Buying property: offer to purchase

You have done your research and checked your credit rating, gone house hunting and found the home of your dreams – now what? It is time to fill out the paperwork and make an Offer to Purchase. For many home buyers this may be a daunting task and the ins and outs of making an offer could be vague.

Adrian Goslett says, fundamentally, an Offer to Purchase is an agreement that contains the terms and conditions of the property transaction. “The terms and conditions must be agreed upon by the buyer and seller of the property on a number of issues before the document is signed. Everything that is agreed upon by both parties must be listed in the Offer to Purchase document.”

Goslett says the Offer to Purchase must contain in writing all the terms on which the parties have agreed. This should cover things such as the date of occupation, occupational rent, fixtures and fittings and the conditions of sale. Once the Offer to Purchase has been concluded and signed by both parties it will become the Deed of Sale on that property.

The more specific an Offer to Purchase is the better. If all aspects of the sale have been covered and written into the document, he says, there will be very little room for either the buyer or seller to negate anything at a later stage.

“For example, certain curtains or furniture may have been specifically manufactured for that particular home, so it would make sense for the seller to include those items with the home. However, if those items are not listed in the Offer to Purchase, the seller has no obligation to leave them.

“If the document is particular in its detail, there is less confusion down the line on what was promised and what was not,” says Goslett.

It is important that both parties agree on what stays in the home and what goes with the previous owner. As a general rule, anything that is nailed, glued or screwed down has to stay and everything else can go.

In some cases buyers may make an Offer to Purchase while they currently own an existing property or it may be made subject to the buyer obtaining the necessary finance.  In these instances, the Offer to Purchase may include a suspensive condition that the sale is subject to the bond approval or the buyer’s current property being sold. While the bond approval condition usually includes a time limit of seven to 10 working days, the time limit for the buyer to sell his home has to be agreed upon. Once the buyer has received confirmation that the mortgage has been approved or that his home has been sold, he must notify the agent immediately to ensure that the offer becomes unconditional. This is a vital part of any property transaction, because if the Offer to Purchase falls through, the entire agreement will become null and void.

According to Goslett an important aspect that should be covered in the Offer to Purchase is the date of occupation. This is the date that the property will be vacated by the seller so that the buyer can take occupation. It is essential to clarify this date so that both parties can make the necessary moving arrangements. The date of occupation will have a bearing on whether the buyer will have to pay occupational rent. This is the rent that is paid to the seller by the buyer if they have taken occupation before the property has been registered in the new buyer’s name.

Goslett says that this works both ways, in that if a seller has to stay in the home after the home has been registered, he would have to then pay occupational rent to the new buyer. This rental price can be agreed on by both parties with the help of an agent.

He says that buyers need to be absolutely happy before they conclude the Offer to Purchase, because once it has been signed and accepted by the seller, they will be contractually obligated to that transaction. Buyers must read each section of the contract carefully and make sure that they fully understand what the document is saying. If they are unsure of any clause in the document they should ask their agent questions to clarify and make sure. If further clarification is necessary, buyers could request that their lawyer read it and give advice where necessary.

Once the document has been signed, all negotiations have been concluded and any relevant cooling-off period has passed, the buyers deposit should be placed into an interest-bearing trust account until transfer of ownership is complete. The interest on this account will be for the benefit of the purchaser.

“The primary objective of an Offer to Purchase is to make the buying and selling of property as transparent as possible. If understood by both parties and used correctly, the Offer to Purchase is an invaluable part of any property transaction,” says Goslett.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Property Ownership Options

When considering buying property such as  a unit, complex, or free standing house in South Africa , the buyer must be aware of the various options available to them in terms of ownership. The most commonly used form of ownership in South Africa is freehold, though sectional title, leasehold and share block are other options available.

Other main factors  in deciding the type of name your register your property in, are security (protection of the property as an investment) and tax implications. The most popular choices of ownership available are:

• Individual or freehold ownership
• Joint ownership – two or more owners in partnership. Married or unmarried
• Close corporations
• Companies
• Trusts

Individual or Freehold Ownership

In terms of freehold or individual ownership, the buyer can acquire full ownership of the property, and as a result are free to do with it as they please, as long as their plans do not interfere with municipal regulations. This will allow the owner to sell the property at any desired time, rent it out, or paint and alter as they like. Freehold ownership is the simplest form of property ownership, as it allows the owner full responsibility of the property. As the owner of the property, responsibilities include the paying of rates for services such as water, sewerage, electricity and refuse removal, and the maintenance of grass verges etc. When purchasing freehold property, the buyer is given the title of the property, and new ownership is registered at the Deeds Office, which records ownership and other rights. relating to immovable property.

Benefits of Individual or Freehold Ownership

• It is the safest form of ownership.
• The registration process is relatively straight forward.
• Transfer duty is less than some of the other types of ownership.
• Buying property in partnership with someone else can provide the opportunity to get into the property market that you may not be able to afford on your own.

Disadvantages of Individual Ownership

• Legal action by creditors of any of the owners can force owners to sell the property to cover the debts of one of the parties. (up to the value of his/her share in the property.)
• Estate duty is high, 25% for estates in excess value of R1 million.
• Capital Gains tax is payable on the sale of a property.

Ownership in the name of a Trust

A trust can be established by contract over a short period of time, usually less than one month. Parties involved in a trust are the founder, who formed the trust, and the trustees. The founder places the assets under the administration of trustees, and the trustees look after the assets for the beneficiaries. There are  a number of different forms of trusts available such as business or family, however, property is often registered in the name of a family trust. There are strict regulations which prevent people from moving their assets into a trust before they file for bankruptcy.

Benefits of Purchasing property in a Trust

• Property bought in a trust is separated from the personal estates of the trust holders, and as a result of this, there will be no tax implications if one of the beneficiaries should pass away.
• Personal creditors (those owed money by individual members of the trust) cannot take action against trust property.
• Should any of the beneficiaries pass away, the trust will remain unaffected, and no estate duty will be payable.
• Tax is lower than that paid by companies
• A trust can be set up by anybody, and a trust has a legal personality
• A trust is not affected by a divorce

Ownership Registered in the name of a Close Corporation, Company or Informal Body

• Informal bodies such as Churches and associations may own property in South Africa
• Close Corporations are entitled to buy property on condition that Section 40 of the Close Corporations Act is not violated. This refers to the conditions of financing of the purchase. Capital Gains tax is payable. Close corporations are formed by between one and ten people, with each member’s interest registered as a percentage holding. There are no shares involved.
• Companies are also permitted to purchase property, on condition that Section 38 of the Companies Act  is not contravened. This prevents companies from purchasing their own shares

Benefits of Ownership in name of a Company or Close Corporation

• A company or closed corporation is a separate legal entity and as a result is not responsible or the debts of its shareholders.
• No transfer duty is payable
• Property cannot be transferred to heirs on the death or resignation of shareholders.

Disadvantages of company ownership

• As the property is expected to generate income, taxes paid are higher than those paid by individuals.
• Capital gains tax is applicable when the property is sold.
• The running of a company is a rather complex process.

Other forms of ownership

Property can be bought in the name of a partnership but due to many disadvantages this form of ownership is not the most popular. The main disadvantage is that the property forms part of the personal estate of all the partners and as a result of this, is exposed to legal action by the creditors of individual partners.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za