Once you have identified a property you like and are ready to seal the deal, the official step in making an offer on a property is to fill in and sign a document called an Offer to Purchase (OTP). The Offer to Purchase is a legally binding contract that can be quite confusing to fill out, especially for first-time home buyers. Your estate agent will be there to assist you but it is good to have the basic knowledge of what will be expected of you.
In this blog post, we discuss the Offer to Purchase in detail and the process around it’s completion, including what the document is, what to do before signing the Offer to Purchase and what it entails.
What is an Offer to Purchase?
An Offer to Purchase (OTP), often referred to as the Agreement of Sale, is a legal document that governs the sale of a property. Once the Offer to Purchase is signed by the buyer, the agent will take the document to the seller to accept or reject the offer, or make a counter-offer.
Once the offer is accepted by the seller, and they sign the Offer to Purchase purchase document, the contract becomes legally binding upon both parties. It cannot easily be changed and the deal cannot easily be backed out of, without legal consequences and or hefty penalties.
There are several clauses in the Offer to Purchase, each of which must be clearly understood and adhered to. We’ll cover these clauses later in the article.
What to Do Before Signing the Offer to Purchase
Before you put pen to paper, make sure you’re fully clued up and confident regarding the following:
1. Make Sure You are Offering the Correct Price for the Property
As part of the Offer to Purchase, you’ll need to stipulate a purchase price for the property. Do your own research into the sale price of properties in the area or in the same apartment block if you’re purchasing a sectional title. Your real estate agent will have conducted a proper valuation where you can find the latest sales in the area or development. One of the tools used is a Current Market Assessment (CMA) valuation which compares prices in the area, with the property you wish to purchase.
Then, make sure you’ve set aside funds for the deposit, if applicable, as well as the conveyancing fees, transfer costs, bond registration and more. Make sure you’re all clued up on the additional costs involved in purchasing a property, and that you’ve prepared for these adequately.
2. Discuss Your Offer with Your Agent
Now that you’ve got everything in order; your finances are secure and you have an idea of a price you are happy to offer; approach your agent and share this figure with them. They’ll advise you if it is adequate,or whether you should adjust your offer to enhance your chances of success. Remember, all written offers are required to be presented to a seller who has mandated an agent to sell their property.
Generally, sellers will set the asking price of the property slightly higher than what they’ll accept, so you may have some wiggle room for negotiation.
Once you have settled on the amount you wish to offer, your agent will assist you with completing the Offer to Purchase form, which must be fully completed and signed by hand and returned to them. Electronic signatures are not acceptable on immovable property sales documents.
3. Read Everything in the Contract
Offer to Purchase documents can vary depending on which agent you work with, but despite design and display, each OTP will have the same clauses presented. These clauses can be confusing, especially for first-time property purchasers, however the documents are designed to cover all aspects and to ensure the rights of all the parties are addressed. Make sure you read everything and sign it once you are confident to go ahead with the acquisition.
4. Be Sure that you’re Ready and Fully Committed to Purchasing the Property
Once you’ve signed the Offer to Purchase, it will be sent to the seller of the property. If they accept your offer then the document you’ve sent will be a legally binding contract that cannot easily be nullified and could be costly to cancel. So, before you sign the Offer to Purchase, make sure you are really, really serious about buying the property in question.
Never attempt to use an Offer to Purchase as a method of reserving a property, as this could backfire on you!
5. Complete the Offer to Purchase Form
Now that you have your finances in order, a great purchase price in mind, are 100% sure about your decision and are totally clued up about what you’re about to sign, and you have received the populated Offer to Purchase from the real estate agent, you can add in or check your personal information and that of the property, as described in the contract and sign the document.
Should you have any questions at all about the contract, ask your agent to clarify for you. At TEAM HOT PROP, we sit down with each of our clients and make sure they thoroughly understand the Offer to Purchase document and where applicable, the specific special conditions which may need to be added to the contract.
