An accepted offer does not always mean that every question surrounding the purchase has already been answered. Buyers may still need to confirm financing, investigate the physical condition of the property, review condominium documents or obtain information about another matter that could affect their decision. Sellers can also have circumstances that require contractual protection before they are prepared to proceed unconditionally.

Conditions provide a way of addressing some of that uncertainty within the Agreement of Purchase and Sale. Rather than requiring a buyer or seller to resolve every issue before negotiating an agreement, the parties can agree that the transaction will proceed subject to a particular matter being satisfactorily addressed within a specified period of time.

That makes a condition considerably more than a few additional lines in an offer. A properly considered condition identifies something that still needs to be determined and provides a contractual framework within which that investigation or decision can occur.

Not every transaction requires the same conditions, and adding conditions simply because they are commonly used is no better than removing them simply because a seller prefers a cleaner offer. The appropriate conditions depend upon the property, the parties, the information already available and the risks that still need to be understood.

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What Is a Conditional Offer?

A conditional offer is an offer containing one or more provisions that must be addressed according to the terms of the agreement before the transaction proceeds without that particular protection. The condition will normally identify the matter being investigated, the party for whose benefit it exists, the period available to address it and what documentation or notice is required afterward.

Conditions are frequently included for the benefit of buyers because purchasers often need information they cannot reasonably obtain before making an offer. Financing and home inspection are familiar examples, but condominium documents, insurance, water quality, septic systems, zoning or other property-specific matters can also justify investigation.

Sellers can have conditions as well. A seller may need to obtain legal advice, resolve another contractual matter or retain some other protection appropriate to the circumstances. Conditions are ultimately negotiated terms, which means the other party does not have to accept them merely because they have been requested.

For both sides, the important question is not simply “Is this a conditional offer?” but “What uncertainty does this condition address, and what needs to happen before it can safely be removed?”

Professional Insight

I think conditions are best understood as decision-making tools. If there is something material that a client does not yet know, an appropriately structured condition can provide time to obtain the information needed to make the next decision. The objective is not to insert as many conditions as possible; it is to identify the uncertainties that matter to this particular transaction.

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Common Conditions and Provisions You May Encounter

The following are examples of conditions and related provisions that commonly arise in residential real estate. They will not all be appropriate for every transaction, and the wording should reflect the actual circumstances rather than simply being copied from another offer.

Financing Condition

A financing condition gives the buyer an opportunity to determine whether satisfactory financing can be obtained for the proposed purchase. This can involve considerably more than asking a lender whether the buyer qualifies for a mortgage of a particular amount. The lender may also need to evaluate the property, confirm the borrower’s financial information and, in some circumstances, obtain an appraisal before being prepared to fund the transaction.

That distinction becomes particularly important when a buyer has already received a mortgage pre-approval. A pre-approval can provide useful information about borrowing capacity, but it does not necessarily mean the lender has approved the particular property being purchased. The property’s value, condition, location or characteristics may still affect the lender’s decision.

During the conditional period, the buyer should therefore be working with their lender or mortgage professional to determine whether the proposed financing is satisfactory and whether any material requirements remain outstanding. The important question before removing the condition is not simply whether the buyer has spoken with a lender, but whether the buyer is sufficiently comfortable with the financing arrangements to assume the contractual obligation of proceeding without that protection.

Professional Insight

I would be cautious about treating a mortgage pre-approval as though the financing decision has already been completed. The lender has two things to evaluate: the borrower and the property. A buyer can be financially qualified and still encounter a financing problem with the particular property they have agreed to purchase.

Home Inspection Condition

A home inspection condition gives the purchaser an opportunity to have the property examined by an appropriately qualified home inspector before becoming fully committed without that protection. The inspection can help the buyer better understand the visible condition of major building components and identify issues that may require maintenance, repair or further specialist investigation.

The purpose of the inspection should not necessarily be to produce a list of minor deficiencies for renegotiating the purchase price. Virtually every property will have maintenance items or imperfections. The greater value is helping the purchaser identify matters that could materially affect the decision to proceed, the cost of ownership or the need for additional investigation.

If the inspector identifies something significant — perhaps evidence of water penetration, electrical concerns, structural movement or an aging major system — the next step may be to obtain more specialized advice rather than immediately deciding whether to proceed or terminate. The inspection condition needs enough time to allow that process where the circumstances reasonably require it.

A buyer should also understand the limitations of a home inspection. It is generally a visual assessment rather than a guarantee that no concealed problem exists. Understanding both what the inspector found and what could not reasonably be inspected is therefore part of making an informed decision.

