What is Subject Removal?

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The subject removal process is an extremely important process to understand for both the buyer and the seller in a real estate transaction.

If you’re confused about the subject removal process, when the deposit is due, or what either of those terms even mean – then this blog post is for you.

What is subject removal ?

The subject removal period works as a great safety net. It includes “subjects” which are essentially conditions that must be met in order for the deal to become official.

These subjects might include: subject to financing, inspection, property disclosure statement, title search, or strata documents – to name a few. These are listed in the terms and conditions section of the contract of purchase and sale.

Subject removal period is typically 7 days long (i.e. if you put an offer in Monday, subject removal would be due by the following Monday) and allows you to organize all of your affairs, such as making sure your financing is in place and an inspection on the property or building has been done.

The most important factor to consider in the subject removal process is TIME, and the banks, inspectors, and/or property management companies likely aren’t open on weekends or stat’s. By putting them in a time crunch, you risk not being able to remove subjects and the whole deal collapsing. With that in mind, if you are presenting an offer and the 7 day S/R time falls on a weekend or a STAT holiday, try to negotiate for a longer subject removal date – even if it’s by a day or two!

Do you lose money if you go through subject removal and choose NOT to remove subjects?

A number of our clients initially have confusion regarding the subject removal and the deposit. The deposit is there as collateral to compensate the seller in the case that the buyer does not complete the deal.

So the usual question is: when do I have to hand in the deposit and if I don’t remove subjects do I lose any money? The answer lies in how the contract is structured. Typically, if there is a subject removal process the deposit will be due either upon subject removal or within 24 hours after you have removed subjects. This means that if you back out of the deal during subject removal because you couldn’t obtain adequate financing (ex.) then you would not lose any money as you would not have handed in your deposit. Again, in the typical scenario the deposit is only due if you are approve and choose to remove subjects. The deal then becomes “firm” and the deposit is due.

In the Tri-Cities and Greater Vancouver, the deposit is usually 5% of the purchase price and will be held in trust by the buyer’s agent’s brokerage. This deposit will then form a part of your down payment.

So here is an example of how things might go: 

Monday (November 14) – You put in an offer with your realtor & it is accepted, subject to financing, subject to inspection, subject to receiving and approving the title search, and subject to receiving and approving the property disclosure statement.

Monday (November 14) until following Monday (November 21) – Begin working to remove all subjects. Hire and schedule a home inspector to come by at least 2 days before the date of subject removal. Notify your bank that you have an accepted offer and have them begin the official financing approval process. Obtain all documents including the title search, property disclosure statement, and strata documents (if necessary) to begin reviewing. Follow up on any questions or concerns you may have with the listing agent.

By the subject removal date (Monday November 21), you have two options:

  1. Remove the subjects, and hand in your deposit of the purchase price. The deal is now firm.
  2. You do not remove subjects because you do not approve of 1 or more of the subjects and the deal collapses. (i.e. you weren’t satisfied with the inspection report)  **if you do not remove subjects, you do not need to pay the 5% deposit.

Can I get an extension on subject removal?

You can ask for an extension, but that doesn’t mean it’s guaranteed. In order to extend a deal, the seller(s) and buyer(s) both have to sign an addendum to the contract stating that the subject removal date has been extended, with the date included.  

The seller does have the option to reject the buyer’s request to extend, and in this case the buyer can choose to remove the subjects by the date and time originally agreed to despite previous reasons to ask for an extension, or the buyer does not remove subjects and the deal collapses.

If you’re thinking of purchasing in the near future and are looking for a realtor to help you get started, we’re here to help! Feel free to reach out to us anytime at 604-341-9937 or [email protected]