Sunday, January 16

When can I cancel an offer to buy?


There is nothing more exciting (or stressful) than submitting an offer to purchase a property. But what if you change your mind?

An Offer to Purchase is legally binding from the moment it is signed. However, there are some situations where you can cancel without paying the hefty penalties that would otherwise apply.

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When a suspensive condition is not met

The most common reason an offer to buy is canceled is that one or more of the suspension conditions were not met.

Suspension conditions are conditions that suspend the obligations of the contract (for all parties) until they have been fulfilled. Common examples include the buyer obtaining the necessary bond approval, a successful home inspection, or the sale of the buyer’s current property within a specified time frame.

Suspension conditions are added to the Offer to Purchase on Demand, but it is advisable to keep them to a minimum or you risk making your offer less attractive to the seller. Nor are they free Get Out of Jail cards; you must be able to show that you were unable to fulfill a suspension condition, despite your best efforts. You cannot simply choose not to comply as a way to evade your obligations.

When there is breach of contract

Breach of a condition precedent by choice would be considered a breach of contract, as would refusing to go ahead with the sale without legal cause or breaking any other terms and conditions in the contract.

If this happens, the non-guilty party may justifiably cancel the Offer to Purchase and claim any legitimate damage or loss from the infringing party.

These costs can be significant, from real estate agent fees and legal costs to compensation for lost profits or moves that won’t happen. It is generally a highly contentious process and could easily end in litigation, which is why we urge both buyers and sellers to take their contractual responsibilities seriously.

When the offer is for a house priced below R250k

The only time a buyer can cancel their Offer to Purchase, regardless of conditions precedent or other clauses, is if the offer is for a house priced below R250,000 and a written notice is sent to the seller within five days after signing.

This is a legislated “cooling off” period designed to protect low-income buyers. It does not apply to sales over R250,000.

How to protect yourself

Canceling an offer to buy when all suspension conditions have been met is a difficult and often costly process.

So how can buyers avoid ending up in this type of situation?

The first step is to be 100% sure of your finances. Go through the numbers, get prequalified, and make sure you’re completely comfortable with the commitment you’re making.

Next, you want to eliminate any room for surprises in terms of the property itself.

Do your homework on pricing, check the neighborhood, speak with a real estate agent, and book a home inspection. You need to make sure that your offer is realistic and that the property is a good fit for your specific needs.

Once all those boxes have been checked, buyers should still verify that the Offer to Purchase is fair and includes the required conditions precedent.

These contracts can be fairly standard, but you should never assume that your needs are adequately protected. Discuss all the details with your real estate agent and ask your attorney to go over things if there is any doubt. Once you sign up on that dotted line, you’re committed – you need to make sure you know exactly what you’re getting into and that you’re making the best possible decision with your new home purchase.

David Jacobs is Gauteng Regional Manager for Rawson Property Group.


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