Understanding the Offer to Purchase
Category Advice
"Buyers need to understand that the Offer to Purchase is a legally binding document," Michelle Cohen, Principal at Leapfrog Johannesburg North East shares.
She says that often potential buyers, in their excitement at having found their ideal property in the desired location that fits into their price bracket, want to sign the offer to purchase as soon as possible, often without fully grasping what the implications of a signed OTP are.
"The offer to purchase is a powerful show of intent, which is what makes it so exciting, but it is still important to ensure you're clear and comfortable with the terms and conditions stipulated in the document before putting pen to paper," Cohen explains.
While there is no need to be intimidated by the OTP, you simply need to understand that there could be far-reaching financial implications for both the buyer and the seller in the event of the terms of the OTP not being honoured.
In its simplest form the OTP outlines the terms of the sale and purchase of the property in question, with the explicit purpose of ensuring the deal for all parties on matters related to the property.
Here are the terms worth noting.
Purchase price
The most important stipulation in the offer to purchase, the price needs to be clearly highlighted, as well as by when the seller needs to accept, reject or negotiate any offer that is made on the property.
Conditions of sale
The section on the conditions of sale would typically state that the purchase price is subject to the buyer's finances being in order, or their bond being approved, or that it is contingent on the sale of another property. Make sure that the timeframe for this is realistic. The onus is then on the buyer to keep the property agent in the loop regarding the approval of the bond, or progress around the other considerations, to ensure the transfer process can be put into motion timeously . Should you offer a cash amount on the purchase price or a portion thereof ensure that you have sufficient time to give the bank notice for that cash to be made available, therefore enabling you to perform within the time frames specified on the offer.
Fixtures and fittings
It may have been the chandelier in the main bedroom or the large terracotta planters on the patio that sealed the deal for you, which is why it is important to pay close attention to the clause about fixtures and fittings. It is generally accepted that fixtures, such as burglar bars, bathroom mirrors, blinds and safety gates, are included in the purchase price while fittings, such as garden pots, thus movable, are usually not. An offer to purchase must specify what is a fixture and fitting and what isn't so that there is no room for error and the seller does not remove what is actually a fixture!"
"It's up to the buyer and the seller to reach an agreement about what stays. The important thing is just to get it in writing as a means of ensuring all parties are on the same page," Cohen advises.
Occupation date and occupational rent
The date on which the one party moves out and the other moves in needs to be agreed on. Bear in mind that both parties need to make various arrangements for their move so it's helpful to decide on occupation date as early as possible.
In the event of either party not being 100% ready with their paperwork on the date of occupation, the occupational rent clause will come into play. Occupational rent is simply the interest paid to either the buyer or the seller in the event of the other party occupying the property before (in the case of the buyer) or after (in the case of the seller) the registration and transfer of the property has been finalised.
"The industry standard is for occupational rent to be market related but the option is there for the buyer and seller to negotiate a better deal. Just make sure you have the agreement in writing!" Cohen says.
Happy endings
Make sure that is discussed is noted in the agreement. "A verbal agreement is not legally binding," Cohen warns. Most agreements have a non-variation clause in them, so ensure that everything agreed to and concluded, as well as any changes agreed to after the offer, is reduced to writing. It is advisable to do so via your estate agent or transferring attorney.
Author: Leapfrog
