Buying or selling a property comes with a lot of paperwork and legalese. However unlike the fine print in your microwave instruction manual you do need to go through the Offer to Purchase with a fine tooth comb.
All Offers to Purchase contain clauses with criteria that need to be met by the seller, the buyer or both parties. As such you’ll find conditional clauses when dealing with a property purchase. The most common conditions include: that the purchase is contingent on the buyer obtaining a home loan or, that the purchase is subject the buyer’s current property being sold.
When it comes to new entrants in the market (i.e. first time buyers) the sale will likely be dependent on the procurement of a home loan. Most new buyers don’t have large deposits to put down and, more often than not, will not qualify for a 100% loan.
Buyers who are already home owners are likely to opt for a clause that renders the sale contingent on the sale of their current home. In both cases these clauses serve to protect the buyer from getting trapped into a commitment they may not be able to honour.
Ensuring that these clauses are listed in the Offer to Purchase is the first step. What is vital however is to refine them in the following ways: If the buyer needs to obtain a home loan it is important to indicate the specific amount that will be needed. Should no amount be specified the seller could hold a buyer to the contract even if a loan for a lesser amount was granted – leaving the buyer in a difficult position.
A home owner looking to sell his property first should indicate that the contract will only be binding should he receive his asking price for his current property.
Whilst the buyer is able to protect himself there is recourse for the seller as well. The most important thing for a seller to stipulate in the Offer to Purchase is a definite time frame. The 72 hour clause, as it’s known, basically states that a seller may still market his property (or have an estate agent do so) and accept offers, after having accepted the conditional sales agreement from the buyer.
Should a better offer come along the seller informs the first buyer that they have 72 hours to meet their suspensive conditions or, the seller is free to accept the second offer. According to Home Loans South Africa the time limit needn’t be 72 hours but will need to be a specific time limit agreed upon by both parties. By stipulating a definite time period sellers safeguard themselves against situations where the Offer to Purchase has been signed but, the buyer’s home loan hasn’t been approved or the sale of the buyer’s house drags on for a prolonged period.
“Generally a time frame of 72 hours is used and we’d definitely recommend that sellers ensure that such a clause is included in the offer to purchase. There have been too many instances of sales without the clause dragging on to the detriment of the seller”, says Bruce Swain, MD of Leapfrog Property Group.
Time limits are key to the use of any conditional clauses in an offer to purchase – both for the seller and the buyer.
“Buyers and sellers must ensure that they read and understand the sale agreement prior to signing, paying particular attention to deadlines for meeting any obligations contained therein and consult a reputable estate agent or attorney if there is anything of which they are unsure,” says Swain.