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The difference between conditional and unconditional property contracts

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Understanding the nuances between different kinds of property transactions

When someone buys a residential property or investment property, they enter into a contract with the party selling the property. This contract of sale is usually made with conditions that must be met before the sale goes unconditional. All home buyers go through this process, and it’s one of the most important stages involved with buying property.

Property contracts can be complex, and there is great potential for unsuspecting buyers to lose out on tens of thousands of dollars if mistakes are made. We always recommend seeking advice from an experienced conveyancer before signing a contract. It’s the very bare minimum you should do to protect yourself and your hard-earned deposit.

Complete Conveyancing Solutions helps clients successfully navigate the property sales process. We can offer advice on all stages of purchasing, from seeking finance, to final settlement. Get in touch with our team today to book your free consultation.

In this article, we’ll take a look at the difference between conditional and unconditional contracts, some examples of clauses contained in each, and some of the risks associated with pursuing an unconditional contract.

 

What is a contract of sale?

A contract of sale is a legal document that sets out the terms and conditions of a property sale. A contract of sale includes:

  • The purchase price for the property
  • Particulars of the title for the property
  • Details of the deposit, when it is payable, and the final deposit amount
  • The date for settlement

     

The contract of sale may also contain conditions agreed upon by both parties. These are called ‘conditional clauses’, and may be related to finance, building inspection, and diligence matters that both parties agree must be met before the sale can proceed.

 

What’s the difference between a conditional contract and an unconditional contract?

A conditional contract requires that certain conditions be met for a sale to proceed. Once these conditions are met, the contract becomes unconditional. Unconditional offers can also be made outright.

Conditional contract

A conditional contract is subject to conditions that may benefit either party. Generally, these conditions may be negotiated between the buyer and seller. The conditions, depending on the wording, will enable a purchaser to terminate the contract if they are not fulfilled.

Unconditional contract

An unconditional contract is not contingent on conditions. Once signed, it becomes a legally binding document between both the buyer and seller. It is essential to ensure that the contract is reviewed before signing the same to avoid any nasty traps.

 

What are some examples of conditional clauses for buyers?

We’ve compiled some of the most common clauses that a buyer might request to be included in a conditional contract.

Subject to finance

subject to finance clause grants the buyer time to have their finance application approved by their bank. This is an important clause because it gives the buyer an exit from the sale if they cannot secure the finance approval they require.

Subject to building and pest inspection

Buyers also need time to organise a building and pest inspection to ensure that the property is free of faults or other issues, The buyer can potentially terminate a contract if the inspection reveals serious problems with the property.

Subject to settlement of a sale of a property

When buyers need to settle a property transaction that they are undertaking to pay for a new property, this may be included as a clause. Buyers can terminate the contract of sale if they have problems selling property in a prior transaction.

Subject to all appliances being in working order at settlement

A working order clause can ensure that all appliances, including gas, electrical, and plumbing fixtures are in good working order. Even if a seller acts in good faith, the property may have been vacant for some time, and some essential repairs may have been missed. A final inspection of the functionality of appliances, and ensuring the condition of the property is the same as when the contract was signed should be conducted during a pre-settlement inspection.

 

What are some examples of conditional clauses for sellers?

Sellers can be protected, and also have a range of inclusions that they might make in conditional contracts. One of the main conditional clauses to favour vendors is a Settlement Period Clause, where the vendor sets the settlement date. Property settlement periods are usually anywhere between 30 to 90 days. A vendor can decide on this period and include it as a conditional clause.

The difference between conditional and unconditional property contracts


What are the risks of signing unconditional contracts?

Signing an unconditional offer for either party can be risky. As a property buyer, the risks are slightly higher, largely because the seller has greater power to retain a deposit if the contract of sale fails.

Overvaluation or undervaluation

Sometimes, when buyers are in a rush to secure a property, they can unintentionally offer more money than a property is worth. A sales agent may intend to seek offers above a standard valuation price to get a better deal, or market conditions may have changed since the property is listed.

Successful finance is often subject to correct property valuation, so you can risk losing a deposit if the purchase price was deemed to be inaccurate by your bank.

