Overcoming homebuying obstacles
Submitted an offer and having it accepted by the seller is exciting, but it is certainly not the end of the property sales process. There are a few more obstacles that need to be overcome before the home can change ownership and the keys are handed over. Failing to overcome any of these hurdles could result in the deal falling through and you starting the journey from the first step.
“Identifying the possible issues that could arise, will put you in good stead to making the necessary preparations to avoid them becoming a problem,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who provides a few points for consideration:
Obstacle – Bond not approved
If possible, it is advisable to get pre-approval from the bank with a written loan commitment letter that you can show the seller. However, being pre-approved is not a guarantee that you will get the finance. Certain factors could change causing the bond application to fall through, such as a change of employment or job loss.
Obstacle – appraisal is less than expected
The bank providing the loan will send an appraiser to value the property to ensure it covers their invested interest in the home. The value of the home must be at least as much as you are willing to pay for it, or the mortgage loan amount is at an acceptable ratio to the value. The bank wants to make sure that if you default at any stage, they will be able to recoup their losses. If the bank’s appraisal is lower than the purchase price on the offer to purchase, a price reduction might be negotiated with the seller, or you will need to pay the difference in cash. If you do not have the extra cash and the seller is not willing to lower their price - it could be a deal breaker.
Obstacle – You want to back out of the deal
If the purchase price is below R250 000, the OTP should contain a cooling-off period where you can step away from the transaction. However, all other property transactions above this mark are exempt from the cooling-off period, and the agreement becomes legally binding as soon as it is signed.
The Consumer Protection Act (CPA) creates a right in favour of buyers who wish to rescind their offer. However, it only applies if the sale is a result of direct marketing. Furthermore, the CPA is only applicable to transactions where the seller deals with property in the normal course of his business. The fact that an estate agent is involved in the transaction also does not make the CPA automatically applicable to a transaction.
It is possible for you to negotiate a cancellation of the offer with the seller and the estate agent. However, if negotiations prove to be unsuccessful and you do not comply with the stipulations within the contract, you will be at risk of contract breach, and you could be liable to pay damages and the estate agent’s commission if legal action is instituted.
Obstacle – A major defect is found during the home inspection
According to South African legislation, all property transactions are still subject to the “voetstoots” clause if it is contained in the OTP. Note that the word “voetstoots” need not appear and the clause could be termed “Property sold “as it now lies” or something similar. The clause protects sellers against any claims arising from patent (openly visible) defects, as well as latent (hidden) defects in the property. However, should the seller have known about the latent defect and willfully or fraudulently withheld this information, voetstoots does not protect him. That said, proving prior knowledge of latent defects is in most cases very difficult.
The effect of voetstoots is often qualified by a disclosure annexure which often forms part of the offer to purchase. Within the annexure, the seller declares in detail the condition of various aspects of the property.
If your offer has just been accepted, you can bring the defect to the attention of the mortgage bank. If the defect is serious enough, the bank will not grant finance, and the deal will fall through. If the issue is not that serious, you should engage the services of an independent attorney who could negotiate or litigate for a price reduction.
Goslett closes by saying that the property transfer process can be stressful for both parties, especially with the wide variety of things that need to be considered and organised. Take the time to research the process and its possible pitfalls to ensure that you are ready any situation.