Appraisal and Property Valuation

An appraisal can become important when the lender needs independent support for the value of the property being used as security for the mortgage. This is particularly relevant where a buyer has agreed to pay considerably more than comparable sales might support or where the property has characteristics that make valuation more difficult.

Suppose a buyer agrees to purchase a property for $1 million but the lender’s acceptable appraisal supports a value of only $950,000. The lender may calculate the available mortgage using its accepted value rather than simply the purchase price. The buyer could therefore need additional cash to complete the transaction even though their personal financial circumstances have not changed.

For that reason, appraisal risk is often closely connected with financing risk. Buyers should understand whether their financing arrangements depend upon an appraisal and what they would do if the lender’s valuation were lower than the amount they agreed to pay.

This is also important for sellers considering an unusually high offer. The highest price offered may look particularly attractive, but if the buyer requires substantial financing and the property cannot support that value for lending purposes, the apparent advantage may introduce additional transaction risk.

Condominium Status Certificate Review

When purchasing a condominium, the buyer is acquiring more than the physical unit. The purchaser also becomes part of the condominium corporation and assumes rights and obligations arising from that ownership structure.

A condition dealing with the status certificate can provide an opportunity for the relevant documentation to be obtained and reviewed, often with the purchaser’s lawyer. The review can provide information concerning common expenses, the corporation’s financial position, reserve fund information, insurance, rules, litigation and other matters that may affect the ownership.

This information can be important even when the unit itself appears to be in excellent condition. A beautifully renovated condominium may still exist within a corporation facing financial, legal or operational concerns that are not apparent during a showing.

The purpose of the condition is therefore not simply to obtain a status certificate. It is to provide an opportunity to understand the condominium ownership the buyer is proposing to enter before proceeding without that protection.

Sale of the Buyer’s Existing Property

Some purchasers need the proceeds from their existing home in order to complete the next purchase. A condition on the sale of the buyer’s property can address that circumstance by making the new purchase conditional upon the existing property being sold within an agreed period.

From the buyer’s perspective, this can reduce the risk of becoming contractually obligated to purchase a second property without having successfully sold the first. From the seller’s perspective, however, it introduces uncertainty because completion of their transaction now depends partly upon another property being sold.

This is why sellers may be reluctant to accept this type of condition, particularly in a strong market or where other buyers are prepared to proceed without it. Where the seller does accept the condition, an escape clause may sometimes be negotiated so the seller retains some ability to respond if another acceptable buyer appears.

The condition therefore requires both parties to understand the chain of transactions being created and how long each is prepared to tolerate the resulting uncertainty.

Escape Clause

An escape clause can be used where a seller accepts an offer containing a longer-lasting buyer condition, commonly a condition involving the sale of the buyer’s existing property. Rather than taking the property completely out of the market while waiting for that condition to be satisfied, the agreement may allow the seller to continue considering other offers.

If another acceptable offer is received, the original buyer may then be given a specified period in which to remove the relevant condition and proceed with the purchase or allow the seller to move toward the alternative transaction, depending upon the actual wording of the agreement.

This arrangement attempts to balance competing interests. The first buyer receives an opportunity to satisfy an important condition, while the seller avoids being indefinitely prevented from responding to another purchaser.

The details matter considerably. The parties need to understand what event activates the clause, how notice must be provided, how much time the original buyer receives and exactly what the buyer must do within that period. An escape clause should therefore be understood through its actual wording rather than through the general idea that the seller can simply “take another offer.”

Lawyer Review Condition

Some transactions involve legal questions that should be considered before the client becomes fully committed. A lawyer-review condition can provide an opportunity for the appropriate legal advice to be obtained within a defined period.

This may be particularly useful with unusual title circumstances, estate transactions, complex ownership arrangements, private agreements, unfamiliar contractual provisions or other situations where the client’s decision depends upon understanding a legal issue.

The value of the condition comes from obtaining advice while the client still has contractual options. Having a lawyer explain an issue after the transaction has already become firm can certainly help the client understand their obligations, but it may be too late to change whether those obligations should have been accepted in the first place.

Insurance Condition

Buyers sometimes assume that property insurance will simply be arranged shortly before closing. For most conventional properties that may be relatively straightforward, but some homes can present insurance difficulties because of their age, construction, electrical system, heating source, claims history or other characteristics.

A property that is difficult or unusually expensive to insure can also create a financing issue because lenders commonly require satisfactory property insurance as a condition of advancing mortgage funds.

Where there is reason to anticipate a concern, an insurance condition can give the purchaser an opportunity to determine whether appropriate coverage is available on acceptable terms. This is particularly worth considering where the property contains unusual features or where something discovered during due diligence suggests insurance availability should not simply be assumed.

