Offer to Purchase – Caveat Emptor
Date: 2006-08-22
An offer to purchase is one of the most legally binding contracts where verbal agreements hold no water. Yet, we have witnessed how even some of the most astute property investors have failed to protect themselves by carelessly signing an offer to purchase that compromises their interest.
Many first time homebuyers sign an offer to purchase thinking that they are just making an offer and can change their minds afterwards. Once an offer to purchase has been countersigned by the seller it becomes a legal and binding contract and nothing on it can be changed accept by a written and signed mutual agreement.
Leave no Stone unturned
Remember you are buying the property “voetstoets”, as is. Take your time examining the property. Don’t just picture your furniture in place, actually look for faults, cracks, leakages and structural problems. Look behind mirrors and paintings.
Nominations
Prior to making any offer, make sure you know in whose name or entity (trust, company or close corporation) you want the property to be registered in. Nominations must take place within the same day, failing which you could be liable for double transfer duty.
Negotiating Power – Balancing your Options
Use the offer to purchase as a negotiating tool. Picture an ideal transaction; perfect price, no deposit, favourable interest rates, your own attorney, plenty of time to sell your existing property, occupation in three months, all cracks fixed, lawn cut, ugly carpets replaced etc. All this and more must be put in your offer to purchase. If the seller i s not happy, you can always renegotiate your terms. If you failed to mention anything that is important to you and the seller has countersigned your offer, it’s too late to make any demands.
However, equally important, you need to take into consideration the demand for the property. If the property has been long on the market you can afford to be “picky”. Should there be substantial interest in the property, you need to sign a favourable offer to purchase, ensuring that your offer is the one the seller accepts, but still protect your interests.
Unauthorised Construction
Obtain a plan of the property and especially where renovations have been made, ensure that they have been municipal approved. Where a foundation or external plumbing has been done in the last 5 years, an NHBRC (National Homebuilders Registration Council) certificate is required.
Obtain the square metres of the land and buildings and make sure you know where the boundaries are.
Remember, should the neighbours have any claim against you regarding overstepping the boundaries or the municipality has a problem with unauthorised construction, the onus lies on the existing owners to rectify the problem.
The Bond Clause
It is your right to choose the financial institution or property finance consultant that arranges the mortgage bond finance on the property. Any contracts that do not offer you the option of exercising this right are in contravention of the Estate Agents Code of Conduct. Please refer to our article “Unethical Behaviour and Misconduct in the Property Industry” for further information.
Once again, we urge you to exercise this right, bearing in mind that a representative nominated by any other party may not necessarily be looking after for your best interests.
Give yourself enough time to obtain the finance, normally 14 days. However, if your finances are not in order, building plans have to still be drawn up or an entity has still to be registered, take into consideration the time required to have all these supporting documents ready for submission.
The Transferring Attorney
It is the responsibility of the transferring attorney to ensure that both parties strictly adhere to the terms and conditions of the offer to purchase or sale agreement.
It is standard practice, but not law, for the seller to nominate the transferring attorney. Many sellers don’t have an attorney of preference, so the estate agent may suggest one. Please note, according to the Estate Agents Code of Conduct, they may recommend a firm of attorneys, but are not allowed to enforce one.
My rule of thumb here is; in grey situations where decisions can go either way, whose interests are being protected? As you will be paying all the transfer costs, including the attorneys conveyancing fees, why not nominate the transferring attorney. Should the seller refuse to accept this condition and you don’t want to lose the property for this reason, at least nominate the attorney that will be registering the bond. The only requirement is that this attorney is on the banks “A panel”. In this way, you will have someone on your side should you require legal advice. It’s also a secure feeling knowing that bond registering attorney holds the final payment.
In many instances, the transferring attorney is willing to conside r a discount should he /she be doing both transactions i.e. the transfer and bond registration. You need to decide what is more important to you, your money or your protection.
When should your Offer Expire
When making an offer, ensure that your offer expires as soon as possible, within a reasonable time frame. If too much time is granted, unethical agents could use your offer as a bargaining tool to obtain a better offer from another buyer. Where possible, make sure your offer expires before the next show-house.
Occupation and Possession
Occupation is when someone physically occupies the property. Possession, on the other hand, is when a person utilized, but not necessarily occupies a property e.g. a property that is being tenanted by a third party. Ownership only changes on registration of transfer. Thi s can all happen simultaneously or at different stages of the transfer process. However, if it doesn’t happen simultaneously, the party occupying or possessing the property is liable to pay the owner occupational rent. Many contracts are drawn up in such a manner that only the purchaser is liable for occupational rent. Always ensure that on transfer if the seller is occupying or possessing the property for any reason that he too is liable for occupational rent.
If your offer is subject to transfer and possession on vacant occupation, avoid taking transfer until such time as the property is completely vacant. Otherwise, you may be facing eviction problems.
You may be tempted to renovate a property, especially if it is vacant, prior to transfer, but bear in mind that you are in fact improving somebody else’s property, which expense will be difficult to recover should the transaction go “b elly up”.
The 72 Hour Clause
If you have made an offer subject to selling an existing property, the agent may continue to market the property you’re interested in purchasing. Should the agent receive a better offer, she must present it to you in writing and you’ll then have 72 hours within which to fulfil the “subject to” condition or remove it completely. Please note that you have an option of removing the condition.
Seller has to Purchase
If you have agreed to an offer that is subject to the seller purchasing another property, ensure that this condition has an expiry date. Remember you are contractually bound during this period and you cannot make another offer on another property, unless it is subject to the cancellation of the initial offer to purchase.
Secti onal Title Units
When purchasing a sectional title unit or in townhouse complex it important that you not only examine the property you’re interested in, but also examine the common areas. Find out when last has the complex been painted. How are the gardens, pools and fences kept?
But more importantly, examine the financial statements of the body corporate or homeowners association. We have on numerous occasions come across body corporates that are running at a loss with municipal accounts outstanding and levies in arrears.
Foreign Sellers
It is vital for you to find out the seller’s residential status. Where the seller is a non-resident, SARS will hold purchasers liable for holding back 5% of the proceeds of the sale, to be paid over to SARS. Even though estate agents and attorneys are aware of this, SARS has specifically nominated the purchaser as the responsible agent.
There is a lot more to signing an offer to purchase than meets the eye. A willing buyer and a willing seller are often willing to compromise, but make sure that you are not caught unawares.
My advice “Don’t rush in, where Angels fear to tread”.
Tess Rodrigues
Managing Director