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.

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Many entry-level buyers are losing out on the chance of home ownership because no-one has advised them how to clean up their credit records before applying for a bond.

So says Deon Lessing, owner of the Chas Everitt International franchise serving the Cape Western Seaboard, who adds: “There is huge demand for houses in the R350 000 to R800 000 price range in areas such as Table View/Parklands, and we often get two and even three offers within days of such properties going on the market.

“But sale after sale falls through because the buyers’ home loan applications are being refused – and most often not because they don’t earn enough income to qualify, but because they have a few minor problems on their credit records that could easily have been resolved before they went house hunting.”

Examples include black marks for a store account instalment unpaid because a bill went astray, a credit card instalment paid late because the borrower was on holiday and a cell phone account that fell into arrears because the phone was stolen.

Chas Everitt CEO Berry Everitt says it is actually quite seldom that potential buyers can get as far as signing an offer to purchase while hiding really major debt problems or a string of judgments on their records.

“Unfortunately, though, small and seemingly insignificant infringements send up red flags on the banks’ automated credit scoring systems just the same as big ones, and that often leads to a home loan application being rejected.

“In addition, banks don’t like short credit histories, so potential homebuyers really need to work to reduce debt and pay all their bills in full and on time for at least six months – and preferably a year – before applying for a home loan.

“And in instances where they have had debt problems that are now resolved, they also need to ensure that their names have been removed from the default lists held by the credit bureaux.

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