I couldn’t remember the last time I had dealt with a time clause on an offer, that is until the last home I sold. Time clauses had almost gone extinct it seemed, but alas, here we are.
Let me start off by giving a quick explanation about what a time clause is. A time clause or a “48 hour” clause, as a lot of us refer to it as, is used when an offer is conditional, and the seller would like to continue to offer their home for sale while the buyer is working on fulfilling those conditions. If another offer comes in and is unconditional during the time where the buyer is trying to satisfy their conditions, the sellers will give the first buyer a 48-hour notice (or whatever time period was agreed upon) to remove or fulfill all their conditions or the property will go to the new buyer.
So, when would a time clause be used? Time clauses are used primarily when the buyer is asking for an extended period to fulfill the conditions on an offer. The most common use for a time clause is when the offer is subject to the sale of the buyer’s home but can technically be put in place for any condition on an offer.
Who benefits from the time clause? Time clauses are for the benefit of the seller; therefore, it is the responsibility of the seller’s agent to make sure this clause is inserted into the offer. Sellers would be taking quite a risk by accepting an offer subject to the sale of the buyer’s home without a time clause included. If that was the case and another qualified buyer came along with an offer, the seller would not be able to entertain that offer during the period that the first offer remained conditional. Another benefit of the time clause is that it can be used as a sort of leverage to try and get a stronger offer from a second buye, but a word of advice: It is VERY important that the seller is happy with the terms set out in the first offer as even if they do receive a second offer that is much better, the first buyer may surprise you and waive their conditions and you would then be obligated to go with that first offer.
Is there any risk for the buyer? Slight. It all depends on their situation and if they have a back up plan in place if the notice of another offer is delivered. If the 48 hours (or whatever time agreed upon) starts and the buyer has not yet sold their home, they have two options:
Waive all conditions: In this case the home would go to the first buyer. If the buyer must sell their home to be approved for a mortgage on the new home, this option is a risk. If they don’t end up selling, they would be risking their deposit as well as any other legal costs associated with the non-fulfillment of the offer to purchase as they would not be able to close on possession.
Mutual cancellation of the offer to purchase: In this case the first buyer would opt to back out of their offer and allow the second offer to purchase to be accepted. The firs buyer’s deposit would be returned to them in full and the home would go to the second buyer. If the buyer’s home was already on the market, the buyer would then need to decide if they are going to continue offering their home for sale. This could result in the buyer’s home selling without them having another home to move into. On the other hand, if they decide to remove their home from the market, there may be some fees associated with the removal of the property.
As I had mentioned before, time clauses were a thing rarely seen in the past few years. This was because in a competitive market, most homes were selling unconditional or with very short condition periods therefore there was no need for these time clauses. Writing an offer subject to the sale of your home was a sure way to not have your offer accepted! Now, with our market balancing out, buyers can write in a few more conditions therefore we can expect to see the time clause make its appearance once again.
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