DEFINITION of Conditional Offer

A conditional offer is an agreement between a buyer and a seller that an offer will be made if a certain condition is met. In real estate transactions, conditions can include a home inspection or a mortgage application. Once the conditions are satisfied, the buyer or seller will then be obligated to purchase or sell the property. If the conditions are not met, the buyer or seller is not obligated to purchase or sell the property.

BREAKING DOWN Conditional Offer

The time frame of a conditional offer is often short, since the seller will not want to tie up the property for an extended period of time. Some real estate agents will still show the property to other buyers in order to put pressure on the conditional offer buyer to hurry up. Agents might also suggest that the seller insert an escape clause into the conditional offer in case a better offer comes along.

Conditional offers for real estate transactions could be dependent on a variety of factors. The buyer of the home may need to complete the sale of their current residence in order for the deal to proceed. This could be because the buyer’s assets are largely tied up with the current home and the financing they sought was contingent upon that sale being completed.

Ways Conditional Offers Are Contingent Upon on Receiving Approvals

It is not uncommon for buyers of homes to want to make renovations and changes that go beyond repairs and general maintenance. This could include landscaping, repaving and redesigning the driveway, adding a deck or porch, expanding the footprint of the house or installing a swimming pool. The buyer might also want to create and use space for a home-based business that would operate from the house.

Extensive changes to a home may require building permits and other clearances from the municipality before any work can be performed. If there is a provision against conducting business in a residential area, setting up a home-based business might also require a zoning variance. If local approvals are not granted for the changes a buyer needs in order to use the property as they intended, the conditional offer might be withdrawn.

Financing issues can derail a conditional offer as well. The bank’s valuation of the home might come in below the agreed upon price. That would mean the mortgage application would be adjusted and reduced accordingly. The buyer might try other means to make up the difference.

A conditional offer can also refer to an offer of employment that is contingent on meeting certain conditions. These could include passing a background check, medical clearance, visa clearance, reference checks and many others.