The Conditional Offer and the Missing Financing Clause
A first-time buyer, Tomas, submits an offer on a townhouse listed at $615,000. His salesperson, Aisha, drafts an Agreement of Purchase and Sale with a $20,000 deposit, a closing date 60 days out, and a condition precedent for financing that reads: "This Offer is conditional upon the Buyer obtaining financing on terms satisfactory to the Buyer, at the Buyer's sole discretion." The seller accepts. Nine days later, Tomas learns his lender will approve only $560,000 because the appraisal came in low. He tells Aisha he wants to waive the condition anyway because he loves the house and will borrow the shortfall from family. Aisha advises against it. Tomas insists and signs a waiver. Three weeks before closing, the family loan falls through and Tomas cannot close. The seller relists and sells for $585,000, then demands the $30,000 difference plus carrying costs.
1. Analyze the legal effect of the financing condition as drafted and of Tomas's waiver, and assess whether the seller's damages claim is likely to succeed.
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The condition as drafted is a true condition precedent with a subjective element - "on terms satisfactory to the Buyer, at the Buyer's sole discretion." That language gives Tomas broad latitude: he could have declined financing that was objectively available if it was not satisfactory to him, which is why such clauses are contentious. But the condition also has a time limit implied by the closing date and the requirement to act in good faith; a buyer cannot sit on a condition indefinitely or use it as a free option.
When Tomas signed the waiver, he removed the only contractual protection he had. A waiver of a condition precedent makes the agreement unconditional, and from that moment Tomas was bound to complete. The fact that he waived it against advice does not give him an escape; his own decision is attributable to him.
The seller's damages claim is a claim for breach of contract. The measure is the difference between the contract price and the price the seller actually obtained on resale, plus reasonable carrying and relisting costs, subject to the seller's duty to mitigate. Here the resale at $585,000 against a $615,000 contract yields a $30,000 prima facie loss, and the seller did mitigate by relisting promptly. Tomas's likely defences are thin: he might argue the seller failed to mitigate by rejecting a higher backup offer, or that some carrying costs are unreasonable, but he cannot argue the contract was conditional because he waived the condition.
The deposit is also at risk. A deposit is generally forfeited on the buyer's default, and the seller can claim the deposit against the damages, with the balance owing if damages exceed it.
2. Aisha advised against the waiver but Tomas proceeded. Discuss her professional obligations in this situation and what she should document.
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Aisha's obligation is to give competent, objective advice and to follow the client's lawful instructions, not to make the decision for him. Once Tomas insisted, she was entitled - and arguably required - to record that she advised against waiving the condition, explained the consequences, and that he instructed her to proceed.
Her advice should have covered the specific risk: waiving the financing condition converts a conditional deal into a firm obligation, and if he cannot close he is exposed to forfeiture of the deposit plus damages for the shortfall. She should also have confirmed in writing that the family loan was not documented, because an undocumented promise of funds is not financing.
Documentation best practice: a file note dated the day of the waiver recording the conversation, the advice given, and Tomas's instruction; a written confirmation sent to Tomas summarizing the risk and his decision; and a copy of the signed waiver. If the brokerage has a policy requiring written acknowledgment before a client waives a financing condition, she should follow it.
She must not pressure him either way, and she must not alter the agreement or backdate anything. If Tomas later claims he was misled, the contemporaneous record is her protection. She should also notify her broker of record, since a client proceeding against advice on a firm deal is a risk-management event the brokerage should know about.