The experience and skill of an estate agent, says Bill Rawson, Chairman of the Rawson Property Group, are never more severely tested than when he has to advise his client on the merits on an offer to buy (possibly at a very favourable price) but subject to the meeting of certain suspensive conditions as against a possibly lower offer in cash or with no conditions attached.
“A fairly high percentage of offers with suspensive conditions are prevented by these conditions from being executed. The wise agent will in drawing up the Offer to Purchase insert an acceleration clause stating that should another more favourable offer materialise after this offer has been submitted, the purchaser will be given anything from 72 hours to two or three weeks to meet the suspensive conditions – after which if they are not met the offer will become invalid.”
Certain buyers, said Rawson, will on principle object to such a clause on the grounds that they have relatively little power to speed up the execution of the suspensive conditions. However, the estate agent has a duty clearly defined by the Estate Agency Affairs Board’s Code of Ethics to act “in the best interests of both the seller and the buyer” and in cases of this kind it is important that a good offer should not be turned away.
So – what are the suspensive conditions that are most likely to hold up a sale?
Firstly, the buyer can make his offer conditional on his being given the necessary finance to buy by the banks or some other lending institution – and he can go further and stipulate the minimum amount loaned on which he would be able to proceed with the deal.
The problem here, said Rawson, is that even after careful consultation with a reputable estate agent or bond originator, it is possible that the purchaser may find that his credit rating is still not as high as he had expected because the bank will often be prepared to lend him money but not sufficient for the purchase.
“There are remedies in situations like this,” said Rawson, “including the arrangement of bridging finance – but such an assessment by the bank can seriously hold up a purchase.”
Alternatively the bank may well find that the price the buyer is prepared to pay for his new home is higher than the value they put upon it. This, said Rawson, is particularly likely to happen in a rising market of the kind that South Africa is now experiencing: the bank’s valuation will quite frequently be six to 12 months behind the current market values.
Then again, said Rawson, it is possible that certain features and attractive characteristics will set a home apart from others of the same size in the same area – but the bank valuer may not be aware of these.
On a recent sale, said Rawson, the buyer was prepared to pay R8 million – but the first bank approached could find only R6 million ‘value’ in the home. This held up the sale for some eight weeks.
It is, said Rawson, a standard practice to make the Offer to Purchase a home conditional on the sale of the home in which the potential buyer is now living or even some other building – and this has to be done at an acceptable price.
In today’s market perhaps some 30% of offers cannot proceed because of suspensive conditions, making it necessary for the seller and his agent to continue looking elsewhere for a purchaser.
Even when an Offer to Purchase is about to be accepted, said Rawson, it is essential that the seller and his agent are allowed to read the Deed of the Sale on the buyer’s existing home (which he is now selling) so as to check that other suspensive conditions are unlikely to invalidate that sale.
In certain cases, added Rawson, the Offer to Purchase can be made conditional on a relative or a guardian or a trust approving not only the offer but the property. This happens most frequently when parents or a trust are assisting their offspring with the purchase.
Again, said Rawson, sometimes it can be wise to keep the sale price below a certain level because going higher will put the seller into a more onerous Capital Gains Tax bracket. This is a fact which very few sellers are aware.
An ethical agent, said Rawson, will also check carefully to see if the title deeds limit the new buyer in altering or expanding the home in any way and if this is the case he will inform the buyer before he lets him make an offer. It is equally important to check up on the zoning of the adjacent erven to ensure that at some later date the buyer will not find himself next to a shopping centre or a large road or with his view blocked by a far larger - but perfectly legal - building. This too has caused considerable angst in recent years in South Africa, said Rawson.
Rawson advised, especially in the case of older buildings, that it is always wise to have the building checked by a knowledgeable valuer, builder or architect. If this is not immediately possible, it is always wise to make the Offer to Purchase conditional on the report of such people being favourable.
The checks and enquiries recommended by Rawson are, he said, most often overlooked or done in a cursory fashion when the seller is pressured either by the buyer or from other sources to make a quick sale.
“Rushing through a sale all too often leads to the client and the agent failing to spot the possible loopholes in the contract. Regrettably when this does happen, dealing with the ensuing mess can be very expensive and my advice is: not to rush a sale or a purchase; consult as many as experts as possible; and, above all else, make sure that you are working with a trained and educated agent who knows where to look for all the possible pitfalls and dangers.”
For further information contact the Rawson Property Group on (021) 658 7100.
