Time Clause Offer Explanation
This was an obvious blog topic for us at the moment, as 3 of our listings currently have this type of accepted offer in place.
From a Buyer’s perspective:
- the offer will contain all the usual Buyer’s Conditions to protect your interests (ie. building inspection, financing, reviewing a property disclosure statement, etc), usually due off within 7-14 days of acceptance
- an additional clause, or Time Clause Form (depending on the realtor’s preference/style), is attached to the offer, usually due off within 30-60 day
- this “Subject to the Sale of _____” clause will have an attached time frame (ie. 24, 48, or 72 hours to remove all conditions - marking the property as officially SOLD
- these are all dates/terms, like any other, than can be counter offered by the Seller and considered by the Buyer
- you can lose negotiating power on other terms of the purchase contract (price, deposit, dates etc.)
- another Buyer and their Buyer’s Realtor can bring a new offer to the Seller and “invoke” or “bump” your Time Clause. You, as the first Buyer, then have the agreed upon time period (ie. 24, 48, or 72hrs) to decide to collapse/release your offer, or lift all of your conditions
- some Buyers will have prepared for their time clause to be “bumped” and might have already spoken to their lender and decided they would risk lifting all conditions prior to selling their current property (some can bridge, some can borrow against their current property, some can buy cash, etc)
From a Seller’s Perspective:
- consider how sellable the Buyer’s current property is (look to your Listing Realtor for guidance), is it already on the market
- is the Purchase Price worth the “risk” (negotiate a price you feel is appropriate
- a shorter Time Clause is to your benefit (ie. 24 hours is better for you than 72 hours - it will encourage other Buyers to emotional invest and take the “risk” of bumping your Time Clause and being tied to it until they find out if the first Buyer lifts conditions
- most Buyers will still want to see your property, even with the knowledge there is a time clause (in fact, knowing how desirable the home is to another purchaser, may encourage them to book a private viewing)
- this offer can lead to uncertainty in timing, and therefor may require your flexibility. Your Buyers do not know in advance what Completion & Possession dates the future Buyers of their current home will need, it is harder to nail down a firm Completion & Possession date on your home. Their initial offer will usually set for a longer than average closing to allow for this, but once they sell their property, they might ask to revise and renegotiate on those move-in dates.
- As you begin shopping for your next home, you risk falling in love with a property that you cannot have (or write an offer that you also need to include a Time Clause).
- If you receive a 'back up offer' from another Buyer, you can choose to Invoke the Time Clause on the first offer. You might decide to do that if the new offer is the same or higher than the Time Clause offer. At that time, you would request that the buyer with the first accepted offer remove all conditions or withdraw in order for a new accepted back-up offer to move into first position.