Water and Septic Conditions

Rural and some semi-rural properties can introduce due-diligence considerations that do not normally arise with municipally serviced homes. A purchaser may want information about the quality or quantity of the water supply, the condition of a well or the operation and condition of a private septic system.

A water-related condition may provide time for appropriate testing, while a septic condition can allow the purchaser to obtain information or inspection concerning the private sewage system. These investigations can be important because correcting a significant well or septic problem may involve substantial expense and, depending upon the property, regulatory considerations.

The condition should be structured around the information the buyer actually needs. Simply inserting the words “water test” or “septic inspection” without considering what will be tested, who will perform the work and what result is considered satisfactory may not adequately address the underlying concern.

Land Survey Review

A survey can provide information about property boundaries, the location of buildings and improvements and, depending upon the document, other features affecting the property. This can become particularly useful where fences, sheds, pools, additions, driveways or other improvements are located close to property boundaries.

A purchaser who has a particular concern may therefore want an opportunity to review an existing survey or obtain appropriate professional advice about the property. In some circumstances, a new survey may be warranted, although the time and cost involved should be considered when structuring the transaction.

The survey should not be confused with a home inspection. An inspector is principally examining the physical condition of the building and accessible systems, while a survey deals with different questions concerning the land and the location of improvements.

Professional Insight

Property boundaries tend not to receive much attention when everything appears normal. They become considerably more important when a fence, addition, driveway or other improvement turns out not to be where someone assumed it was. Where boundary information matters to the buyer’s decision, it is better to investigate the question while the transaction still provides an opportunity to deal with the answer.

Zoning or Intended-Use Condition

A purchaser may be attracted to a property because they intend to use it in a particular way. That can create a problem if the buyer assumes that because the property physically accommodates the intended activity, the use is necessarily permitted.

This is especially important where the purchaser intends to operate a home occupation, create or use an additional dwelling unit, undertake substantial renovations or use the property in some way that could be affected by municipal zoning or other requirements.

An appropriately structured condition can provide time to investigate whether the intended use is permitted and whether additional approvals may be required. The municipality, lawyer, planner or other appropriate professional may need to become involved depending upon the issue.

The important point is to investigate the use the buyer actually intends, rather than merely confirming the property’s current appearance or use.

Fixtures and Chattels

Fixtures and chattels are not necessarily conditions in the same sense as financing or inspection, but they belong in this discussion because they frequently become important negotiated provisions within an offer.

If the buyer expects appliances, window coverings, lighting, shelving or other items to remain with the property, the agreement should make the parties’ intentions sufficiently clear. Similarly, if the seller intends to remove something that a buyer might reasonably expect to remain, identifying that exclusion can prevent a disagreement later.

Rental equipment also deserves attention. A furnace, water heater or other system may appear to form part of the property while actually being subject to a rental or contractual arrangement.

These details can look relatively minor when compared with the purchase price, but uncertainty about what stays and what goes can create unnecessary disputes immediately before closing. Clear documentation is considerably easier than trying to determine afterward what everyone remembers being discussed.

Cleanliness and Property Condition on Closing

Buyers sometimes request that a property be professionally cleaned or left in a particular condition before closing. Whether such a provision is appropriate depends upon the transaction and what the parties are prepared to agree upon.

The challenge with a general requirement such as “property to be left clean” is that buyers and sellers may have very different ideas about what clean means. If professional cleaning is important to the purchaser and the seller agrees to provide it, the contractual wording should communicate that expectation clearly enough that both parties understand the obligation.

The same principle applies to other promises concerning the property’s condition at closing. If something is sufficiently important to become part of the negotiated transaction, clarity about what is expected can reduce the possibility of a last-minute disagreement.

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Conditions Should Match the Property and the Client’s Objectives

A list of common conditions can be useful, but it should never become a checklist automatically inserted into every Agreement of Purchase and Sale. The appropriate conditions depend upon what is already known, what remains uncertain, what the property requires and what risks matter to the client.

A condominium buyer may require status-certificate review but have no need for a well-water condition. A rural buyer may care considerably about the well and septic system but have no condominium documents to investigate. A buyer with substantial cash resources may view financing differently from someone whose ability to complete the purchase depends heavily upon a particular mortgage structure. A purchaser planning an unusual use may need zoning investigation that would be irrelevant to someone simply continuing the property’s existing residential use.

Conditions should therefore emerge from the transaction analysis, not from habit.

