What happens to your deposit if the home sale falls through?
It depends on which party is responsible. It’s every home buyer’s worst nightmare. You find your dream home; your offer is accepted; and you pay a deposit—only for the sale to fall through before the property is transferred into your name. The question now is, where does this leave your hard-earned deposit? The answer depends on the terms of the purchase agreement, and the reasons for cancellation. It is also largely dependent on which party is responsible for the sale falling through. If you, the buyer, are in breach of contract, and the breach cannot be rectified within a stipulated time frame, you could lose your deposit. The seller has the right to use the deposit to cover any damages—such as legal costs or agent’s commission—that have been incurred as a result of the transaction falling through. A variety of factors may be considered a breach of contract under property law, with the most common one being a homebuyer backing out after signing an Offer to Purchase (OTP). What constitutes a buyer’s breach of contract? While the sale of land in South Africa is governed by the Alienation of Land Act and must be in writing, the buying of a home is most importantly a contract. The contract needs to list all conditions of the sale that are important to you so that there is no room for uncertainty. That can range from when occupation takes place and whether there is occupational rent or not, to whether the pool pump works or the retractable washing line stays. The OTP or Sales Agreement usually also includes ‘suspensive conditions’—certain conditions that must be met in order for the contract to be enforced. The most usual one is whether you will need a home loan approved to secure the finance for the purchase. Once the OTP or Sales Agreement is signed by all parties involved in the property transfer, it is considered binding, and both the buyer and the seller are obligated to fulfil their parts of the transaction. This means that if the buyer pulls out after signing, they may incur significant penalties, including the loss of their deposit. However, if the reason for the sale failing through is due to any of the suspensive conditions not being met, the contract falls away, and they will get their deposit back. Examples of suspensive conditions can include the requirement for a buyer to conduct a home inspection in a timely manner and be satisfied with the outcome—for example, checking the roof structure. However, the most common suspensive conditions are the requirement for the buyer’s financing (home loan) to be approved, and the requirement that the buyer’s current property be sold first. This is known as a ‘subject to’ sale. Buyers are strongly recommended to consult with a lawyer when including suspensive conditions, as these are there to protect the buyer to make sure they are ready to fully commit. Having those suspensive conditions in place can protect your deposit. The last scenario is the seller breaching the contract—for example, breaching a warranty. Cancellation might not be the only remedy for the home buyer. However, if the home buyer is able to cancel because the seller breached the agreement, the home buyer will be entitled to their deposit back. Your deposit is safe should the seller not fulfil their obligations. Other reasons why a sale may fall through The specific reasons for a sale falling through can vary, and these circumstances determine what happens to the deposit. Instances where the buyer can forfeit the deposit if the sale falls through include: When a buyer deliberately withdraws their home loan application: Regardless of whether the home loan is approved or not, withdrawing an application is a breach of contract if a home loan is needed to finance the purchase. Buyer’s remorse: A buyer may get cold feet and choose to pull out after signing, without a legally permissible reason. No attempt to meet suspensive conditions: While suspensive conditions are intended to protect the buyer, they will forfeit their deposit if no attempt is made to meet them. For example, if the purchase is contingent on a buyer’s home selling, they must prove that they have made efforts to market it. Instances, where the deposit is refunded to the homebuyer, should the sale fall through: Failure to secure funding: If the OTP is contingent on securing funding and their home loan application is denied for whatever reason, the deposit will be refunded. Breach of contract by the seller: If the seller breaches the contract and the buyer cancels as a result of such breach, the buyer is entitled to their full deposit back. Title deed and legal issues: If the transaction fails due to outstanding payments owed by the seller, or title deed disputes surrounding the property, the seller is in breach and the buyer will have their deposit returned. Guaranteeing the safety of your deposit While the vast majority of home sales are successful, it’s important to remember that there is always some risk that a sale may fall through. Both buyers and sellers should be aware of this possibility when entering into a property transaction. The deposit—which is held by a conveyancing attorney, estate agent, or secure platform like Buyers Trust—is meant to serve as a show of the buyer’s commitment to the home purchase, and an assurance to the seller that the buyer will honour the agreement of the OTP. Should the sale fail and the buyer is not at fault (for example, a condition precedent isn’t met), the buyer needs to be 100% assured that the deposit will come back straight to them, together with interest for the time it was invested. WRITTEN BY Jackie Smith Jackie Smith is the head of Buyers Trust. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based
Having ‘skin’ in the property game.
