Subject Clauses Aren't A 'Get Out Of Your Real Estate Deal for FREE' Card
A Subject Clause is condition that states an event of some type needs to occur before either the buyer or seller is required to complete the purchase or sale of Real Estate.
Subject Clauses need to have a very clear meaning to be enforceable. Great subject clauses contain clear, concise and specific wording. The whole point of the subjects is to create an enforceable contract to ensure that the buyer or seller follow through on the promise to buy or sell a home but allow time to take steps that are not logical until a price has been agreed upon.
Home Buyers
I feel it is very important to understand that as a buyer, subject clauses are not intended for you to change your mind and walk away from an agreement. Sadly this does happen.
Not only is this unfair to the seller, you and your Realtor may find your self facing legal action if the seller feels you didn't act in good faith and make an honest effort to complete the requirements of the subjects.
This is likely to occur in a market where properties are slow to sell or values are declining and the seller feels you have impacted their ability to sell or impacted the final sale price the seller could have received by 'tying up' the property for a period of time and not making an honest effort to remove the subjects.
Home Sellers
As a home seller how can this be avoided?
As a seller never accept an offer with vague subjects. "Subject to Buyer arranging satisfactory financing by such and such date" is a classic example, pretty vague and subjective. Perhaps any interest rate above 1% is not satisfactory to the buyer. It is essentially a 'Get Out of Our Deal FREE' card.
Say after 3.5 weeks of the 4 week subject removal period the buyer walks away stating they didn't find any financing they liked. Off they go and buy a different home and you are back on the market with the better part of month gone. Depending on the time of year this can drastically impact your ability to sell your home in a timely manner.
The financing clause should be written using very specific language about terms, rates, ammortization period etc.
Same with the inspection clause, it should have an amount that any suggested repairs by the inspector needs to exceed.
Besides specific clauses, don't accept a contract with long subject removal times. For the most part most subjects can be removed in 2 weeks or sooner.
If the buyers insist on extended subject removal time as a seller have your Realtor add a Time Clause to the contract that states at any point you may give the buyer 72 hours notice to remove or waive their subjects or the contract is void.
Bottom line is you want to enter into a contract with someone who is serious about buying your home, the subjects can be an indicator of how committed the buyer is to their promise to buy your home for sale.