Making Offers: The Power Of Being Unconditional
In This Week’s How's The Market | Edition 67
Making Offers: The Power Of Being Unconditional
The Final Stretch
Melbourne House Prices Forecast To Jump 12% in 2025
Making Offers: The Power Of Being Unconditional
So you’ve finally found a property that ticks all the boxes and you want to put in an offer. Today we’re going to outline the differences between the two different types of offers; conditional and unconditional.
I guess the clue is in the name here. A conditional offer means an offer that has been put forward given that certain conditions are met. An unconditional offer is an agreement that the property will be purchased in its current state. A conditional offer is obviously more favourable to the purchaser while an unconditional offer is more favourable to the vendor.
Typical conditions that you might put forward with your offer include:
Finance: subject to finance approval
Inspections: subject to a building and pest inspection
Settlement dates:
Obviously, an unconditional offer is nearly always going to be more enticing to the real estate agent and vendor if you are in a bidding war with another buyer so getting your finances sorted and inspections completed before putting in an offer is a great way to ensure you don’t miss out.
If you have put in a conditional offer and a condition is not met within the disclosed time period the contract then becomes void. Buyers should also be aware that if all conditions are met, then they are obligated to go ahead.
When making offers on a property, it is very important to remember that negotiations are not all about price.
Oftentimes, when we are successful in the purchase of a home, we have offered a lower amount than some of the other buyers with interest.
We have also missed out on properties with higher offers than other buyers due to terms or settlement dates.
So in this article, we are going to break down the difference between a conditional offer and an unconditional offer, how much these could be worth and how you can use them to your advantage.
Though first and foremost, all of these conditions will have a vastly different worth depending on the vendor’s circumstances.
This is why we believe the most important thing you can do in a negotiation is to find out why the vendor is selling.
If they are selling because they have already purchased another home and need this property to settle prior to their new purchase, an unconditional offer will be worth a massive amount more, than if they are selling one of five of their investment properties and are simply cashing out to retire or go on holiday.
The biggest piece of advice I could give is to really understand and ask many questions about why the vendor is choosing to sell, even if the agent may at first be hesitant.
Finance Clause
This is the big and obvious one that may be outside of your control, especially if you are a first home buyer with a low deposit.
Our recommendation is to have a great mortgage broker and ask them many questions regarding where they believe you would be able to purchase up to without a finance clause.
They may say you are able to purchase up to X without a finance clause, but if you’re going over, we believe you could get lending up to X but you would need to have a finance clause.
A great way to do this is by asking them what they believe you would be able to spend up to at auction as in the vast majority of cases, you will be bidding unconditionally.
So how much is a finance clause worth?
This can depend vastly on the suburb and it’s median price as well as the market the property type is for.
For example, in Berwick, Officer, Pakenham & Clyde where there are many first-home buyers with the vast majority of properties selling for between $550k - $850k, finance clauses are very common and risky. Therefore an offer without a finance clause could be worth between $10k - $25k depending on the vendors circumstances.
In Glen Iris on a $2m home, the vast majority of offers will be unconditional, so a finance clause carries much more risk and could be worth upwards of $50k.
We recently purchased a property in Officer for $25k under another offer because it had a finance clause and we new the vendor needed to sell as they had already bought another property.
Building & Pest Inspections
Building & Pest inspections are something that we always recommend when purchasing a property, regardless of it’s brand new, 100 years old or recently renovated.
However, this doesn’t mean you need to make every offer subject to B&P.
Like when going to auction, you can pay for the building and pest inspection upfront prior to making an offer (yes we do this in private sale scenarios too).
This is because, offers subject to building and pest carry risk for the vendor and if they know their home requires maintenance and may even have some issues, they can see this as a huge risk.
It is also because, it is very common for building and pest inspection reports to come back with many major defects and sometimes major structural defects.
In some instances, we would prefer to know these prior to making an offer as well, though in extremel competitive environments it’s not always the best move.
We typically will do this when purchasing off market to make the offer as attractive to the vendor as possible, as well as providing our clients as much information on the home as possible.
Building and pest inspection clauses can sometimes be worth $5k - $15k depending on the condition of the propert and the competition.
We have once missed out on a deal because another buyer decided not to get a B&P inspection done at all and removed it off their offer. We had offered $5k more, but they accepted the other offer.
In this circumstance, we knew the home needed to be restumped and had other issues that the other buyer did not know about.
Settlement Dates
Settlement dates can often make or break a deal.
If a buyer or seller needs to align their purchase/sale to the purchase/sale of another property via a simultaneous settlement, they may have very little options other than to accept an offer that falls on or close to the date they require.
