5 May 2023

What is a 'subject to finance' clause, and do I need it included in my home purchase contract?

| Morgan Kenyon
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Business signing a contract

Experts recommend a buyer obtains unconditional approval of finance before they sign a contract to buy a home. Photo: File.

So you’re ready to make an offer on a home. Congratulations! But what does ‘subject to finance’ mean, and what if it isn’t included in your home purchase contract?

‘Subject to finance’ means in essence that, if a home loan is not approved, the buyer has the ability to pull out of their contract without major repercussions.

However, while once common, this clause is now rarely a standard inclusion in the ACT and NSW.

Specialist in conveyancing and property law and director at Velocity Conveyancing Andrew Satsias says the change is all about ensuring an even playing field.

“What used to be common practice 15 to 20 years ago is now quite rare, simply because it exists only to benefit the buyer,” Andrew says.

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“Nowdays, we always recommend a buyer obtains unconditional approval of finance before they sign a contract and commit to a purchase rather than relying on something like a subject to finance clause.”

Andrew says it is important to engage a solicitor to ensure you’re ready before making an offer, whether you plan on doing so at auction, before auction, or through a regular negotiated purchase.

“For an auction purchase, it’s especially important to have finance approval and a review of the contract before you attend,” Andrew says.

“This is because if your offer is successful, you are bound to buy in.

“Standard negotiated purchases are more straightforward, but we still make sure to work with our clients so that they fully understand their contract before they commit to it and pay the deposit.”

houses in front of telstra tower

It’s recommended a buyer obtains unconditional approval of finance before they sign a contract. Photo: File.

When it comes to a pre-auction sale, offers may involve a request for the buyer to waive their cooling-off period. In order to do so, buyers must have a section 17 certificate signed by a solicitor.

A section 17 certificate confirms that you have had a conversation with your solicitor and fully understand that upon its handover, the cooling-off period will be waived and your contract will be binding and unconditional from the moment of exchange.

“Legislation provides for a five-day cooling off period for you to get some legal advice and decide whether you wish to proceed with the purchase,” Andrew says.

“You may be asked to waive this period using a section 17 certificate if you’d like to make a pre-auction offer and secure the property.”

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Andrew says staff at Velocity Conveyancing are experts in property purchase law, and provide their services to more individuals than any other solicitor’s practice in the Canberra region.

“We are one of the few law firms that specialises in this area of law in the ACT,” Andrew says.

“This means all of our staff have the expertise to provide advice on the legal risks associated with any property purchase.

“We can also steer them toward proper advice from qualified experts such as builders, accountants, brokers and valuers.”

Established in 1968, the Velocity Conveyancing Group has more than 50 years of experience in the ACT, NSW and Victoria. They have local offices in Canberra City, Belconnen, Gungahlin, Tuggeranong, Inner South and Woden.


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Also reading the article you’d think Velocity only work for interest of the purchaser, so have little care for the seller

Banks years ago didnt do “pre approval” (they needed to know what property you were buying) so thats why the subject to finance clause was put in the contract. But by the same token the seller can also put in a clause saying they until finance is confirmed they are free to negotiate with other buyers and can accept other offers that are not subject to finance. I seem to recall (as a seller) I had a clause along those lines

Bob the impala11:55 am 05 May 23

“Subject to finance” is a valid concept, offering a decision for the vendor over whether to accept a certain price now or a higher price with uncertainty over completion. Naturally, vendors want both (highest price and certainty) while some buyers may not yet have all their ducks in a row despite being confident of achieving their desired finance. The latter is far less of a problem now that banks have sped up their approval processes from achingly slow to just tedious (according to recent report from some acquaintances). Behaviours and expectations change, need for the clause falls away.

devils_advocate12:28 pm 05 May 23

At best, the “subject to finance” offer could be used as a bargaining chip to lever up the genuine offers to the same level

I can’t imagine the circumstances in which it would be prudent for an agent or a solicitor to recommend to a seller that they accept a “subject to finance” clause when the reality is that it is common for sellers to demand a s.17 certificate to even consider an offer (basically puts the private treaty offer on the same footing as a sale by auction)

Bob the impala2:02 pm 05 May 23

I think that (s17 demands) reflects current and recent market power for sellers. It may not always be so. Efficiency in obtaining finance approvals (or not) is a key driver of expectation that it will be sorted beforehand because, it can. So that will persist.

When a seller uses closed tenders rather than treaty (some do, and it is common in some other jurisdictions) then the buyer can add the conditions they please. It does not mean any will be accepted, they are just part of the offer. I know of a vendor who accepted an offer about 3% lower just to get certainty over the higher offer which was s-t-f..

In general, ability to dictate contract terms is a pure function of market power, not personal desire. How many people can negotiate their agreements with Apple? So it is, scaled down, in real estate as market power shifts around.

devils_advocate10:14 am 05 May 23

“Subject to finance” clauses are a largely irrelevant concept because they render the contract so uncertain as to be worthless.

Any seller would opt to go with a buyer who has finance in place already and can exchange unconditionally.

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