As the offer stands: All about the OTP
Category Newsletter: Lead Article
Anybody who's been through the process of searching for the right property, in the right location, at the right price knows that signing the offer to purchase (OTP) feels like victory, the signal to a new beginning.
"It's an exciting step in the property purchasing process, the first indication of things 'getting real'", shares Michelle Cohen, principal at Leapfrog Johannesburg North East and Sandton. But she highlights that it is crucial to understand that the OTP is a legally binding document.
"We often see buyers ready to sign on the dotted line the minute the OTP is drawn from the agent's folder of paperwork, but it is crucial to take the time to understand the terms, conditions and clauses stipulated in the document," she says.
The fact that it is a legally binding document means the buyers could be in breach of contract if they later decide differently or can't honour the terms of the contract, because they were not made fully aware of the implications.
"A trusted property advisor will be able to guide you through the various aspects of the document, as well as highlight where they may be scope for ambiguity," explains Cohen. She adds that there is no need to be daunted by this document, as it is a standard part of the purchase agreement. "The OTP is simply a document outlining the terms of both the sale and purchase of the property and seeks to ensure both parties are in agreement about the sale/purchase.
Cohen tells about the four main points in the OTP that need to be well understood.
Purchase price
The most obvious, but also the most important, the purchase price offered by the buyer must be clearly stated in the document, together with the timeframe within which the seller must accept, reject or negotiate the offer.
Conditions of sale
Within the conditions of sale both the buyer and the seller stipulate the conditions that must be in place for the transaction to be concluded. "If the purchase is subject to finance and bond approval, it will be noted under conditions of sale, or if the transaction hinges on the outcome of specialist inspection approvals," Cohen explains.
Realistic time frames should be provided for under the conditions of sale, particularly where bond approvals are necessary. Cohen also advises buyers to ensure that the timeframe given for any deposit or cash payment is realistic and that you have sufficient time to notify your bank to release the funds.
Occupation date
The occupation date - the big day - is the date agreed upon by both parties when the house will be vacated by the seller and occupied by the buyers. "It pays to discuss this in advance so that the necessary moving arrangements can be made," Cohen highlights. A trusted property advisor can help to facilitate a discussion of this nature.
Occupational rent
It sometimes happens that the buyer needs to move into the property before the transfer and registration of the property is finalized, or that the seller needs to remain in the property after said time. "This is when occupational rent comes into play, which is simply the compensation for the use of property that you are not the owner of and will only be occupying for a short period of time," Cohen explains.
It is generally accepted that occupational rent should amount to more or less the same as ordinary rent would be for the particular property, though this is always open to negotiation.
Fixtures and fittings
The OTP will also make provision for decisions around fixtures and fittings.
The rule of thumb is that items that are fixed to the surface of the property, such as burglar bars and safety gates, are included in the purchase price. Movable items, like curtains, mirrors and garden pots, are generally not, unless specified, and would thus be removed by the seller.
A trusted property advisor can help the buyer and seller come to an agreement about what says and what goes. "When pieces have been custom-made for the property, sellers are often open to letting it go with the property. Similarly, when something adds a specific aesthetic to the property, it makes a good case for leaving it in place," Cohen says.
Last but not least
It pays to make sure you're familiar with the above, as well as any other clauses, conditions and stipulations in the OTP. Cohen says to consider things like commissions to agents, timeframes related to the offer and the need for compliance certificates.
"Lastly, take care to ensure that any verbal discussions and decisions to change anything in the contract is put in writing and signed by all parties. A verbal discussion or agreement is not binding," Cohen concludes.
Author: Leapfrog Property Group
