Being a first-time homebuyer can be overwhelming to say the least. Between house hunting and being pre-approved for a mortgage, it can be hard to find time to catch your breath. In August 2012, I became a first-time homebuyer when I purchase my dream home, a beautifully-renovated three bedroom bungalow in Toronto east. I was overjoyed to be a homeowner – not just because I bought a house with everything I wanted, but because I had finally purchased a house after almost three years of looking and two failed offers.

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Clean Offer vs. Conditional Offer

There are two types of offers: a clean offer and conditional offer. A clean offer is as the name suggests, an offer free and clear of any conditions. When the seller accepts your offer, the deal is finalized. If you back out, not only could you lose your deposit, but you could get sued.

A conditional offer is when you include at least one condition that must be satisfied in order for the deal to be finalized. You can include a condition for just about anything, but the most common conditions are conditions of financing and home inspection and they typically come with a short deadline of a matter of days.

What Type of Offer Should I Make?

The type of offer you make depends on the type of market you’re in. In a buyer’s market where there are many seller and few buyers, you’ll usually be able to get away with including conditions in your offer. However, in a balanced or seller’s market, you could put yourself at a distinct advantage by including conditions, especially if you’re in a multiple offer situation with rival buyers.

Conditions Can Cost You Money – and Your Dream House

I wish my real estate agent had done a better job of educating me on conditions. Even though I was pre-approved for a mortgage, I included a condition of financing on the offers on my first two properties – big mistake!

The first house I looked at was another three bedroom bungalow. It had everything I was looking for – three bedrooms, newer renovations, and a basement apartment to bring in some rental income. I was only competing against one other buyer (a miracle in Toronto’s red-hot market). Even though I made an offer above asking and $4,000 higher than the other buyer, the seller chose their offer instead. Why? Because I included too many conditions. Not only did I include a condition of financing, but I also included a condition of home inspection.

As the saying goes, a bird in the hand is worth two in the bush. Sellers will often accept a clean offer for less than a conditional offer for more. A seller would rather have a sure thing – a clean offer – than worry about whether the deal will close under a conditional offer. What if your financing isn’t approved? What if the home inspection turns up some unexpected costly repairs? You should think long and hard before including conditions in your offer, as they could cost you money and your dream home like me.

Conditions Done the Right Way

Don’t just include conditions for the sake of including conditions – only include the conditions you need to. If you’re already been pre-approved for a mortgage, you probably don’t need to include a condition of financing.

While I wouldn’t advise skipping a home inspection just to present a clean offer, you can get a pre-inspection – an inspection done in advance of presenting your offer – if you’re in a multiple offer situation. The advantage of that is you’ll be able to present a clean offer, although there’s no guarantee the seller will accept it, which means you could be out $400 for a home inspection.

On my third home – the house I ended up buying – I didn’t make the same mistake with conditions. The seller was holding back offers, so I decided to make a bully offer above the asking price. The only condition I included was a home inspection and I made a tight deadline of only two days. This strategy worked perfectly, as I was able to buy my dream home without the headache of dealing with a bidding war and have the peace of mind knowing I was buying a rock-solid investment.

Are you a homeowner? What type of offer did you make when buying?

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.