21 Jun 2016
Writing a Subject Free Offer?
Following are just a few rules and considerations.
It looks like a long list of things that could be potentially serious problems, but I assure you the full list is far longer. This is just the tip of the iceberg… an iceberg that more than a few people are heading towards or have hit.
Rule #1 – There is no such thing as a ‘pre-approval’.
Not in the sense that you can write a subject-free offer with 100% confidence. Anyone who tells you different does not know their job. So then, what is a pre-approval? It is little more than a glorified rate hold in most cases, perhaps a cursory review of your own personal good standing in very few cases. The missing ingredient from a pre-approval is the property. Without the property details, documents, and appraisal there is nothing to approve or pre-approve.
Rule #2 – Call your Dominion Lending Centres Broker and go over the MLS notes, pertinent property details (zoning, construction style, etc) and most importantly, the Property Disclosure Statement (PDS) in advance of writing your offer.
Rule #3 – Be certain that your Broker and your Realtor are having direct conversations with each other. You should not be in the middle; those two should be speaking directly. They are the licensed professionals in the equation. However, neither fully understands the nuances of the other’s job. Realtors are not current on various lending guidelines, and Brokers are not all current on contract updates (i.e., the recent changes around assignment clauses). For this reason it is vital that they are communicating with each other and not making assumptions about what is possible for the other.
For instance, the Broker may need to add a guarantor to your contract for your financing, but your real estate contract might prohibit that under the new assignment rules. Uh-oh.
Or the Realtor may negotiate a 7-day completion (happened to us last week) but your only ability to qualify may be through a lender with a 10-day policy. (No completions within 10 days is very common with Credit Unions.)
Rule #4 – Understand that no matter what your Broker, banker, Realtor, appraiser, lawyer, or accountant says… at NO time are you guaranteed financing simply because you are super-duper awesome. And I am certain that you are indeed super-duper awesome. The fact is that until the lender reviews and approves 100% of the related documents, you are at risk of not being approved.
Following in a partial list of reasons a lender will say no to the property, even though they love you.
- Self-managed stratas
- Commercial-zoned properties – C1 thru C8 zonings are ineligible with nearly all lenders (CD-1 is not commercial; many high-density areas in greater Vancouver will have this zoning)
- Age-restricted properties greater than 19+ – 19+ is a case by case exception.
- Condos with ongoing assessments or incomplete repairs
- Live/work or heritage zoning
- Log or floating homes
- Post-tension cable or condo conversions
- Rental pools
- Resort areas – Sun Peaks, Big White, Apex, Hemlock, Kicking Horse, etc.
- Rent-to-own deals
- Past grow-ops… even though the property has been remediated
- Purchases closing outside of 120 days
- PDS references to vermiculite insulation, asbestos, water leaks, septic system failures, non-potable water, large special assessments within the past five years etc.
The list of showstoppers and red flags goes on.
The subject-removal period is where we figure out the solutions to files with various wrinkles. It is the period where Realtors and Brokers too often converse and discover something new about each other’s limitations.
Without that subject-removal period there is no safety net, there is no filter. You are stuck with whatever you have unknowingly purchased.
Can you think of a better market in which an owner can list and sell a property with various defects, defects that become the subject-free buyer’s problem.
Call your Dominion Lending Centres mortgage professional BEFORE you write a subject free offer.