Beware of an OTP too good to be true
Regardless of whether you are buying or selling a home, when the time comes to sign that offer to purchase (OTP), it is very exciting. By this point, you probably just want to get everything finalised and done with so you can move in/out and get back to normal living. Before you sign an OTP though, especially when it seems too good to be true, take a moment to make sure it is legitimate.
When and why is the OTP signed?
The buyer will give the seller an offer to purchase as the next step in the house-buying journey after they found a house they like. When the seller also signs the OTP, it becomes a legal document that binds both parties to the house purchase process. It stipulates the conditions that need to be met before the purchase can be completed. It could be that the buyer needs to sell their own house first or get final approval for a mortgage.
There are valid ways in which both the buyer and seller can back out of the sale. An OTP usually has a 72-hour clause, for example, that allows them to continue marketing the property. Should they receive a better offer, they can provide the original buyer with a written notice to let them know they have 72 hours in which to go ahead with the offer to purchase or it will be rendered null and void. Should the buyer’s situation drastically change, for example, a job loss or other financial crisis, they can inform the seller of this as being the reason for wanting out of the OTP. Chances are that this will be met positively.
An OTP should be as detailed as possible to ensure that all aspects of the sale are covered protecting both the seller and buyer.
What the seller should be wary of an OTP
A sign that an OTP might be too good to be true is when the seller receives an offer for the full asking price, but then the buyer should show how the purchase will be financed. A buyer should, at the very least, be ready to pay a 10% deposit within a short period and provide details of how the balance will be financed. It is normal for a buyer to have to sell their own property to finance the purchase of the new one or to only receive their final mortgage approval once the OTP has been signed. These in and of themselves should not be cause for concern. If the details, however, are flaky, you should ask the experts (your property practitioner or lawyers) to have a look at the buyer.
Another offer that you should be wary of is when the finances for the purchase will be due from funds offshore. This is not necessarily a dishonest purchase offer, but offshore funds can delay the completion of a transaction.
The seller should also be careful when buyers attempt to contact them directly. Your property practitioner and lawyers have your best and legal interests at heart. A buyer that wants to bypass them and hurry things along could be an indication of a bogus buyer or a buyer that wishes to bypass some legal issues.
When a buyer should be wary of an OTP
Before a buyer presents the seller with an OTP, they should be sure that their finances are in order. The buyer should also pay careful attention to the detail in the OTP concerning the list of fixtures. If you viewed the house fully kitted out with ceiling fans, appliances, curtains, etc, it is important to remember that all of that won’t necessarily stay in the house. If the house has a unique window that requires custom curtains, it can be worth it to negotiate them into the price of the property and have the previous owner leave them behind. Regardless, it is important to know what is specified as being part of the house and what is not.
It is also important to be fully aware of all faults on the property and structures. The seller is obliged to make these known, but it is not as clear cut as that. A competent inspector should be able to discover many of the faults, but not all. That is not to say the inspector did a subpar job, some faults are just much more difficult to identify if you have not lived on the property. These are the faults that should be made known by the current homeowner, but you cannot always bank on this. It can also be that the current owner did honestly do his best to fix a fault and then does not need to disclose it. In a worst-case scenario, you could find a dishonest homeowner that covers up faults, like painting over damp to hide it without fixing the cause, never reports it, and then the new owner is left with a damp issue that could cost hundreds of thousands to fix depending on the severity.
Final thoughts
As much as we would want it to be, a home purchase/sale is not always a straightforward deal that you agree to and conclude. There are legal and financial rules that have to be kept in mind and hoops that have to be jumped through. When you use competent property practitioners that have your best interest at heart, however, it can make the complicated process much less stressful and easier to complete.
If you are in the market to sell or buy a home, let Karis Properties know.