Conditional offers returning to lukewarm London housing market

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Buyers in the London area’s sluggish real estate market appear to be using their leverage to include “escape clauses” in purchase offers, local realtors report.

Escape clauses are provisions in home sales that allow either the buyer or the seller to back out of the agreement under certain conditions.

No. 1 among conditional offers locally are buyers wanting to sell their existing home first before committing to their new purchase.

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The trend is a reflection of a slower housing market in which homes are taking longer to sell and sellers, in some cases surprised by the lack of interest in their properties, are agreeing to conditional offers as a way to secure a deal, even if it may delay closing.

That’s a sharp reversal from the pandemic years when buyers, desperate to buy a home, were willing to forgo even basic house inspections, said Phil Bailey, a real estate agent with HouseSigma Brokerage.

“During the pandemic, you couldn’t entertain a financing condition or even home inspection condition,” said Bailey, adding he’s dealt with escape clauses, more common on the luxury side of the market, even on properties in the $500,000 to $600,000 range.

“I haven’t seen (escape clauses) nearly as much as I’ve seen it in the last year or so, where it’s happening more and more,” Bailey said. But “it’s giving people flexibility to make sure that they can get their home sold at the price they need to sell it at before they make the move to the new property.”

It was an assessment echoed by Drew Johnson, broker of record for Coldwell Banker Power Realty.

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“During the pandemic period, the market was such a strong sellers’ market that a seller wouldn’t even consider a conditional sale,” he said. “It just didn’t happen.”

The pandemic years also seem to have altered people’s expectations about their home values and the speed at which they should sell.

Last month, for example, the median days a home stayed on the market – the median is the midpoint between the fewest and most number of days – was 20. In October of 2021, amid the COVID-19 pandemic, it was seven.

It all came to a halt in the spring of 2022, with local homes at record average selling price of $825,000, when the Bank of Canada began raising interest rates as a way to fight inflation.

Even after several consecutive cuts to interest rates this year, home sales, while rising slightly last month, have remained subdued.

So far this year, 6,898 homes have exchanged hands, which is only five per cent more than at the same time in 2023, the worst year for home sales in the London region since 2000.

“I think one of the reasons why the market is slower right now is people have been told interest rates are going to decline further, and so they’re on the sidelines, waiting,” Johnson said.

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“Also, sales are down from what they were during the pandemic, but we’ve seen inventory grow by 20 per cent in the last 12 months.”

That increase in inventory has given buyers more options and flexibility when house hunting while putting pressure on sellers wanting to close on their properties fast.

That’s why for Johnson, escape clauses are likely to remain somewhat common in the near future.

“It is an increasing trend, and we think it’ll probably continue at least for the first three to six months of next year,” he said.

jjuha@postmedia.com

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