Do you watch Billions?
I love it. I absolutely love it.
It’s so well-written, so engaging, the characters are so dynamic, and above all, the music is phenomenal.
Do you remember seeing The Social Network and doing a double-take when the words “Music By Trent Reznor” appeared on the screen? Huh? Really?
That’s how I felt when I saw that Eskmo is the composer for “Billions.”
The music is so dark, and yet so appropriate. Just like in The Social Network.
In Season Four of Billions, there’s a fantastic episode where Chuck Rhoades, a former US Attorney, now wanna be “fixer,” needs to do a favour for somebody. He needs to obtain a conceal/carry gun permit for a friend. The sequence of events that unfolds is fascinating.
Chuck has to do a favour for the chief of police in order to obtain the gun permit, but in order to do that favour, he must do another favour for somebody else. That person wants tickets to an exclusive Hanukkah event, and in order to obtain those tickets, Chuck needs to do another favour for the person who has them. That person wants an “All Access” pass to Deer Vally Ski Resort. But to give up that pass, Chuck must do that person a favour as well…
Chuck refers to this as “borrowing from Peter, to pay Paul, to pay Mary,” which is a minor spin on “Manoeuvering the Apostles;” a religious saying that essentially means to pay one debt by incurring another.
I watched this play out during the episode of Billions, and I wondered how far it would go. How far down the line would Chuck need to move? How many favours would he have to do, and how many debts would he need to incur?
It was like dominoes. And you just hoped that the continuity was fluid, and that one favour-trader in the mix wouldn’t change his or her mind.
Over the weekend, I had my first experience with a sale conditional on the sale of a buyer’s property in quite a long time.
I wasn’t involved in the sale itself, but rather the mere mention of the notion was the first I had heard of it in years. And as I explained to my clients, and to the agent that was debating accepting such an offer, it could turn into a never-ending line of dominoes, or borrowing from Peter to pay Paul.
It reminded me oh-so-much of that episode of Billions, and I actually referenced the episode to the listing agent I dealt with.
For those of you that don’t know – and this is probably because you can’t fathom such a thing in the Toronto market, some properties are actually sold conditionally on the sale of the buyer’s own property.
Here in the central core, we’re used to buying condos conditional on the satisfactory review of the condominium corporation’s status certificate, and that’s usually a 2-3 day condition.
We’re used to buying houses or condos conditional on obtaining satisfactory financing terms (although we know these conditions don’t work when there are multiple offers), often for as long as five business days.
And we’re also used to buying houses conditional on a satisfactory home inspection (again, buying a house in competition with a condition is near-impossible in a hot market).
But what about a longer condition?
What about a more complicated condition?
What about both?
Imagine approaching the seller of a house and making an offer with a 30 or even 60 day condition that you are able to sell your own home. Is that something that you had ever even considered?
Those of you who live outside Toronto, and/or can remember a time when real estate wasn’t absolutely red-hot, are quite familiar with the idea of a condition on the sale of a buyer’s property, and probably feel like I’m acting like 9-year-old by explaining what it is.
But through fifteen years working in the Toronto market, I have only come across this condition once. That is, until this past weekend.
Clients of mine were interested in a house in Markham, and the listing agent – a new(er) agent who possibly wasn’t exactly sure what he was supposed tell prospective buyers and their agents, informed us that he had an offer in hand that was conditional upon the sale of the buyer’s home.
Now let’s leave aside for a moment what terms and conditions an agent can disclose with regards to a competing offer. That’s a topic for another day, albeit an important one.
The agent told us that he had two offers, and while one was only conditional on financing, it was a lowball, and wouldn’t be considered (I know, I know, now you want to discuss disclosure…), and the second offer that he had was for a decent price, but with a lengthy condition.
He didn’t tell us for how long the condition would be (at least he kept something to himself), but did say that the sellers were willing to risk it.
Oh – and he did tell us the price of that offer, which, again, might lead the discussion back to disclosure once again, but just work with me here, folks.
So armed with this knowledge, my clients and I decided to submit an unconditional offer, which is very rare in this particular market. They have their financing in place, the house is 2-years-old and contains zero of the red-flag building materials that we look for here in the central core (clay pipes, lead pipes, knob-and-tube wiring, aluminum wiring, asbestos, UFFI, etc), and having completed a thorough investigation of the house themselves, they were more than comfortable with the condition of the home.
