What is subject removal?
You likely have conditions you want satisfied before purchasing a home, including getting financing, having an inspector examine the structure, reading paperwork and more. Subject removal is when you can do all this. The conditions you want to satisfy are called “subjects.” “Removing” a subject means you’re happy with the results and can take it off the list.
Subject removal works as a great safety net because it allows you to perform your due diligence, such as reviewing strata documents or the title search for the property. You list subjects in the terms and conditions section of the contract of purchase and sale. Both you (the buyer) and the seller must agree to them all for the purchase to proceed.
What type of subjects are there?
Depending on your needs, you can specify many things as subjects. Usually, the most common subjects that you’ll see are:
- Subject to financing. Basically, a subject to financing clause means getting approved for a mortgage.
- Subject to receiving and approving a property disclosure statement. This reports any defects the seller knows already besides what an inspector may find.
- Subject to receiving and approving an inspection report. You should examine a home yourself and hire a professional inspector; you’ll have to approve their report, too.
- Subject to receiving and approving a title search. You must ensure no other claims exist on the property and its public records are correct before you can purchase it.
- Subject to receiving and approving all strata documents (if strata unit). Strata documents can include the information certificate, which explains more about the lot and strata corporation and the certificate of payment, which lets you know if the current owner of a strata lot owes money to the corporation.
We’ve written these example subjects in plain language, but in your contract of purchase and sale they’ll be much more detailed. For example, a proper financing subject will list the interest rate, term and amortization you want before removing the financing subject.
While the above subjects are the most common that you’ll see written or accepted, an offer can be subject to anything that you need to feel comfortable committing to the property. Some examples of uncommon subjects would be receiving the last six months of utility bills or subject to the sale of your current home. Work with your buyer’s agent to determine what subjects are best for you.
What is a subject removal addendum?
When you’re satisfied with a subject, you remove it from consideration using a subject removal addendum. Usually it states something like “With reference to the above, the subject to clause(s) noted below is/are waived or declared fulfilled. Time shall remain of the essence.” You then list the same subjects as above that you’ve cleared.
You’ll basically copy your subjects over from your contract and paste them here once fulfilled. Both the buyer(s) and seller(s) must sign and date this form, along with witnesses.
How do sellers feel about subjects?
Typically, the hotter the real estate market, the fewer subjects a seller may accept. In a very hot market, the seller may try to negotiate for a subject-free offer. To make your offer more appealing, try to satisfy many subjects prior to writing an offer. That shows the seller that you are actively trying to remove subjects in advance.
For example, you can read the property disclosure statement and title search beforehand and state that you are satisfied with those documents. That way, you do not have to list them as a subject on the contract. In a very hot market, you can also get pre-offer inspections to make yourself more competitive in a bidding war.
How long is subject removal?
A typical subject removal period is usually seven days long and allows you to organize all your affairs and complete your due diligence. However, there are also subject-free offers, two-day subject removals, two-week subject removals, or others, as the amount of time can vary greatly depending on each situation.
The amount of time that you offer to complete subject removal depends on lots of factors, such as how hot the real estate market is in your area and how many competing offers exist. Always work with your buyer’s agent to figure out how long your subject removal period should be.
But remember, time is not your friend with subject removal. Plus, banks, inspectors and property management companies likely aren’t open on weekends or stat holidays.
Can I get an extension on the subject removal period?
You can ask for an extension, but that doesn’t mean the seller will grant you one. To extend a deal, the seller(s), buyer(s) and witnesses have to sign an addendum, or subject removal extension clause, stating that they agree to the to extend the subject removal date, along with the new date specified.
As a buyer, if you ask for an extension, then the seller can reject your request to extend, modify the extension date, possibly request compensation for the extension or approve the extension as is.
If you (the buyer) and the seller cannot come to an agreement with regards to an extension, then you have the option to either remove subjects as is or not remove subjects and collapse the deal.
What if I don’t remove subjects?
Will you lose money if you go through the whole process and end up not removing subjects – either because you can’t or decide not to? Can you back out after subject removal? The answer depends on how the contract is written and when the deposit is due.
Typically, if there is a subject removal period then the deposit will be due within 24 hours of removing all subjects or upon subject removal. This means that if you decide not to remove subjects because you could not satisfy one or more of them, then you would not lose any money as you’ve not yet handed in the deposit. Again, in the typical scenario, the deposit is only due if you approve and choose to remove subjects. The deal then becomes “firm.”
In Greater Vancouver, the deposit can be whatever the seller and buyer agree to. You want it to be enticing for the seller, so your buyer’s agent may recommend around 5% of the purchase price. It will be held in trust by your agent’s brokerage. This deposit will then form a part of your down payment. It works as collateral to compensate the seller in case you (the buyer) do not complete the deal.
This article originally appeared on The Guide on REW.ca.
