How to overcome home buying obstacles
Submitting an offer to buy a property and having it accepted by the seller is a very exciting milestone, but it's 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.
Identifying the possible issues that could arise, will put you in a good place by allowing you to make all the necessary preparations to avoid it becoming a problem in the first place.
We take a look at four obstacles and how to avoid them:
1. Obstacle – Your home loan is not approved
The easiest way to avoid this obstacle is to get yourself prequalified. This will now only help you determine what type of bond you are looking at, but it will also show sellers that you are a serious buyer.
The important thing to remember here is that it is not a guarantee of finance and you shouldn't make any big purchases or decisions that will influence your bond approval. Stay on track by keeping to your budget.
Employment status can also influence your bond approval and if you are now self-employed you will need to approach the home loan application process differently. Here is what you need to know about applying for a home loan when you are self-employed.
2. Obstacle – The 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.
3. Obstacle – You want to back out of the deal
A 5-day, cooling-off period is only applicable in certain instances when buying property.
To understand the legal rights and implications of an offer to purchase, section 29A of the Alienation of Land Act states that residential property transactions of R250 000 or less are subject to a cooling-off period of five working days from the signature of the Offer to Purchase.
The seller will have ten (10) business days after the cancellation of the agreement by the purchaser to refund the purchaser of the purchase price in full or refund any monies paid by the purchaser.
Every offer and/or sale agreement must state that the purchaser is entitled to revoke the offer or terminate the sale agreement.
Signing an offer to purchase for immovable property over the R250 000 threshold, immediately becomes a legal and binding Sale Agreement.
The cooling-off period during which a buyer may cancel the agreement within five days from the date of signing the initial offer is so seldom applicable that buyers should never falsely assume that they can get out of an offer
4. 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 offer to purchase.
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.
In conclusion
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 for any situation.
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