Lately, I’ve increasingly been running into something on the homes I have been showing to prospective buyers - the SPP (or SBP). An SPP is an offer that has been accepted on a particular house, conditional on the Sale of the Purchaser’s Property, hence the SPP, or Sale of Buyer’s Property (SBP). They are two names for the same thing, and it is something that is very common in the run up to the Spring Market.
An SPP is a tool used by Realtors when they have located the home their clients would like to buy, but still have not sold their current home. The condition is inserted in the offer just as any other condition, such as financing or home inspection condition. There is, however, one major difference - the inclusion of what we call an Escape Clause.
The Escape Clause stipulates that the sellers can continue to market their home for sale, and should they accept another offer from new buyers, the original buyers have a specific amount of time to remove their conditions and purchase the house, or allow the sellers to sell to the new buyers. Think of it more as a right-of-first-refusal on the part of the original buyers.
There are two things sellers should take note of before accepting an offer with an SPP…
Firstly, what is the duration of the Escape Clause? A typical Escape Clause is for a period of 24 to 48 hours, and I have sometimes seen as long as 72 hours. A longer period will turn-off a potential buyer from making an offer, as they will not want to wait to find out if they are moving forward with their purchase. Additionally, if a buyer can’t decide within 24 or 48 hours whether or not to proceed with the purchase, no amount of time will be enough to decide. You can either carry both homes, or you can’t.
If you find yourself as the buyer in this situation, putting in an offer with an SPP, you should get all your paperwork to your mortgage professional, and have everything set up for the possibility of your hand being forced. That way, if you need to waive the condition, you won’t need more than the agreed upon time to make the decision. Once you find out that you can carry both homes, decide whether or not you want to! By taking these steps early in the process, you will save yourself a lot of stress in the eventuality that you will have to make this decision. You should also fulfill your other conditions, where possible, so as to eliminate any obstacles you will have to overcome to remove your conditions.
As a seller, your Realtor should be pressing for no more than a 24 hour window for the Escape Clause. If things are done properly, it is a more than adequate amount of time.
The second thing you should look into, or rather have your Realtor look into for you, is whether or not the house in question that has to sell is currently on the market. If so, what are its current Days on Market (DOM)? What is the average marketing time for that area? How is it priced? Sometimes, having your Realtor do a quick CMA on the subject property to determine whether or not it will sell quickly is a good idea. More often than not, I am running into situations where the house that has to sell is over-priced, under-marketed and stagnating. This will result in the original offer going nowhere, and the buyer’s will look to extend, and extend, and extend… This never-ending loop can be very stressful! However, if the house is aggressively price and positioned, you should feel at ease accepting the SPP, as it should not be too long before you find out that your home sale is moving forward.
As I am writing this, I am currently representing the second buyer on the purchase of a home, bumping an SPP. There was a 48 hour Escape clause. We are now almost 36 hours into that window, and no indication has been given as to whether or not the original buyers will be waiving the condition of selling their house, or allowing the seller to sell to us. I have been in contact with the seller’s Realtor, and he was given the impression that the original buyers were not in a position to purchase without selling their home, and neither of us can understand the delay in responding. Communication is something that is crucial in the process of selling/purchasing a home. A lack of communication can make the whole process much more stressful than it has to be!
An SPP is more appropriately used when the buyer can purchase the new home, without selling their existing home, but would rather have the flexibility to sell first, before buying. That way, they can minimize the amount of time they have to carry two homes.
If you find yourself in the position of not being able to purchase without selling, our recommendation is to hold-off, get your house sold first. Then make the offer to purchase. Your Realtor can always make your sale conditional on the purchase of a specific property, but that is a topic that will be covered in our next blog post!
Chad Moore - Sales Representative
John E. Smith Realty Sudbury Limited Brokerage
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