Buying a property unconditionally: What you need to know

author-avatar By on May 18, 2021
Buying a property unconditionally: What you need to know

If you’re looking to speed up the home-buying process, an unconditional contract of sale may be appealing. However, there are numerous risks involved.

Contracts and their clauses are part and parcel of buying and selling property, and for good reason. They protect all parties from dodgy dealings and allow you the due process to check there are no hidden issues with the property.

Buying a property unconditionally can be risky but there are some situations where it may work for some people. So what is an unconditional contract and should you buy a property with one? First you should understand what a conditional contract is.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers. 

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 27, 2021. View disclaimer.


What is a conditional contract?

A conditional contract is a type of contract with conditions attached to it that must be met for the sale of the property to be finalised. Until these conditions are satisfied, the contract is known as conditional, and after they’re satisfied, the contract is known as unconditional.

Both buyers and sellers can enter conditions into the contract and what these conditions contain is at the discretion of both parties. Common conditions include things like ‘subject to finance’ and building and pest inspections.

Other things a contract will contain include the details of the property, the sale price, details of the deposit, personal details of both parties, and the date of settlement.


What is an unconditional contract?

An unconditional contract is a type of contract where there are no conditions attached. For buyers, this means once you’ve signed the contract, you cannot back out of the sale and forgo your right to terminate the contract. As a seller, an unconditional contract gives you peace of mind the sale of your home is certain to go through.

This certainty makes unconditional contracts very attractive to sellers. In a hot property market, buyers often submit unconditional offers of sale in an effort to make their offer more attractive than others. In some cases, the seller may accept a lower offer or may knock some money off the price of the home, to try and get an unconditional contract.


What does a conditional contract contain?

Conditions in contracts will differ between each sale but here are some examples buyers and sellers may ask for:

Subject to building and pest inspection

A subject to building and pest inspection clause means the buyer can terminate the contract if there are any structural issues with the home or pests which could cause damage, like termites. These can cost anywhere from $400 to $800 and gives you peace of mind the property won’t fall over or be overrun by creepy crawlies.

Subject to finance

A subject to finance clause allows the buyer to make an offer on a property before getting approval for finance for a lender. Should the lender deny their application for finance, the contract will be terminated without penalty.

Subject to sale of another property (or settlement of sale)

If a buyer needs to sell their current home to purchase a new one, they may request a subject to sale of property clause. When making the offer, they’ll request this clause with a time period they expect to sell their previous home in, like three months. In the event they don’t sell the home in this time, they may request an extension, or can terminate the contract without penalty.

A similar, but slightly different condition may apply to buyers that already have a contract of sale for current property that hasn’t formally settled yet. Such a condition may give the buyer the right to terminate the sale without penalty if the sale fails to settle.

Sunset clause

A sunset clause allows the sellers of a property to continue to advertise their home after an offer has been accepted and contracts have been signed. This acts as a safety net for the seller, in the event the buyer pulls out or the sale falls through and a new buyer needs to be found. It can also be used if the buyer has requested the contract be subject to another home being sold. If in the agreed-upon time period the seller receives another offer they wish to accept, they can ask the buyer if they wish to make their offer unconditional. If they don’t wish to do so, the seller can terminate the contract without penalty and accept the new offer.

Subject to a prior contract terminating

If a seller is engaged in a contract with a buyer they know is going to pull out, they can accept another offer from a different seller and request a subject to a prior contract terminating condition. This means the acceptance of the new offer won’t go through until the first contract has been terminated. In the event the first contract proceeds as planned, the second contract can be terminated without penalty.


Why can an unconditional contract be risky?

The main risks of an unconditional contract come from the omission of the conditions seen above. These conditions are commonplace for a reason; they protect buyers and sellers from serious financial problems in the event they no longer wish to proceed with the sale.

One of the greatest dangers of an unconditional contract is not having a subject to finance clause. If you made an offer with an unconditional contract and were then denied financing by the lender, you’d still be required to go through with the sale. If you didn’t have the funds, the contract would be voided but you’d potentially lose your deposit, which could be hundreds of thousands of dollars.

Another big risk of an unconditional contract is not getting a building and pest inspection. Viewing a property at an open home or private inspection will give you an idea of the aesthetic of the home, but you won’t know whether there are termites lurking around every corner, or whether the balcony is about to fall over. You need a trained professional to review the premises and tell you what (if anything) is wrong with the house and give you an estimate of how much it will cost to fix. Buying the property unconditionally means you are responsible for it and you’ll have to fork out for any changes that need to be made to make it liveable.

If you’re looking to quickly buy a property and make an offer unconditionally, you’ll have to get a qualified estimate of the property’s value. The home will have a price it’s listed at but the seller may be heavily overvaluing their home. As a result, not getting your own valuation may mean you overpay for the home, potentially costing you tens of thousands.


Should you buy a property with an unconditional contract?

Head of Research for buyer's agency Propertyology Simon Pressley said unconditional contracts could work for a select group of people but urged caution.

“For a lot of people’s personal risk appetite, they should not do it. Those who have the appetite for taking that extra risk need to be responsible and understand what the extra risks are,” Mr Pressley told Savings.com.au.

“It's not an option for everyone to explore and the traditional conditions in contracts are there for a reason. If someone is prepared to waive those they need to ask themselves ‘what am I really waiving’ and ‘what is the risk to me?’

“If you can satisfy those potential risks then for the right person it can be a good strategy.”

Grant Miller from Inspired Financial Planners said unconditional contracts still had some protections for buyers depending on your state but urged people to still do their due diligence before making an offer.

“Get a good building & pest inspection done, and make sure you aren’t lazy about obtaining finance, as you still have obligations as a buyer – you don’t get a free pass to take your time and do whatever you want just because there are clauses in the contract that can protect you,” Mr Miller told Savings.com.au.

“The contract is also there to protect the seller, as their objective in all of this is to dispose of the property and make as much money out of it as possible.”

Alex Jamieson of AJ Financial Planning said buying with an unconditional contract came down to the market conditions and the level of interest in the property being considered.

“In a very buoyant market with a lot of interest in a property, an unconditional offer can be seen as being inferior or weaker to other offers. In this type of market, a buyer will need to rapidly do their own due diligence prior to making an offer, similar to what might be needed with pre-auction background checks,” Mr Jamieson told Savings.com.au.

“If a market is fairly slow and less buoyant with fewer buyers then a conditional offer is a way to avoid incurring unnecessary costs and work. It allows you to see if the vendor is likely to accept the offer provided before you undertake a considerable amount of work.”


Tips on buying a property with an unconditional contract

Mr Jamieson said when making an unconditional offer, buyers needed to complete pre-buying checklists and background checks, that may include:

  • Having the vendor's contract of sale documents reviewed by your solicitor or conveyancer.

  • If there is a body corporate it would be important to speak with the manager to get some understanding of the background on the committee and building.

  • A pest and building inspection would need to be completed.

  • Pre-approval would need to be obtained from the bank.

  • Independent valuation by a qualified valuer would also be useful to determine the fair value of the property.


Savings.com.au’s two cents

Contracts are long and complex documents prepared by professionals who are paid a great deal of money to ensure they’re correct. They’re written to protect those involved and removing these protections can leave you open to serious financial trouble. However, if you’re prepared and have done your homework, there may be some instances where an unconditional contract may work. Consider consulting a financial adviser before making any offers.


Photo by Scott Blake on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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