Buying a home is an exciting prospect, but what happens if the buyer pulls out of the house sale? Know what an offer to purchase entails before you commit.
- The offer to purchase is a binding agreement, and the buyer will incur significant penalties if they pull out of it.
- However, they can pull out without penalties if certain suspensive conditions and clauses of the contract haven’t been fulfilled.
- On properties worth less than R250 000, the buyer has a five-day period in which they can cancel the agreement, although they have to provide the seller with written notice.
Making an offer to purchase a home is an exciting prospect, especially if you’re a first-time home buyer taking a step towards home ownership.
But buyers need to be aware of what the offer to purchase entails, so that you don’t mistakenly make a commitment you can’t keep.
The offer to purchase: A binding agreement
The offer to purchase is a contract signed by the buyer and seller. It includes a number of conditions that need to be fulfilled before the home sale can go ahead.
The agreement is binding, and if a buyer pulls out of a house sale, there can be significant penalties incurred.
However, a buyer is entitled to pull out of the deal if any of the suspensive conditions are not met.
Some examples of conditions that the buyer should include in the offer to purchase:
The requirement for a home inspection
All buyers should include this requirement in the contract, so that the seller is obligated to arrange a home inspection and identify any faults in the property before they become the buyer’s responsibility. If the seller fails to conduct the home inspection within the required time period, then they have broken the contract.
The requirement for bond approval
Buyers are strongly advised to include this condition. It means that you’ll be able to pull out of the sale if the bank rejects your home loan application.
The requirement for the buyer’s current property to be sold
If the buyer already owns a property, and is reliant on the sale of that property for funds to purchase the new home, then they should include a condition that their current property be sold in the offer to purchase. Whether the seller will agree to that condition probably depends on how much interest is being shown by other potential buyers.
Note: You must be able to prove that you attempted to fulfill the conditions
If, for example, you want to cancel the offer to purchase because you failed to apply for a home loan, you must be able to prove that you at least made the attempt.
Deliberately failing to fulfill a condition of the agreement will be considered a breach of contract, and the party not at fault can claim damages, which can take the form of estate agent fees, legal fees and compensation for lost profit.
Properties under R250,000 have a five day “cooling off” period
If you make an offer to purchase on a property worth less than R250 000, you have a five-day “cooling off” period during which you can pull out of the deal, although you have to provide a notification in writing to the seller.
This is the only scenario in which you can safely pull out of an offer to purchase without first requiring a suspensive condition or clause to be broken.
Be aware of the 72-hour clause
It’s wise to include terms and conditions that enable you to pull out of the offer to purchase if you don’t have the necessary funds, such as a clause requiring you to obtain home loan approval before the sale can go ahead.
But you must bear in mind that such clauses are not in the interests of the seller, as it means they’ll have to wait longer than they might like before offloading the property.
As a counterweight to this, the seller usually tries to include something known as the 72-hour clause, which allows them to continue marketing the property and to accept another offer if they choose. However, they do have to provide you 72 hours notice before they can cancel your offer to purchase, so you’ll at least have a window of time in which to acquire the necessary funding.
Acquiring funding for a property
You can improve your chances of acquiring the necessary funding before the seller decides to take advantage of the 72 hour clause, by employing a home loan comparison service to handle your home loan application on your behalf.
The services of a home loan comparison service, such as O-YES Home Loans, can help you take the first step toward managing a property. We can apply to multiple banks on your behalf, enabling you to secure the lowest interest rate and thereby increase the amount of profit you make from subdividing the property.
To make the home-buying process that much easier, O-YESalso offers a range of home loan calculators to help make the home-buying process easier. Get prequalified for a home loan with O-YES, then, when you’re ready, you can apply for a home loan.