There is nothing more exciting (or nerve-wracking) than submitting an Offer to Purchase (OTP) on a property. But what happens if you change your mind?
According to David Jacobs, Gauteng Regional Manager for the Rawson Property Group, an Offer to Purchase is legally binding from the moment it is signed. However, there are a few situations in which it can be cancelled without having to pay the hefty penalties that would otherwise apply.
When a suspensive condition is not met
“The most common reason for an Offer to Purchase to be cancelled is because one or more of the suspensive conditions were not met” says Jacobs.
Suspensive conditions are conditions which suspend the obligations of the contract (for all parties i.e., the buyer and the seller), until they have been fulfilled. Common examples include the purchaser getting the necessary bond approval, a successful home inspection, or the sale of the purchaser’s current property within a specified amount of time.
“Suspensive conditions are added to the Offer to Purchase on request” notes Jacobs, “but it is wise to keep these to a minimum or you risk making your offer less attractive to the seller. They are also not ‘get out of jail free’ cards – you must be able to prove that you were unable to meet a suspensive condition, despite your best efforts. You cannot simply choose not to comply to evade your obligations“.
When there is a breach of contract
Failure to meet a suspensive condition by choice would be considered a breach of contract – as would refusing to go through with the sale without legal cause or breaking any other terms and conditions in the contract.
If this happens, the party not at fault, can justifiably cancel the Offer to Purchase and claim any legitimate damages or losses from the party in breach.
“These costs can be significant, from estate agents’ fees and legal costs to compensation for loss of profit or moves that won’t happen,” says Jacobs. “It is generally a very contentious process, and could easily end up in litigation, which is why we urge both buyers and sellers to take their contractual responsibilities seriously.”
When the offer is on a home priced under R250 000
The only time a buyer can cancel their Offer to Purchase, regardless of suspensive conditions or other clauses, is if the offer is on a home priced under R250 000 and notification in writing is provided to the seller within five days of signing.
“This is a legislated ‘cooling off’ period designed to protect low-income buyers. It does not apply to any sales over R250 000.”
How to protect yourself
Cancelling an Offer to Purchase when all the suspensive conditions have been met is a difficult and often expensive process. So, how can buyers avoid ending up in this kind of situation?
“The first step is to be 100% certain of your finances,” says Jacobs. “Crunch the numbers, get pre-qualified, and make completely sure you are comfortable with the commitment you’re making.”
Next, you want to remove any room for surprises in terms of the property itself.
“Do your homework on pricing, check out the neighbourhood, speak to an estate agent and book a home inspection. You need to be sure your offer is realistic and that the property is a good choice for your specific needs.”
Once all those boxes are checked, Jacobs says buyers still need to double check that the Offer to Purchase is fair and includes their required suspensive conditions.
“These contracts may be fairly standard, but you should never take it for granted that your needs are adequately protected,” he says. “Talk all the details through with your estate agent and have your attorney look things over if there is any uncertainty. Once you sign on that dotted line, you’re committed – you need to be sure you know exactly what you’re getting into and are making the best possible decision with the purchase of your new home.”