What is an offer to purchase?
An offer of purchase is a document detailing the conditions of sale for the purchasing of a property. Once signed, the document becomes a legally binding agreement of sale, between buyer and seller.
The offer to purchase usually includes:
- The terms and conditions of sale
- Fixtures and fittings
- Occupation date
- Occupational rent
- Purchase price
- Additional clauses
When can I cancel an offer to purchase?
The first, and perhaps the most important, point to be recognised is that the offer to purchase, if accepted and signed by the seller, is legally binding.
This means that the buyer cannot change their mind unless they are prepared to pay a heavy penalty covering loss of time, expenses and possibly loss of profit through the seller having to accept a lower priced offer.
But, there are exceptions to this rule.
Offers to purchase can be cancelled if:
The offer has been made on a home priced at R250,000 or less.
Here the law allows a five day cooling off/change-of-mind period during which the buyer can cancel the offer, provided they do so in writing.
A suspensive clause in the agreement has not been met
It’s quite common to include suspensive clauses in an offer to purchase, stating that the sale is dependent on a particular condition being met by either buyer or seller.
For example, if the sale of the property is dependent on the buyer’s bond being approved or the sale of the buyer’s house, and the specified bond approval period or the time allowed for the sale of another house expires, the offer to purchase is automatically cancelled.
Either party is in breach of contract
The offer to purchase should be comprehensive.
This means that it should cover all the terms and conditions that a transaction involves, specifying what will and won’t form part of the sales package.
If either party acts in such a way as to breach the terms of the agreement, the offer can be justifiably cancelled.
Clauses in an offer to purchase
If the offer is conditional on the buyer first selling their current home or some other property, this has to be clearly stated.
Likewise, if the sale is subject to the buyer’s bond approval, and the buyer is still awaiting confirmation, this must be mentioned – and a timeframe given for this to be achieved.
The time allowed for the buyer of an existing home is usually 90 days – but, there is a growing aversion among sellers to conditional offers and as the market improves this is likely to increase.
The most successful offers to purchase are those with the fewest conditions attached to them. However, with the agreement of the seller they can be extended on occasion.
Tip: If you’re a first-time buyer, get qualified for home loan pre-approval here.
There is no legal requirement in South Africa to pay a deposit when making an offer to purchase.
However, if you are paying a deposit, make sure that the deposit is put into an independent interest-bearing account, preferably one administered by the attorneys or by the bank.
The interest on your deposit is repayable to you (the buyer) as soon as the transfer takes place, but, only if written instruction to that effect is given to the conveyancer.
If such instructions are not given, the conveyancer is not obliged to pay interest.
Be certain to read over and understand the conditions and costs around occupational rent, as stated in the offer. The transfer of a property can take up to three months to be finalised and disputes about occupational rent are not uncommon.
Read more about occupational rent, and how it works here.
Unilaterally cancelling an offer to purchase can become expensive.
In many cases, the party cancelling the offer can be liable for the commission that would have been earned by the estate agent (anything between 4-7% of the property sale price).
By breaching the contract, you can also become liable for a loss of profit, if the seller has to accept a lower offer.
If in any doubt, contact your attorney before signing the agreement of sale, or contact one of our Rawson agents for advice.