Our offer was submitted about $15,000 lower than the competing bid.
And sure enough, the agent called back to say that we’d have to match the competing bid in order for us to win out.
This was absolutely, positively, not something we would consider.
In our minds, we were handing them a gift! For a mere $15,000, they could sell their house tonight, firm.
The other agent didn’t see it that way.
In his opinion, the other offer, even though it was conditional on the sale of the buyer’s property, was more valuable.
Well, colour me surprised!
He went on to explain that he’s worked with this condition before, in fact, he had a situation recently where the condition went on down the line.
Listen to this – he sold a property that was conditional on the sale of the buyer’s home. That buyer was able to sell his home, however, it was also conditional on the sale of a subsequent buyer’s home.
I listened to him describe the situation as though it were normal, and I just couldn’t make sense of it all.
I was reminded of Chuck Rhoades in Billions, and while I had faith in Chuck, I didn’t have faith in this daisy chain of property sales.
Property A was sold, conditional on the sale of Property B, which was sold conditional on the sale of Property C.
And then what? How about D, E, and F? Where would it end?
I asked him, “How long is the condition for the offer you have in hand?”
I mean, how long would you actually give a person to satisfy a condition? 15 days? Is that too long to tie yourself up? But also, can you expect a seller to move that quickly? 30 days? Why would anybody accept such a condition?
Get this – it was sixty days.
And the craziest part in all of this? There was no escape clause!
An escape clause is something that, as with the condition described above, isn’t that common in our current Toronto market. As you might expect, the clause allows the seller to escape from a binding Agreement of Purchase and Sale, subject to certain conditions.
Let’s say Property A is sold conditional on the sale of Property B. This condition is for 30 days.
But along comes Buyer C, who wants to buy Property A.
Buyer C can submit an offer conditional on the seller of Property A being released from that Agreement of Purchase & Sale so long as that APS has an escape clause.
The seller of Property A can activate the escape clause, and the original buyer would typically have 48 hours to firm up the deal, or the deal would terminate.
That’s the Coles Notes on how this works, apologies if an 800-word example is needed but I kind of want to move on.
So you can argue that accepting an offer that’s conditional on the sale of a buyer’s property, so long as there is an escape clause, makes sense. I would still argue it does not, save for very cold markets where sellers have absolutely no alternative.
But imagine accepting an offer with this condition, and no escape clause?
And how much investigation would you have to do on the buyer’s property in order to consider it?
If it were me, I’d want to know the following:
1) Where is the property?
What’s the address? What condition is the home in? How old or new is it?
2) What’s the price?
Is this a move-up buyer? Do they have an easier-to-sell property that’s at a cheaper price?
And what’s the property worth? Are the sellers going to list their $750,000 home at $849,900 and just “see how the market responds?”
3) What are the market conditions like in this area?
Feeding into the first two questions, how long would we expect a property like this one, at this price point, to sell in this market?
What’s the average length of time for a property like this to sell?
4) Who is the listing agent? What is the listing strategy?
If we’re assuming that the buyer-agent in the first transaction is going to be representing that buyer in the sale of the property, then who is this agent? What is his or her track record like? Do they sell a lot of real estate? Are they brand new in the business? What is their average list-to-sale ratio, and how long do their properties sit on the market?
What is the listing strategy here with respect to price, offers, etc? Is the property going to be cleaned, painted, and staged? Will the dogs be home for showings? Will the snakes be home too?
There are so many questions I’d have in a situation where the buyer is looking to purchase with a condition on the sale of his or her property, and there’s one reason why I could almost never bring myself to consider such a condition: control.
A seller of real estate is his or her own boss, and controls his or her own destiny. The minute you accept an offer that is conditional on the sale of somebody else’s property, then you give up control.
You can’t control if they list the property at a reasonable price, you can’t control if the property shows well, and you can’t control what they do when an offer comes in.
Only in a depressed market, with no other options, would I ever consider selling a property conditional on the sale of the buyer’s property, and I don’t ever believe that this will become a reality in the central core market here in Toronto. The older folks will laugh at me for saying this, and the bears will cross their fingers that I come to eat those arrogant words, but I just can’t envision this day coming.
As for my clients looking to buy in Markham, I guess they’ll find out all about the sellers’ tolerance for risk rather shortly.
If you could sell your home for $810,000, firm, tonight, or wait upwards of sixty days, with no escape, to get $825,000, what would you do?