The Ins and Outs of An Offer to Purchase Agreement

Private Property South Africa
Lea Jacobs

An offer to purchase may not be worth the paper it is written on if the buyer is not in a solid financial position to pay for the property or if the deal is based on the condition that another property has to be sold.

There are times when a seller is going to receive multiple offers. It is perfectly understandable that a seller will accept a higher offer and reject a lower offer from another buyer. However, in today’s market, all is not quite as it seems and just because the offer looks good, it doesn’t mean things won’t come back to bite if there are certain conditions attached to the sale.

In today’s world, cash is king and anyone receiving a cash offer, even if it is for a lower amount, should carefully weigh up the pros and cons before making a decision. It has become far more difficult to raise bond finance and even those who would have automatically qualified for a home loan a few years ago are finding that the banks are not always willing to grant a mortgage.

Today, most deals concluded are reliant on the sale of the buyer’s property - unless the buyer is purchasing for the first time. The downside to accepting an offer that is dependent on the sale of another home is time. In FNB’s Property Barometer report published in early July, John Loos stated that the time the average home stays on the market has risen from 15 weeks and 6 days to 17 weeks and 4 days. This is bad news for those who want to fund their new purchase with the sale of their previous property.

Once an offer to purchase has been accepted, the home is off the market. No other offers may be considered which in good times, when property sells quickly, is not a usually a problem. When the property market slows and buyers are thin on the ground though, this can become a major hiccup.

Although it is in everyone’s interest to give the buyer time to sell a property, 17 weeks is a long time in anyone’s book, particularly when one considers that this period excludes the length of time it takes for the transfer to go through and for money to be paid over.

The other factor that can affect a deal is the financial strength of the buyer. Most banks require at least a 10 percent deposit, although some buyers are asked to put down as much as 30 percent before a bank will consider financing the deal. These days the chances of receiving a 100 percent bond are pretty slim. Most buyers are fully aware of this and those who are serious about buying property know that the banks are far more likely to agree to finance a deal if the buyer is willing to put his money where his mouth is.

A buyer who has ready cash available for a substantial deposit, even one who has offered less for the property, may well be in a better position to fund the transaction.

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