How to Complete the Offer to Purchase contract
There are a number of sections within an Offer to Purchase form that needs to be filled in, as well as several clauses that come into effect once the document is signed.
When going through the document, take your time to fill in the sections, and also go back and double-check your entries, particularly the numerical values like dates and costs.
Below is an explanation of the sections and clauses that you need to take note of:
Personal information
The recent updates to the Financial Intelligence Centre Act (FICA) are extremely strict. Your agent will guide you through the process of being compliant. This involves presentation of all your personal information, your proof of Identity, your proof of physical residence, your marital status, your tax information and more. No property transaction (including leases) may be conducted in South Africa, without your FICA questionnaire having been fully completed and your supporting documents all having been received and lodged with the agent and the bond and the transferring attorney.
You will need all of the above for your finance application too, so it is best to be fully prepared upfront.
Voetstoots
The Dutch term “voetstoots” roughly translates to “testing something with a shove of the foot.” This implies that, when you purchase something, what you see is what you get, and it is your responsibility to test it by giving it a kick with your foot.
This is a strange analogy, but essentially it means that the buyer will be purchasing the property ‘as it stands.’ If the property comes with defects, the buyer assumes these as their responsibility, not the seller. Signing the Offer to Purchase means that, by default, you accept the Voetstoots clause.
As it is your job as the buyer to ensure the property is in good condition, take the time to do the necessary checks on the property. Before you begin discussing the offer, you should have checked the property thoroughly to find any defects, both latent and patent, in the property.
The Mandatory Disclosure of property defects is to be completed. This is also referred to as a Condition Report. This report however, is not a guarantee, so you’ll need to do your own investigation of the property. Make sure that the doors and windows open and close correctly, and check the cupboards, behind curtains and so on. If there are defects that need to be attended to, before the transfer of the property, make sure each of these are stipulated in the offer itself.
The owner will have prepared this Condition Report themselves as they are expected to have the up to date knowledge of their own property, at the time of offering it for sale. They are tasked with listing all of the property’s defects to summarise the general quality of the property—typically for conditions of the foundation, structure, roof, swimming pool (if available), and electrical and plumbing systems. Once you have received the report, check the date on when it was completed is within the last few months at the longest.
Keep in mind it is always the purchaser’s responsibility to check on any defects in the property and to acquaint themselves with the condition thereof. If the seller refuses to provide or sign the Condition Report, you can contact your agent for a list of service providers to execute an independent home inspection. It’s a good idea to get a professional to assist in such circumstances.
Possession and Risk
In the Offer to Purchase form, you need to specify the date upon which possession of the property will be transferred. This date is agreed upon by both parties prior to signing the Offer to Purchase.
The risk clause covers damages due to an unforeseen act that is not the fault of either party, for example, an earthquake. Here, the party bearing the risk will be liable for all damages to the property until the possession date comes into effect. Once the property has transferred into the name of the buyer all risk automatically falls to the buyer.
Dates
There are a few dates that you need to specify within the Offer to Purchase. These include the date on which the deposit is to be paid, the bond approval date, the date payment of conveyancing fees and the balance of purchase price date.the date of occupation and the date of transfer. Keep track of these dates as some are not a fixed date but rather within a certain period, (e.g. within 14 days of full acceptance of the Offer to Purchase the deposit will be paid) and definitely double-check them, so that you can plan your cash flow accordingly and not suddenly find yourself in breach of the contract!
Occupation
When specifying your occupation date, make sure it aligns with your accommodation requirements and dates.
- If the property is currently tenanted, specify in the Offer to Purchase that the seller will give vacant occupation on the date that the property is transferred into your name.
- If you choose to occupy the property prior to registration, the rental amount that you will pay for the property prior to it being registered in your name, is to be included in the contract.
