Why Unconditional 'Cash' Offers are Risky Business for Alberta Homebuyers

This week the Real Estate Council of Alberta (RECA) issued a bulletin warning homebuyers about the risks of making condition-free (a.k.a. 'cash') offers. As the Alberta real estate market continues to break records, it's common for buyers to find themselves competing in multiple-offer scenarios. In an effort to compete, buyers are submitting offers with no conditions.

But is this a wise strategy, or is it akin to panic buying?

The majority of offers in a normal real estate market contain both inspection and financing conditions. Additional conditions can be included, such as sale-of-buyer's home or due diligence on some other matter the buyer is concerned about. Conditions protect buyers in a number of ways, namely from having to break a legally binding contract.

In short, a buyer's condition is an 'out' if the buyer can't satisfy specific needs--such as a mortgage--prior to going final on the purchase.

A buyer's condition is for the benefit of the buyer. In turn, the buyer is obligated to act in good faith to meet that condition. If the buyer is not satisfied because for example, he could not get financing for the subject property, the buyer may choose not to waive that condition. The deal then collapses, the buyer (usually) gets his deposit back, and the seller looks for another buyer.

Let's say, however, the same buyer makes a condition-free offer but does in fact need financing to purchase the home. Let's also say that despite a pre-approval in hand, there is a snag with the financing and the buyer cannot get a mortgage on that home. Now what? If the buyer backs out, not only could she lose her deposit, she could get sued by the seller.

Who wants to risk getting sued? At that point, all homebuying plans are on hold indefinitely.

I was a real estate agent for 11 years. Writing an offer as 'all cash' with no conditions is not the only way to win in a competing offer situation. The best agents know this and will look for ways to structure and present a client's offer so that it captivates both the seller and their agent.

Homebuyer Pro Tip: A fully underwritten pre-approval strengthens your negotiating position. An unqualified buyer can offer whatever price they want in order to impress a seller, but if the buyer can't secure mortgage financing at the end of the day, the price offered is worth zero.

Watch my video below and make sure you're fully informed before taking on this kind of risk with your home ownership journey. Then give us a call or shoot me a text and let's get you pre-approved!