PROPERTY SALES - CASH IS STILL KING

Two characteristics of the current property market - the difficulty in obtaining finance and the challenges of selling a property quickly - means that cash is still king when it comes to property sales.      

"Even though interest rates have reached record lows and asking prices on properties for sale have returned to more market related levels, only around half of current bond applications are approved by the banks. The stringent lending criteria of the banks, including steep deposit requirements, as well as affordability assessments in terms of the National Credit Act, continues to make it difficult for buyers to obtain home loans to finance property sales," explains Adrian Goslett, CEO of RE/MAX of Southern Africa. "Property sales are also slower compared to the robust sales activity in previous years, in part due to the bank's tight credit criteria. The latest FNB Property Barometer indicated that the average property remains in the market for 12 weeks before being sold."

These two factors give cash buyers the upper hand in today's property market, since it is precisely these two issues that are most commonly addressed by suspensive conditions in property agreements of sale.

"Most offers to purchase contain suspensive conditions, which make the offer to purchase subject to the fulfilment of certain conditions. For this reason, these agreements are often also called ‘subject-to' agreements," says Goslett. He adds that the suspensive conditions most commonly used involve the granting of a home loan by a bank to a prospective buyer and/or the sale of the prospective buyer's existing property.

"If a seller accepts an offer to purchase with suspensive conditions, he or she must wait for the suspensive conditions to be fulfilled before there is certainty that the deal can go ahead," he says. Bond approval could take several weeks if the right documentation is not provided, while as mentioned earlier, the average property is on the market for 12 weeks. This means that a seller could wait three months or more before there is certainty that the deal can proceed. It is also important to note that, according to the Estate Agency Affairs Board, the seller cannot accept any other offer for the property during this time as it will be regarded as bridge of contract.

Furthermore, if the suspensive conditions are not fulfilled, i.e. the prospective buyer cannot obtain a bond, or cannot sell the existing property, the offer to purchase becomes null and void and the deal is cancelled. "The seller might not only have missed out on other opportunities to sell the property, but has lost a considerable amount of time in which the property may have been sold," notes Goslett.

"As such, it is crucial that sellers carefully consider an offer to purchase with suspensive conditions before accepting it. Firstly, they should ascertain whether the prospective buyer has any solid prospects of obtaining bond finance or selling their existing property. Secondly, the seller must ensure that the suspensive condition clauses in the offer to purchase stipulate definite time frames in which the suspensive conditions must be met. If no time frame is specified, a ‘reasonable' time frame will apply, and this, as one seller discovered during a recent High Court determination, might be much longer than the seller can afford."  

In both these aspects, the services and expertise of a reputable estate agent who understands the importance of pre-qualifying buyers are essential to protect the seller's interests. A reputable estate agent will also assist and urge the prospective buyer to fulfil the suspensive conditions.

Buyers should be aware that once their offer to purchase has been accepted by the seller, they have a legal obligation to take all reasonable steps to fulfil the suspensive conditions. For example, if the buyer does not apply for a bond or takes no steps to sell the existing property, they will be in breach of contract and could face legal action from the seller or the estate agent for damages and financial losses.   

"In a ‘cash' sale, these suspensive conditions do not apply, since the prospective buyer does not need a bond or to sell an existing property in order to make a property purchase. This not only significantly speeds up the property sales transaction but also provides the seller with certainty that the deal will be concluded. These are attractive benefits, particularly for distressed sellers. As such, cash buyers have far more negotiating power in terms of price and other conditions of sale," says Goslett.    

"Cash is still king when it comes to property sales and sellers should bear in mind that there are cash buyers in the market, even in these trying economic times. However, cash buyers are often looking for bargains and will be far more demanding when it comes to negotiations. In a market where cash buyers are few and spoilt for choice, most property sales are, and will continue to be, concluded through ‘subject-to' agreements. These continue to offer sellers a tried-and-trusted solution, provided that they use a reputable estate agent to ensure their interests are protected, both in the wording of the suspensive condition clauses and in the fulfilment thereof," concludes Goslett. 

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