The Bidding War and the Client Who Wants to Waive Everything
A detached house in a competitive neighbourhood lists at $1.39 million with offers reviewed on a set date. The buyer, Mr. Haddad, has $180,000 for a down payment and is pre-approved to $1.45 million. His agent, Sonia, learns there are six other offers. Mr. Haddad wants to offer $1.52 million, waive the financing condition, waive the inspection, and make the deposit non-refundable on acceptance. He says his uncle, a contractor, 'looked at the photos' and thinks the roof is fine. Sonia knows the roof is 22 years old, the house has a finished basement with no permit on record, and Mr. Haddad's pre-approval expires in 30 days with completion in 45 days.
1. Identify the risks in Mr. Haddad's proposed offer and explain Sonia's obligations as his representative.
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Mr. Haddad's proposal contains several serious risks that Sonia must document and discuss before he signs.
1. Price above pre-approval. $1.52 million exceeds his $1.45 million pre-approval by $70,000. Even with a $180,000 down payment, the lender will assess the property and his ratios at the higher price. If the appraisal comes in below $1.52 million, the lender may reduce the loan amount and he must cover the gap in cash. He may not have it.
2. Waiving financing. Without a financing condition, if the lender declines or the appraisal is short, Mr. Haddad is in default. He could lose his deposit, and the seller could sue for the shortfall on resale.
3. Waiving inspection. His uncle reviewed photos only. A 22-year-old roof is near end of life; replacement could cost $15,000 to $25,000 or more. Photos cannot reveal structural, moisture, or electrical problems. An unpermitted basement is a separate risk: the city may require remediation, and insurance or financing may be affected.
4. Non-refundable deposit on acceptance. Combined with no financing condition, the deposit is at risk from the moment of acceptance.
5. Timing mismatch. Pre-approval expires in 30 days but completion is in 45 days. He needs a rate hold or a renewal of the approval that covers completion.
Sonia's obligations. She must act in his best interest, disclose material facts she knows (the roof age and the unpermitted basement), and not pressure him. She should put her advice in writing, recommend a home inspection and a financing condition or at least a lender confirmation, and have him confirm in writing that he declined her recommendations. She must not disclose the competing offers' contents. She can tell him there are competing offers if the seller authorizes that. She should also verify the deposit terms and the seller's disclosure.
2. Mr. Haddad insists on his terms. What should Sonia do, and how should the offer be structured to reduce risk without abandoning his goals?
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Sonia should not refuse to write the offer; a competent client can accept risk. But she must ensure the decision is informed and documented, and she can propose structures that preserve competitiveness while reducing catastrophic risk.
Documentation. Record in writing that she advised a financing condition, an inspection, and a deposit that is refundable on financing failure; that she disclosed the roof age and unpermitted basement; and that Mr. Haddad instructed her to proceed anyway. Have him initial the advice.
Structuring options to propose:
- Short financing condition. A five-business-day financing and appraisal condition is far less attractive to sellers than a long one but protects against a failed appraisal. In a six-offer situation, even a short condition may lose, so he must understand the trade-off.
- Pre-underwriting before offer date. Ask the lender to fully underwrite at $1.52 million and confirm the appraisal will support it. If the lender confirms in writing, the financing risk drops sharply.
- Inspection before offer date. A pre-offer inspection (even a walk-through with a contractor) converts a blind waiver into an informed one. This is the single highest-value step.
- Deposit size and timing. Keep the deposit at a level he can afford to lose, and consider a deposit that becomes non-refundable only after the financing window.
- Roof credit or seller representation. Ask the seller to represent the roof age and permit status, or negotiate a price adjustment.
- Rate hold. Confirm the lender's rate hold extends past the 45-day completion.
Sonia's limits. She must not tell him the roof 'is fine,' must not misrepresent the number or contents of competing offers, and must not draft terms she knows are misleading. If he proceeds, she presents the offer as instructed and confirms acceptance, deposit receipt, and completion dates in writing.