Putting in an offer to purchase (OTP) and having it accepted by the seller is a great feeling, but this doesn’t mean that the deal is complete and the house is yours. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, there are still a few more hurdles that need to be dealt with between the time that the offer to accepted, and the keys to the front door are handed over. Not being able to overcome any one of them, could result in the deal falling through and the buyer having to start the house search over again.
“Knowing what the possible hurdles are and how to prepare for them will put buyers in good stead when going through the home buying procedure,” says Goslett. “Understanding what problems could arise during the process will allow buyers to either prevent the issue or mitigate it to some extent.”
Hurdle 1 – Mortgage loan not granted
Ideally a buyer should always get preapproval from the bank, with a written loan commitment letter from the bank that they can show the seller. Likewise, sellers should preferably deal with buyers who have preapproval. However, even if the buyer was preapproved, it is not an absolute given that the buyer will obtain a loan. Certain factors could change causing the finances to fall through, such as a sharp increase in the interest rate affecting affordability of the loan, a change of employment or job loss.
Hurdle 2 – the property appraisal isn’t high enough
In order to protect their interest in the property, the mortgage bank will send an appraiser to the home to have it valued. This is to ensure that the home is worth at least as much as the buyer is willing to pay for it or that the mortgage loan amount is at an acceptable ratio to the value to the bank. If at any stage in future the buyer defaults on repaying the mortgage loan with the bank, the bank wants to be in the best possible position to recoup its losses. In the case where the bank’s appraisal is lower than the purchase price on the offer to purchase, a price reduction may be negotiated with the seller or the buyer will need to pay the difference in cash. If the buyer does not have the extra cash and the seller is not willing to compromise on the selling price, it may be a deal breaker.
Hurdle 3 – You decide to back out of the deal
The OTP should contain a cooling-off period where the buyer will be able to step away from the transaction if the purchase price is below R250 000. All other property transactions above this mark are exempt from the cooling-off period and the agreement becomes legally binding as soon as it is signed.
In terms of the Consumer Protection Act (CPA), a right is created in favour of a buyer to rescind an Offer to Purchase. However, this right is only applicable if the sale resulted as a result of direct marketing. The CPA is furthermore only applicable to transactions where the seller deals with property in the normal course of his business. The fact that an estate agent is involved in the transaction also does not make the CPA automatically applicable to a transaction.
Cancellation of the OTP could be negotiated with the seller and the estate agents involved. If unsuccessful and a purchaser does not comply with the obligations created in the OTP, he will be in breach of contract and if legal action is instituted by the seller and/or the estate agent, the purchaser could be held liable for payment of damages to the seller and estate agent’s commission.
Hurdle 4 – Home inspection exposes a major defect
All sale of property transactions are still according to our legal system subject to the “voetstoots” clause if such a clause in contained in the OTP. Note that the word “voetstoots” need not appear and the clause could be termed “Property sold “as it now lies” or something sililar. This means that sellers are protected against any claims arising from patent (openly visible) defects or even latent (hidden) defects in the property. However, should the seller have known about the latent defect and willfully or fraudulently withheld this from a purchaser, voetstoots does not protect him. However, that said, proving prior knowledge of latent defects are in most instances very difficult.
Nowadays, the effect of voetstoots is often qualified by a disclosure annexure which often forms part of the offer to purchase. Within the annexure, the seller declares in detail what the condition of various aspect of property is.
A buyer whose offer has just been accepted is in a fortunate position in that he can bring the defect under the attention of the mortgage bank. If the defect is serious enough, a bank will not grant a bond. If the issue is not that serious, the buyer should engage the services of an independent attorney (not the transferring conveyancer – as he acts on behalf of the seller) who could negotiate or litigate for a price reduction.
“The transfer process can be a stressful situation for buyers and sellers, especially considering the number of things that need to be organised and dealt with, not to mention the ramifications of not overcoming a certain hurdle. Ideally buyers should take their time and familiarise themselves with the process and its possible pitfalls to ensure that they are ready for any situation,” Goslett concludes.
