While paying attention to detail has always been fundamental to conveyancing, the current Covid-19 pandemic and ensuing economic crisis have served to emphasize the need to be particularly thorough when it comes to buying or selling immovable property. Unfortunately, like with so many other industries, Covid-19 has had a detrimental impact on the real estate sector and has left many in desperate circumstances.
This may result in both seller and purchaser opening themselves up to unexpected risk. They may rush into signing sale agreements in haste without fully understanding the nuances of what they are signing, thereby agreeing to detrimental terms they would never ordinarily accept.
In these difficult times, it is important to protect yourself from potential coercive measures implemented by those who are desperate to get a sale agreement signed by any means necessary. Make sure you fully understand the terms and conditions of the agreement before signing. It is important to get your conveyancer on board to assist and guide you through the process from the beginning and certainly before the sale agreement is signed.
The following scenarios illustrate some of the common issues that have surfaced –
- in the first scenario, the purchaser agrees, for whatever reason, to pay the estate agent’s commission. The purchaser does not want to / cannot afford to pay the commission in one lump sum and therefore negotiates with the agent to pay the commission in small monthly installments. The agent is desperate to secure the sale – after all, any commission is better than no commission – and therefore agrees to this payment arrangement. While the seller may be aware of this arrangement they do not necessarily appreciate the practical implications of this arrangement. The consequence of this arrangement is that the registration of transfer will be delayed until such time as the agent’s commission is paid in full and the seller will now have to wait months before receiving the sale proceeds.
- the second scenario relates to an attempt by the parties to reduce the amount of Transfer Duty payable. To achieve this, the purchase price must be reduced, since Transfer Duty is calculated on the purchase price payable. In exchange for the seller reducing the purchase price, the purchaser agrees to pay the estate agent’s commission (usually payable by the seller). What the purchaser may not be aware of is that where a purchaser agrees to pay certain expenses usually payable by the seller (such as estate agent’s commission, arrear rates and taxes etc.), these expenses will be added to the purchase price and Transfer Duty will be calculated on the entire amount and not just the purchase price thereby impacting any potential saving.
- the third scenario involves a situation where the parties agree that the agreement is subject to mortgage bond approval, while the sale agreement itself does not in fact clearly make provision for this to be a suspensive The purchaser is therefore under the mistaken impression that he/she would be able to get out of the sale agreement should he/she not qualify for mortgage bond approval. The mortgage bond approval suspensive condition is inserted for the benefit and protection of the purchaser and should the purchaser be unable to secure mortgage bond approval, the sale agreement will automatically lapse and be of no further force and effect. The purchaser is therefore not exposed to any financial consequences. The scenario is very different where mortgage bond approval is not a suspensive condition, but merely a contractual obligation for the purchaser to fulfil. In this instance, should the purchaser be unable to obtain mortgage bond approval (or secure the purchase price by paying same in cash), they will be in breach of the sale agreement. To make matters even worse, these types of sale agreements often provide for a non-refundable deposit and non-refundable estate agent’s commission. As a result of the purchaser’s breach of the sale agreement, he/she will forfeit the deposit and will most probably also be liable for the estate agent’s commission if the seller cancels the agreement as a result of the purchaser’s breach in failing to obtain mortgage bond approval.
These examples should serve as a reminder that both purchasers and sellers are vulnerable to being taken advantage of in the current climate and can benefit greatly from being advised and assisted through the pitfalls of buying or selling their homes.