FLASH SALE! - "FINANCIAL MODELING COURSE BUNDLE AT 60% OFF" Enroll Now

Conditional Sale

Updated on March 27, 2024
Article byGayatri Ailani
Edited byGayatri Ailani
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Conditional Sale?

A conditional sale is a type of sales contract in which the transfer of ownership of a property or item is contingent upon fulfilling certain conditions. It aims to protect both the buyer and the seller in a sales transaction by defining the terms and conditions of the sale.

Conditional Sale

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Conditional Sale (wallstreetmojo.com)

For the buyer, it ensures they will only take ownership of the property or item once certain conditions are met. For the seller, it ensures that they will receive full payment for the property or item before transferring ownership. Thus it helps to avoid misunderstandings or disputes in a sales transaction.

Key Takeaways

  • In a conditional sale, specific requirements must be met before ownership of a product or piece of land is transferred. Therefore, the sale is contingent upon the fulfillment of these conditions.
  • A conditional sale’s terms and conditions are specified in a contract, which is a binding legal document. It usually contains information like the selling price of the item or property.
  • A contract to sell is substantially different from a conditional sale in that it is a legally binding agreement that, once signed, binds both parties to undertake the sale. Such a contract does not have any contingencies or conditions.
  • In an absolute sale, there are no conditions or contingencies, and the buyer immediately takes possession of the property after the transaction.

Conditional Sale In Real Estate Explained

A conditional sale is a type of sales contract commonly used in real estate, where the transfer of ownership of a property is contingent upon fulfilling certain conditions. These conditions may include the payment of a specified amount, the completion of repairs or upgrades, or the satisfaction of other requirements agreed upon by the buyer and seller. The property remains in possession of the seller until the conditions have been met.

A conditional sale in real estate differs from an unconditional sale, in which the transfer of ownership occurs immediately upon the contract’s signing without any conditions. It is also important to note that conditional sales in real estate may have different regulations and laws depending on the jurisdiction. It can also be used as a financing tool, where the buyer purchases the item or property by paying installments over time until the final price is paid and the ownership is transferred.

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Conditional Sales Agreements

A conditional sales agreement is a legal contract that outlines the terms and conditions of a conditional sale. It typically includes details such as the price of the property or item being sold, the conditions that must be met before ownership is transferred, and any other agreements or stipulations between the buyer and seller.

The agreement can also include details such as the duration of the contract, the payment schedule, and penalties for default. It will also include the rights and obligations of both parties, such as the buyer’s right to inspect the property or the seller’s obligation to make repairs or upgrades.

It’s important for both the buyer and the seller to fully understand the terms and conditions of the agreement before signing it, and it’s best to have it reviewed by a lawyer. In addition, the conditional sales agreement should be written in clear and specific terms to avoid ambiguity and ensure both parties understand their rights and obligations under the contract.

Once the conditions have been met, the buyer will pay the remaining balance, and the seller will transfer the ownership of the property or item to the buyer.

Examples

Let us look at these examples to understand the concept better:

Example #1

An example of a conditional sale in real estate would be a buyer agreeing to purchase a property for $500,000 on the condition that they can secure a mortgage with a specific lender. The buyer and seller would sign a conditional sales agreement outlining this condition and other terms of the sale, such as the closing date and the buyer’s right to inspect the property.

Once the buyer has secured the mortgage, the condition is considered fulfilled, and the property ownership is transferred to the buyer. The buyer will then pay the remaining $500,000 to the seller, and the sale is completed.

Example #2

Suppose a buyer is interested in purchasing a property currently listed for sale. The buyer has a current home that they need to sell before they can purchase the new property. The buyer and seller agree to a conditional sale, with the condition being that the buyer must sell their current home before the sale of the new property can be completed.

Both agree on a specific date by which the buyer must have sold their home. The buyer must provide the seller with proof that their current home is under contract and set to close within the agreed-upon timeframe. If the buyer can sell their current home within the agreed-upon timeframe, the new property will be sold. If they cannot sell their current home within the agreed-upon timeframe, the sale will be canceled, and the deposit will be returned to the buyer.

Conditional sale vs Contract to Sell vs Absolute sale

The difference between a conditional sale, a contract to sell, and an absolute sale are as follows:

  • The conditional sale is an agreement that gives the buyer the right to purchase a property if certain conditions are met,
  • A contract to sell is a binding agreement, i.e., once it is signed, both parties are obligated to follow through with the sale. A contract to sell has no contingencies or conditions to be met before the sale can proceed.
  • An absolute sale is when the property is sold without any conditions or contingencies, and the buyer takes possession immediately after the sale.

Frequently Asked Questions (FAQs)

What does conditional sale mean when buying a car?

Conditional Sale merely divides the total cost of the vehicle (less your deposit) throughout your plan because it anticipates that you wish to eventually own the vehicle at the end of your finance term.

What are the features of a conditional sale agreement?

Some common features of a conditional sale agreement include the following:
 
-Retention of title: The seller retains the title to the property until the buyer has met the conditions of the contract.
-Payment terms: The contract specifies the payment terms, including the amount of each payment, the number of payments, and the due dates for those payments.
-Default: The contract may specify the consequences for default, such as the right of the seller to repossess the property if the buyer fails to make payments.
-Interest: The contract may include provisions for interest on overdue payments.
 

How does a conditional sale agreement work?

A conditional sale agreement sets out the terms and conditions under which the buyer will purchase an item or property from the seller. For example, the buyer agrees to pay the seller over a specified period. In addition, the seller agrees to transfer ownership of the item or property to the buyer once the buyer has fulfilled all contract conditions.

This has been a guide to what is Conditional Sale. We explain its agreements, compare it with contract to sell and absolute sale, and present its examples. You can learn more about it from the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *