Making an offer to purchase on a property – what the law says

 ·13 Mar 2022

When you find a home you want to buy, the next step is usually to make a written Offer to Purchase (OTP) which the agent will then present to the seller to accept, reject or make a counter-offer.

“And it is very important to understand that when an offer is accepted and signed by the seller, it immediately becomes a legal contract that is binding on both parties,” says Berry Everitt CEO of the Chas Everitt International property group.

“This means that you cannot use an OTP as a means of ‘booking’ a property you like while you carry on looking at others in the hope of finding one you like more, and that you cannot simply ‘change your mind’ about buying the property without the very real possibility of incurring a hefty financial penalty or having to pay a significant amount of money to get out of the contract.”

Of course, personal, work and financial circumstances can sometimes change very unexpectedly, he noted, “and buyers who are quick to communicate such changes as the genuine reasons for them being unable to proceed with a purchase are quite likely to encounter understanding and even sympathy from the sellers, especially if there is time for the sellers to re-open negotiations with others who might have expressed interest in the property”.

Writing in the Property Signposts newsletter, Everitt also said latent defects can sometimes be discovered before a property transfer can be registered – and lead to the buyer wanting to cancel the deal.

“But in such cases, the best course of action is actually for the purchase price to be re-negotiated, or for the buyer and seller to reach an agreement about payment for the necessary repairs and still go ahead with the transaction, unless they want to end up in a long and costly court action.”

Meanwhile, he said, buyers who are just having a “change of mind” about going ahead with a purchase that has already been agreed to should note that many OTPs still contain a clause stating that if they really do want to be released from the contract, they will have to pay the sellers rouwkoop – or an amount usually equal to a substantial portion of the purchase price.

“Alternatively, the OTP may provide that if they breach the contract (by not performing as agreed), the seller is entitled to cancel and claim damages, or a forfeit of any deposit already paid.

“And either way it should be clear that making an offer to purchase is not the same as ‘taking an option’ which buyers can later abandon, and that buyers should only make an offer when they really intend to buy a specific property,” he said.

In addition, said Everitt, both buyers and sellers need to ensure that the OTP – which must be in writing – includes all the terms and conditions that apply to their transaction, and that these are completely disclosed and agreed to by both parties before the document is signed.

“For example, buyers may need to sell an existing home before they can proceed with the purchase, or they may need to make the OTP conditional upon obtaining a home loan to finance their purchase, and in such instances, the offer must contain clauses stating that the sale is ‘subject to’ the home loan being approved or the buyer’s current property being sold.”

It is also highly advisable, he said, to be specific in the OTP about the date of occupation, which is the day on which the property will be vacated by the seller so that the buyers can move in, or at least obtain the keys to the property should they wish to make arrangements to clean it or paint it before moving in

“In fact, the more specific an OTP is, the better. If all aspects of the sale have been covered and written into the document, there will be very little room for either the buyer or seller to disagree or try to renegotiate anything at a later stage.”

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