Make sure that you have an accurate representation of the property’s value before making an unconditional offer. A licensed valuer can give you an accurate and independent valuation.

Lack of finance clause

Similarly, if your bank will not approve your loan, or cannot approve it in time, you won’t be able to finance your home. If this happens, you risk losing your deposit. to the seller.

Ensure that you have the funds needed to settle the property. Do not proceed with an offer if you don’t think you’ll be readily approved for finance.

Issues with the property

If your contract goes unconditional before you’ve undertaken a thorough inspection of the property for pests, building issues, and other problems, you might not be able to terminate the contract.

Perform your due diligence investigation into the state of the property, or hire an independent inspector to carry it out for you before you sign an unconditional contract.

 

Should I go conditional or unconditional?

To protect yourself from financial loss, we always recommend providing conditional offers as a buyer. As a seller, unconditional offers are appealing, but limit you to the specifications of the contract you enter into. You can’t accept a better offer once a contract has been signed, unless that contract is terminated.

However, if you are looking to quickly buy a property in its current state, then you can consider an unconditional contract. Just make sure that you’ve secured finance and have undertaken an inspection of the building at a bare minimum.

 

How can I make a conditional offer?

Now that you’ve found a property that you want to buy, you are in a position to make an offer. There are 5 main steps to take before submitting the final offer.

Finance pre-approval

Getting pre-approval for finance from a lender can go a long way to creating financial security for the upcoming contract phase. Shop around so you can find the best rate for the most realistic amount you can borrow based on your financial situation. Pre-approval will put you in a good bargaining position, and make you a stronger candidate for the seller.

Consult with a conveyancer

Your next step should be to meet with a conveyancer who can help you understand your rights and obligations under the law. Engaging with a conveyancer in this early stage will allow you to work out any issues in the agreement later down the track. They can also help you work out which conditions you would like to set.

Consider your conditions

With your conveyancer, you can begin to outline the conditions mentioned above that apply to you and your situation. If you require some time to organise finances, then ensure that a subject to finance clause is included. Similarly, if you believe the building needs a thorough inspection, you can include a clause that allows for this.

Undertake the inspections

Several inspections need to be undertaken before a property can be settled. Building and pest inspections are necessary to ensure the property is in both a safe and liveable state.

Review the contract and make an offer

After all the above steps are complete, you can review your contract with your conveyancer. You can now submit an offer. This offer will usually be within the vicinity of the asking price, with consideration to how much you can borrow, and how much you are willing to go. A first offer is rarely accepted, so prepare for some back and forth.

Once the contract has been decided upon by both the buyer and seller, the conditions can then be followed. Once those are completed, the contract goes unconditional, and the purchase can be completed.

 

Working with a conveyancer

We’ve touched on it many times before. You shouldn’t sign on the dotted line until you’ve spoken with a conveyancer. A conveyancer is your best source of advice and protection when you’re about to buy one of the most significant investments of your life.

An experienced, trained conveyancer can take you through every stage of the buying process, from consideration to settlement, giving you peace of mind that you’ve made the right call.

They can help by:

  • Writing your contract and outlining special conditions
  • Liaising with the other party’s legal representation
  • Offering additional protections through indemnity insurance


Always ensure you are engaging a licensed conveyancer to undertake any legal work. A conveyancer should be able to produce their license details upon request, which you can check against your state government database.

Complete Conveyancing Solutions is here to help you find success in the property buying process. We work with both buyers and sellers to help them understand their rights and responsibilities. We always act with our client’s best interests at heart, and give actionable, accurate advice on what we think is the best way forward. If you’re ready to get started, contact one of our conveyancers for a free consultation.

Maria Tomlinson holds an unrestricted conveyancing licence together with Professional Indemnity Insurance against civil liability. Maria Tomlinson commenced her career in Conveyancing in 2001. She furthered her studying by completing her Diploma in Conveyancing in 2017 which has led her to hold an unrestricted Conveyancing License and successfully open her conveyancing firm, Complete Conveyancing Solutions.

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