Words: Anne Schauffer Image: Supplied
“An OTP (offer to purchase) is essentially an agreement that lays out the terms and conditions of the property transaction between the buyer and seller,” says regional director and CEO of RE/MAX of Southern Africa Adrian Goslett. “Once signed by both buyer and seller, it is contractually binding, so it’s imperative that both parties be fully satisfied before putting pen to paper. A responsible real-estate professional will make this fact known to both parties involved, either by means of verbal or written communication, before allowing either to sign.”
Goslett cautions, “However, it’s ultimately the responsibility of the individuals to ensure they understand all the clauses and stipulations within the contract. If they’re uncertain on any point, they should ask their agent for an explanation or obtain a professional opinion from a lawyer.”
If the seller withdraws
“If the seller withdraws, the buyer can get a court order compelling the transfer,” says Maria Davey, attorney, Meumann White Attorneys. “If the buyer accepts the seller’s withdrawal, the seller becomes liable for the immediate payment of the estate agent’s commission and any damages the buyer may suffer.” She adds, “The buyer’s damages may be negligible because the seller will only be liable to the buyer for actual out-of-pocket loss, however, it also depends at what point the seller pulls out. For example, the buyer may have sold his own property, and need to secure alternate accommodation urgently. Cancelling a week after signing the OTP is different to cancelling a day before transfer is due to be registered – what if the buyer had committed to a tenant to occupy the property? He will be liable to his proposed tenant and the seller in turn will be liable to the buyer. There’s also the transfer and bond attorneys’ wasted costs.”
If the buyer withdraws
Davey explained the flipside, “If the buyer withdraws, then, in theory, the seller could bring an application to compel the sale, but this isn’t possible if the buyer was paying the purchase price from the proceeds of a bank loan to be secured by a mortgage bond. The seller cannot force the bank to proceed with the loan.
“If the buyer withdraws after securing the full purchase price in cash, then compelling the transfer is simple. If the buyer has other assets that can be sold in execution to give effect to the payment of the purchase price, it’s also possible to compel, but all this involves litigating and legal costs. Ultimately the average seller just wants to sell the property and move on. So, a seller will invariably accept the cancellation, reserving the right to claim damages. Damages will include any difference in the selling price, the agents’ commission, and wasted transfer and bond registration costs.”
Steve van Wyk, MD, Seeff, Centurion, stresses, “To avoid any misunderstanding, all agents should inform all buyers from the outset that the OTP becomes a legal and binding agreement once signed and accepted by the seller. Buyers are often well aware of the legal implications of signing the OTP, but will try to get out of the agreement due to a number of factors, including ‘buyer’s remorse’, interest in a different property, or a change in their financial position.
“In terms of the agent’s code of conduct, the agent must explain all the terms of the offer to purchase to both buyer and seller.”
An OTP is binding
Davey concludes, “A common misconception is that there’s no agreement until all conditions – such as, for example, the grant of a loan – are fulfilled. This is simply not correct. As soon as the agreement is signed by the parties, the rights and obligations that bind the parties are created, even if at a later date it all falls by the wayside as a result of the non-fulfilment of conditions.”