A large number of South Africans make an offer on a new property before they have sold their existing home and many sellers regret accepting an offer that is subject to another sale over which they have no control. It goes without saying that during a boom period when properties are sold quickly and almost effortlessly, betting that a property will be sold in time to pay for the next deal is a virtual no-brainer. This changes, however when the market turns and potential buyers hunker down in their current homes and wait for better days.
Property sales collapse for a multitude of reasons, but one of the most common has to be the domino effect. Here, a sale is subject to the sale of the buyer’s own property. If the buyer can’t sell, the second sale fails as well. Often, these suspensive sales lock the seller into waiting for a certain period - mostly 30 days – for the buyer to find another buyer; hence the term ‘the domino effect’. If the buyer can’t sell his domino falls knocking over the seller’s deal as well.
As if this is not complicated enough, these types of deals often form a chain, with multiple buyers purchasing subject to them having to sell their own properties to afford the one they are buying. If any one of the deals collapses, the outcome will be the same: all subsequent deals collapse.
The average time that a property stays on the market plays a significant role in all of this. According to the latest Estate Agent Survey conducted by FNB, the average time a property stays on the market is 15 weeks. That is close to four months and considering that once a suspensive offer of this kind has been signed, the property is off the market and not open to other offers. Four months is an incredibly long period of time to wait for a deal that may or may not go through. Of course, if everything goes well and all the other deals go through as planned, there’s no problem.
The problem that sellers have is that they have no control on the buyer’s sale. For all they know, the buyers own property is grossly overpriced and is never going to sell within the timeframe required.
One obvious way of overcoming the seller locking himself in to a suspensive sale is to include a clause in the agreement of sale to the effect that the seller has the right to continue marketing his property during the suspensive period and the buyer is obliged to match any other competing offer within an accelerated period, say three days.
Cash is always going to be king, but the next best thing surely has to be a buyer who may still have to raise a mortgage bond, but has no other conditions attached to the purchase. Banks don’t usually take four months to take a financial decision and given that that the buyer has more than likely made a profit on the sale of his previous home and is in a position to put down a healthy deposit, are unlikely to turn down the application.
The upshot of suspensive sales is this: in a slow market and in circumstances where a seller is not receiving any offers, a sale subject to the buyer selling his own property may be as good as it gets. Obviously, the property market would be a much easier place to transact in if all buyers had cash or a pre-approved bond in hand. In the current market these buyers are few and far between. Therefore, subject-to sales have to form part of any selling strategy. This is not necessarily a bad thing, provided that the seller (and his agent) do the necessary homework to ascertain that the buyer’s own sale is feasible.
Buyers, on the other hand, should give some consideration to selling their own homes before putting an offer in on a new property. This obviates all the potential disappointment of anticipating the move into a new home, only to be thwarted by the buyer not being able to sell his own property. In a depressed market, there is little chance of not being able to find a suitable home.