Some offers we have seen get rejected are $100k over what the vendor would accept, but comes with 6-month settlement times or they can only do 30-days which simply cannot work for the vendor.
We always suggest, where possible, make your circumstances as flexible as possible with settlements as they can be the best negotiation tool to help get deals over the line.
This clause is nearly priceless for that reason. If you can only settle close by to their required date and the vendor then needs to get bridging finance, it may be very expensive for them to accept, so changing your settlement date to suit their needs may save them lots of money and therefore get you a much better price.
Special Conditions
Nearly any special condition can be a red flag to an agent, as its just another thing they need to negotiate with their vendors.
Typically, if the property is competitive and there are multiple buyers, some offers that have tricky special conditions simply will not be considered unless the price is very good, however, with properties with low interest, special conditions can be negotiated.
An example of a special condition that carries a lot of risk to the vendor is an offer subject to the sale of another property. This can be especially dependent on the market and may only go unconditional after 6 months. If the vendor needs the money quickly, this offer may not even be given thought.
Another example could be for the purchaser to occupy the property prior to settlement under a license agreement. This is easier to get through, but may cause a headache to the vendor depending on whether they are living in the property or not.
Again, these conditions can make or break a deal. The most important thing for all of these special conditions, that you must understand prior to making an offer is the vendors circumstances.
What The Agents Are Saying
The final stretch!
We now have 10 weeks until Christmas…
This means agents can list two more full cycles of properties that can have 4 week campaigns with an auction date prior to Christmas.
For some, this year has remained quieter than the last, with some other agents having large runs of stock over the next few months making it a busy end to the year.
Agents in some of the suburbs further out have said that despite all the interest rate rises they are seeing properties become more competitive with an agent in Hastings telling me that they achieved a suburb record last month.
In Glen Iris and surrounding areas stock is picking up with consecutive month-on-month growth in total stock available since July this year.
However, this is still much lower than last year.
To use Glen Iris as an example, have a look at the total stock on market numbers below:
Oct 2021: 216
Nov 2021: 217
Oct 2022: 180
Nov 2022: 198
July 2023: 126
Aug 2023: 151
Sep 2023: 169
Stock numbers are rising, but will they get to the totals of previous years? It appears unlikely.
The Wow Factor!
138 Bay Shore Avenue, Clifton Springs, Vic 3222
You can’t beat these views.
North facing ocean views right into Port Phillip Bay.
Plus 2165m2 of land with a waters edge title.
Price Guide: $3,000,000 - $3,300,000
In The Media
Melbourne house prices to jump 12pc in 2025
A continuation from previous weeks, this KPMG report is a must-read for those who own or are looking to purchase property around Australia in the near future.
Whilst I do suggest you read this article, here are some of the key points:
Melbourne’s housing market is poised to outperform Sydney over the next two years, with prices accelerating by 12 per cent in the year to June 2025, sparked by higher demand and more constrained supply, KPMG predicts.
Demand is likely to increase due to heavier migration, anticipated rate cuts moving into the 2025 financial year and potentially relaxed lending conditions.
Demand by foreign investors is also starting to pick up again and tipped to keep rising.
Units in Sydney, Melbourne and Hobart are likely to post larger gains of 8.6 per cent, 7 per cent and 10 per cent respectively, compared to the national average of 6 per cent.
Melbourne is predicted to rise by just 1.2 per cent this year, but will accelerate to 8.5 per cent growth by December next year. “Melbourne is anticipated to outperform Sydney as supply in Melbourne is likely to be more constrained as seen by lower future dwelling completions,” Dr Rynne said.
Based on KPMG’s projections for new dwelling completions and the Treasury’s population forecasts, annual rent will rise by 5.6 per cent over the next two years, which is 2.5 per cent higher than the long-term average of 3.1 per cent.
In order for rental costs to fall back to normal levels, dwelling completions would have to be around 76 per cent higher than the current forecast, Dr Rynne said.
“Either that or population growth from migration would have to be brought down to considerably lower levels than at present – which would mean short-term costs over-riding long-term economic benefits,” he said.
The May budget forecasts a net growth of around 400,000 this year and 340,000 next year through overseas migration respectively.
Many economists have stated that if not for net overseas migration, Australia would be in a recession. However, it appears the large boost, coupled with the very low supply is not only keeping Australia out of a recession but increasing prices into the foreseeable future.
Final Thoughts
Making offers is the most crucial part of buying real estate and where some people can save tens of thousands and others can overpay.
I hope this provides some insight into how much clauses and special conditions can be worth when negotiating.
And remember…
Make sure to find out exactly why the vendor is selling!
Thanks for reading this far!
We value feedback and if you have any suggestions on what you would like covered in the future please email me at tristan@tomii.com.au
Happy Buying!
Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.
