A buyer who signs a sale agreement is obviously willing to buy your property, but is the buyer able to do so? Does the buyer have sufficient access to the funding required to pay the purchase price? What happens if the party providing the funding requires certain conditions to be met before advancing the money?
There’s a reason they say “cash is king”, especially in property transactions. A cash sale has only a slim chance of failing because the buyer is both willing and able to buy the property on the date of signature of the sale agreement. These deals normally register quickly (even with COVID-associated delays in government departments).
For most transactions, however, a buyer needs either to sell the buyer’s existing property first (“a prior sale”) or to obtain a bond from a bank to finance the purchase price. Each option can wreck the deal if not handled correctly.
Prior sales can delay your transfer because your buyer must first sell his/her property and your buyer’s buyer must come up with the finances to pay for it. Only when this prior sale is conclusive will your sale be conclusive. The prior sale then needs to be registered before (or simultaneously with) your transfer so that the funds can be unlocked to pay for your transfer. It often happens that chains of transfers are created where each sale is dependent on a prior sale and, if anything happens to one transfer, all of the successive transfers in the chain are affected.
Bond approvals can also cause problems. Sometimes a bank will grant a bond either for a lesser amount or with conditions. In the former case, the sale agreement must provide for the buyer to make up the difference in cash, or for the agreement to lapse so that another (able) buyer can be found. In the latter case, the conditions must be scrutinized carefully. Sometimes a bank grants a bond subject to the buyer cancelling a different bond on another property, which means the buyer must sell the other property. This creates another chain which the seller was not aware of at the time of the sale. Another possibility is that the bank grants a bond subject to a third party standing surety, and the third party refuses to do so.
Where you as a seller have a sale which is subject to bond approval or a prior sale, you need to make sure that you are not prejudiced. The sale agreement must give you the right to continue marketing the property and, if another “more liquid” offer comes along, you should be able to place your first buyer on terms to match the more liquid offer, failing which you should have the right to cancel your first sale agreement and sell to the more liquid buyer. If you don’t get a more liquid offer, you need to make sure that the agreement gives you appropriate remedies if the prior sale or bond approval cause unreasonable delays.
Should you require guidance with your proposed sale agreement before it is signed, kindly contact our conveyancing department on 031 266 2530 or email@example.com.