Fixtures and Fittings
The fixtures clause lists all fittings within the property that are included in the sale. These items all must be in good working condition on the date of transfer. Remember to check on any items which may be regarded as fixtures, but which the seller wishes to remove from the property. These may already have been pointed out by the agent but should be clearly listed in the Offer to Purchase.
Title Deed
The title deed is related to the land you are purchasing, not the building, when you are purchasing freehold property. Here, this document declares restrictive conditions, such as building restrictions and boundaries and rights of development or zoning. In Sectional Title purchases the Title Deed describes the section you have purchased in a specific building and denotes any exclusive use areas too.
When purchasing a property, you’ll need to transfer the title deed into your name. This is a legal process conducted by a transferring attorney also known as a conveyancer. The seller appoints his own attorney to handle this process and the purchaser carries the fees for transferring the title deed into his name
Plans
In some cases, buyers may wish to view the plans for the building. If you do peruse the plans, make sure they correspond with the structure. If not, it is up to the buyer to agree to purchase the property as is and this needs to be addressed within the Offer to Purchase document.
Once you’ve filled out the Offer to Purchase, make sure you double-check the details to confirm all particulars.
Here is a simple checklist to follow when filling out the form:
- Personal Details: Are the buyer and seller details correct?
- Description and Address of Property: Has the property been described correctly? Does this correspond with the information on the title deed and include all the relevant sections of the property?
- Size: Is the property size correct as per the information provided on the title deed or as close as possible?
- Purchase Price: Has your agreed-upon purchase price been stated clearly and correctly?
- Agent Commission: Is it clearly stated that the seller will pay the agents commission?
- Occupation Date: Are you satisfied with the occupation date as well as the occupational rent value?
- Special Conditions: Have you noted any special conditions as well as the time frame in which these need to be tended to?
- Fixtures and Fittings: Are there any moveable items that will be removed from the property or special requests for items to remain on the property? If so, have these been noted?
What to Do Once You Have Completed the Offer to Purchase
Once you have filled in the Offer to Purchase, it’ll be sent to the seller for review. If you have not put in a full priced offer, there is always a chance that the seller will not accept your offer and he may counter on your offer, ie return the document with a higher purchase price inserted, at which he would accept your offer.
The agent is there to guide you and support you through this process and will do everything possible to get a signed up Offer to Purchase for you.
Should the seller accept your offer to purchase, congratulations, you’ve just bought a property!
If you’ve been pre-approved for a bond, then you’ve already secured bank financing and the process will begin. If you still have to get approved for financing, you can now approach a financial institution to apply for a home loan.
What Happens If You Change Your Mind After Signing the Offer to Purchase?
If for whatever reason, you decide that you don’t want to proceed with the purchase of the property, once your Offer to Purchase as been accepted and fully signed by all the parties, there is little chance of withdrawing from the sale, without paying a penalty or being called upon to meet the terms of the contract.
Under the Alienation of Land Act, only in cases where the purchase price of residential property is R250 000 or less, there is a five-day long cooling-off period wherein the buyer can retreat from the sale, however, any time beyond this five-day period can result in a huge financial penalty. Today, there are very few properties where this purchase price is a reality.
The results of canceling a sale could see you losing your entire deposit if one was paid, you could find yourself liable to pay the total amount of the agent’s commission, (as the party being in default) and the seller may still claim the full purchase price from you and/or call upon you to perform under the contract.
To avoid this situation, make sure that you are 100% sure and without any doubts about the property you sign up to buy.
Ending Thoughts About the Offer to Purchase
If you are in the process of making an offer on a property, filling in an Offer to Purchase document can seem complicated but you will have your agent right there to assist.
When you purchase through one of our agents at TEAM HOT PROP, we make sure you are fully clued up and informed on all the ins and outs of acquiring a property, including the completion of the Offer To Purchase. If you need help or assistance purchasing a property, give us a shout!
We want to hear from you!
If you have any questions about the Offer to purchase or the process of purchasing a house, share them in the comments section below! We hope you’ve enjoyed reading this article.
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