Avoid disputes on Offer to Purchase

News > news - 14 Sep 2009
Homebuyers should not recklessly sign an Offer to Purchase (OTP) agreement without being sure they can meet the associated financial commitments.
That’s the message from Gerhard Kotzé, CEO of the ERA South Africa property group, in reaction to comments from the Rode property consultancy that the number of court cases to resolve OTP disputes between property developers and buyers is building up.
“Disputes of this nature are clearly not in the interests of either developers or buyers. One of the solutions is to ensure as far as possible that your bond finance is in place before making the offer and that you will be able to service your bond. The other is to ensure, as far as possible, that your financial circumstances will remain stable,” he says.
“It is well to note that the fact that your circumstances changed after you signed an OTP in good faith will not stand up in court as a legal reason to renege on the agreement.”
Part of the current problem, Kotzé says, is that buyers may not realise how difficult it has become to obtain bond finance. Although there are signs of improvement on this front, the banks are still very selective and in most cases still expect buyers to put down substantial deposits, as opposed to the 100% loan scenario during the property boom.
“So property buyers should make very sure they will have bond finance available and not be reckless about signing an OTP.
“On the other hand, they should not allow themselves to be pressured into signing either, and be sure to have the property or development thoroughly checked out before they do.
“In fact, you can use the Offer to Purchase as a sort of bargaining tool and ensure that before signing, you include a clause binding the seller to fulfil certain pre-conditions.”
In short, he says, both buyers and sellers should always bear in mind that an Offer to Purchase is a legally binding contact. “You cannot make and break it willy-nilly to suit yourself.  Developers are clearly getting tougher on the issue. So too are private sellers. And now so should buyers.”
Issued by ERA South Africa
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