitted access to the to the property the day before closing for a prepossession walkthrough.
Terms usually have monetary penalties to ensure that the other party performs what is required of them. For example, let’s say the buyer wanted the house professionally cleaned before possession. A term might look something like this:
The Seller agrees, at their expense, to have the home professionally cleaned prior to the possession date. The seller will leave the receipt behind on the kitchen counter. The Buyer’s lawyer will hold back $500.00 in trust from the sale proceeds which will be returned to the buyer if the home is not professionally cleaned by possession date.
Notice this term has two parts: a required action and a consequence for not complying. Unlike a condition, if the seller didn’t abide by the term (ie. professionally cleaning the home) it would not kill the deal.
Understanding the difference between a condition and a term is essential and only a small aspect of the real estate transaction. I would be glad to represent you as either a buyer or seller’s agent. Feel free to contact me at 403-554-2284 or at firstname.lastname@example.org