This also means there can be legitimate negotiation over conditions. A buyer naturally wants enough protection to investigate important uncertainty, while a seller may reasonably prefer fewer conditions, shorter timelines and greater certainty that the transaction will close. Neither position is inherently unreasonable. The Agreement of Purchase and Sale is where those competing objectives are negotiated.

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A Condition Is Only Useful If You Use the Time Properly

Once a conditional agreement has been accepted, the clock begins running. The conditional period is not simply time to wait before deciding whether to make the transaction firm. It exists so the investigation contemplated by the condition can actually be completed.

Financing documents should be delivered promptly to the lender. Inspections should be scheduled. Status certificates should be obtained and sent for appropriate review. Insurance questions should be investigated. Where another professional needs to provide advice, that person should be brought into the transaction early enough to provide meaningful assistance before the deadline.

If an investigation identifies another question, there also needs to be enough time to determine what should happen next. An inspector may recommend evaluation by an electrician or structural professional. A lawyer reviewing condominium documents may identify something the purchaser needs to consider. A lender may require additional documentation or an appraisal.

The condition period is therefore part of the buyer’s due-diligence process, and managing it properly can be just as important as negotiating the condition in the first place.

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Removing a Condition Should Be a Deliberate Decision

As the deadline approaches, the client needs to decide what to do with the information that has been obtained. Depending upon the wording of the agreement and the circumstances, the condition may be fulfilled, waived, extended by mutual agreement or otherwise dealt with according to its terms.

This is an important decision because once a condition has been appropriately removed, the protection it provided may no longer be available. A buyer should therefore understand what has been confirmed, what remains uncertain and whether they are prepared to accept the remaining risk before proceeding.

That does not mean every question needs a perfect answer. Real estate transactions always contain some degree of uncertainty. The objective is to ensure that the client understands the information reasonably available and makes the decision consciously rather than removing the condition simply because the deadline has arrived.

Where the legal consequences are uncertain, the appropriate lawyer should be consulted before the decision is made.

Professional Insight

One of the questions I think a client should be able to answer before removing a condition is: “What did we need to learn, what did we actually learn, and am I comfortable proceeding based on that information?” If those questions cannot yet be answered, the approaching deadline does not make the underlying uncertainty disappear.

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Conditions Affect Sellers Too

Conditions are often discussed entirely from the buyer’s perspective because many common conditions exist for the purchaser’s benefit. Sellers, however, also need to understand what each condition means for their transaction.

A conditional sale contains uncertainty until the relevant conditions have been dealt with. The seller may have stopped actively negotiating with other buyers, begun making plans for another property or incurred expenses in anticipation of closing while the purchaser is still conducting due diligence.

This is why sellers should evaluate the quality and practicality of conditions when considering an offer. A well-qualified buyer requesting a reasonable period for a legitimate financing or inspection concern may present a very different risk from an offer containing vague, unusually broad or unnecessarily lengthy conditions.

The seller should understand what the buyer needs to accomplish, how long the uncertainty will continue and what happens if the condition cannot be satisfied. That information belongs in the offer comparison alongside price, deposit, closing date and the other terms of the proposed transaction.

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Final Thoughts

Conditions are an important part of Ontario real estate transactions because they provide a structured way of dealing with questions that cannot always be answered before an offer is negotiated. Financing, home inspection, appraisal, condominium documentation, insurance, property boundaries, well and septic systems, zoning and the sale of another property can all create legitimate uncertainty that may need to be investigated before a buyer or seller is prepared to proceed without protection.

The condition itself, however, is only the beginning. The wording needs to address the actual concern, the time allowed needs to be realistic, and the conditional period needs to be used to obtain the information necessary to make the next decision. When the deadline approaches, removing the condition should follow an informed assessment of what has been learned and what risk remains.

For sellers, conditions also form part of evaluating the quality of an offer. Price matters, but so do the number, scope and duration of the conditions and the likelihood that the purchaser will be able to complete the transaction. An offer that appears strongest based solely on price may not necessarily provide the best combination of value and certainty.

There is therefore no ideal list of conditions that belongs in every transaction. The appropriate conditions emerge from understanding the property, the client’s objectives, the information already available and the questions that still need answers.

That is where professional representation becomes particularly valuable. The objective is not to make every transaction more conditional or less conditional. It is to identify the uncertainties that genuinely matter, provide an appropriate opportunity to investigate them and help the client understand the decision that needs to be made when the answers become available.

Guidance for Smarter Real Estate Decisions.

This article provides general information about conditions and provisions commonly encountered in Ontario real estate transactions and is not legal advice. The legal effect of any condition depends upon its specific wording and circumstances. Buyers and sellers should obtain advice from their REALTOR® and, where legal interpretation or advice is required, an Ontario lawyer.

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