Unconditional Contracts: All You Need to Know
After buying a subpar and overpriced property through an unconditional agreement, a client came to us to help them through their next purchase. We realized that they could have bought the same property for, at least, 15% more. Or, better still, avoid it altogether.
As you can imagine, signing an unconditional contract is quite tricky and could land you in a deep financial mess.
But, is it totally a bad idea to sign an unconditional contract? Or could it, sometimes, be a smart way to seize an opportunity? Find out all these and more in this post.
What is an unconditional contract?
An unconditional contract simply means there are no preconditions binding the completion of the purchase. That means neither the buyer, the seller, the property or any third party has to meet any requirements for the completion of the sale. And… no party can back out once an unconditional agreement is signed.
To fully understand what an unconditional contract means, let’s briefly talk about the flip side of the coin; conditional contracts.
What is a Conditional Contract?
Contrary to what happens in unconditional contracts, proposals and bids sent in for the procurement of a property are usually bound by the fulfillment of certain conditions outlined in the contract. Contracts of this nature are called a Conditional Contract.
Usually, these conditions are outlined in the contract to protect the buyer or give them the flexibility to pull out of the deal and consider other options.
For instance, a Conditional Contract may include that the property has to score a pass mark on building and pest tests. If these results show that the property is infested with termites or will be needing expensive renovations, then the buyer is free to call off the deal without any penalty.
Another possible clause in a conditional contract is the “Subject to Finance” clause. This means if a prospective buyer fails to secure funding from the bank or lenders, they can simply walk away. No penalties.
Clearly, these conditions are helpful in protecting the buyer in case the property is not what it seems to be. Or eventually fail to obtain the funds needed to complete the purchase. However, unconditional contracts have some juicy advantages and that’s why some buyers may opt for this contract type.
Benefits of Unconditional Contracts
In a fast-paced, highly competitive market like Brisbane, there’s quite some pressure on buyers. Everyone’s scrambling for the next available house within their budget and some are turning to presenting sellers with unconditional contracts.
Here’s some of the benefits:
- Sellers love unconditional contracts, since it just about means the deal is already sealed. That means your proposal will stand out among many.
- Reduces your risk of being outbid or gazumped out of a property you love
- An unconditional agreement may help you steal the deal at a cheaper price.
- Speeds up the home buying process
Risks Associated with Signing an Unconditional Contract
1. Loss of Flexibility
As a buyer, you’re looking to get the best deal on the market. Whether you’re buying a place to call home or an investment property, nothing beats a home that ticks all your boxes and is going at a great price.
Imagine a scenario where, after spending some time searching for the ideal property, you finally find one that’s just good enough. You’re exhausted from the search and just can’t wait to close the deal. Then while you’re at it, you find a better option. Better conditions, better location, better price. If you had already signed an unconditional contract on the first property, then you just have to go with it.
However, if there are a few conditions on your contract, you may find a loophole to help you pull the plug on the deal and go with the better option.
It’s the flexibility that these conditions give you. Unconditional contracts are rigid, so be careful before putting pen to paper.
2. You may lose your deposit and face a lawsuit
In the event that you can’t proceed with the purchase for whatever reason, you lose your deposit and may be sued for damages.
For instance, if you get denied by the lender and can’t provide as much as was stated in your unconditional offer, your deposit is gone! And so is the property. So having no protection from financial uncertainty is probably the biggest risk associated with unconditional contracts.
3. Problems with Property
An unconditional contract usually allows you no time to conduct building assessment tests. That means you risk purchasing a property and eventually discovering underlying problems.
It’s not uncommon to close a deal on an unconditional contract and find that you need to spend quite a fortune on pest control or building renovation. These are problems that could have been solved by the buyer or, at least, factored into the cost of the property. But once the contract is signed, all parties have to abide by the dictates of the contract.
4. Risk of buying an overpriced property
With little time to analyze and evaluate the building, buyers may end up paying more than it’s worth. It’s pretty common with desperate rookies, especially in an auction. Frantic efforts to sweeten the deal and successfully close have seen real estate newbies in Brisbane part with a few to tens of thousands more than a property’s worth.
Putting an overvalued property under contract may reduce your chances of getting a loan from the bank. Without the loan, you may default on the contract and face a series of problems.
If you’re considering signing a conditional agreement in Brisbane’s real estate market, it’s not the worst idea in the world but you have to do it with caution.
First, make sure a background check has been conducted on the house and you already know more than what the real estate agent has to say. Because, like I clarified in this post (What’s the difference between a real estate agent and a buyer’s agent?), the real estate agents are NOT on your side.
Also, ensure there’s zero doubt about your access to the funds for financing the purchase.
Finally, and most importantly, you need experienced buyer’s agents in Brisbane to help you decide whether a property should be secured using an unconditional contract or some other means. What matters most is, you buy a property you love, at a great price and with zero hassles.
We can help you make your home buying journey as stress-free as it gets, and you won’t have to break the bank. In fact, our fees pay for itself because we help you save money on your purchase. Looking to buy a property in Brisbane? Get in touch.