Bigger deposits mean a smaller loan and a better interest rate Rising inflation and several interest rate hikes have many South Africans trying their best to keep their costs down where possible, and this has also translated into their homebuying behaviour. The Q2 ’22 oobarometer statistics, released by ooba, reveal lower-than-expected home price inflation from the last quarter. This has resulted in property becoming more affordable in certain regions (in real terms, i.e. after the effects of inflation are stripped out), enabling homebuyers to put down larger deposits. However, it’s interesting to compare buying behaviour across the various regions, and to identify areas where homebuyers are prioritising deposits. Deposits are a great way to reduce the size of one’s monthly and total home loan repayments, and to negotiate a better interest rate from the banks. While the oobarometer only observed a 0.4% growth in the price of property quarter-on-quarter, the average size of deposits experienced a 16.4% increase. We also observed that in many regions, the average deposit size was significantly higher than the national average of 7.8%. In the Western Cape, which is currently the region experiencing the most homebuying activity, the average deposit size is a whopping 17%. This could be attributed to increased semigration and the scarcity of property supply in the region, resulting in homebuyers needing to put down a larger deposit to secure their dream home. Tips for saving for a deposit: With the largest deposit amounts in various provinces, including the Western Cape, Limpopo/Polokwane, Eastern Cape, KZN, and Gauteng North/East Rand exceeding the generally recommended 10% deposit, it’s clear that consumers are making smart choices and prioritising long-term savings over short-term gains. The benefits of putting down a larger deposit are primarily financial, but they also indicate to both the seller and the banks that the buyer is serious about their purchase. This results in a higher chance of approval, and more favourable interest rates. While putting aside money for a deposit may be a daunting prospect in these challenging economic times, here are some budgeting tips to make saving up easier: -Set a goal. Start by receiving a pre-approval to determine what size bond you will qualify for. Set a realistic savings goal of 10% of that total amount, considering your timeline for buying a home. This will give you an indication of how much you will need to put aside each month to reach your goal by your preferred deadline. -Draw up a monthly budget. This involves tracking your monthly expenditure and cutting down on unnecessary impulse purchases. Go through your bank statement to determine where you can cut back—this may be in the form of a debit order that’s no longer needed, or by reducing your daily coffee stops. -Get rid of credit card debt. The inflation on your credit card debt is eating away at your savings. Avoid making purchases that you can’t afford to pay back immediately, and speak to your bank about lowering your overdraft limit. -Put your savings in a separate account. This way you don’t risk tapping into your savings, as this account should be strictly off-limits. Make sure that the account is interest-bearing, to increase your savings efforts. Finally, once you have successfully saved up for a deposit, make sure that your hard work doesn’t go to waste by ensuring that it is protected from cybersecurity threats. Third-party options, like Buyers Trust, offer you security, full transparency, free bank guarantees, and a high return on your investment as a result of it being stored in a maximum interest-bearing account. WRITTEN BY JACKIE SMITH Jackie Smith is the head of Buyers Trust (a subsidiary of ooba Group). While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes and should not be construed as financial advice.
Having ‘skin’ in the property game
Bigger deposits mean a smaller loan and a better interest rate. Rising inflation and several interest rate hikes have many South Africans trying their best to keep their costs down where possible, and this has also translated into their homebuying behaviour. The Q2 ’22 oobarometer statistics, released by ooba, reveal lower-than-expected home price inflation from the last quarter. This has resulted in property becoming more affordable in certain regions (in real terms, i.e. after the effects of inflation are stripped out), enabling homebuyers to put down larger deposits. However, it’s interesting to compare buying behaviour across the various regions, and to identify areas where homebuyers are prioritising deposits. Deposits are a great way to reduce the size of one’s monthly and total home loan repayments, and to negotiate a better interest rate from the banks. While the oobarometer only observed a 0.4% growth in the price of property quarter-on-quarter, the average size of deposits experienced a 16.4% increase. We also observed that in many regions, the average deposit size was significantly higher than the national average of 7.8%. In the Western Cape, which is currently the region experiencing the most homebuying activity, the average deposit size is a whopping 17%. This could be attributed to increased semigration and the scarcity of property supply in the region, resulting in homebuyers needing to put down a larger deposit to secure their dream home. Tips for saving for a deposit With the largest deposit amounts in various provinces, including the Western Cape, Limpopo/Polokwane, Eastern Cape, KZN, and Gauteng North/East Rand exceeding the generally recommended 10% deposit, it’s clear that consumers are making smart choices and prioritising long-term savings over short-term gains. The benefits of putting down a larger deposit are primarily financial, but they also indicate to both the seller and the banks that the buyer is serious about their purchase. This results in a higher chance of approval, and more favourable interest rates. While putting aside money for a deposit may be a daunting prospect in these challenging economic times, here are some budgeting tips to make saving up easier: Set a goal. Start by receiving a pre-approval to determine what size bond you will qualify for. Set a realistic savings goal of 10% of that total amount, considering your timeline for buying a home. This will give you an indication of how much you will need to put aside each month to reach your goal by your preferred deadline. Draw up a monthly budget. This involves tracking your monthly expenditure and cutting down on unnecessary impulse purchases. Go through your bank statement to determine where you can cut back this may be in the form of a debit order that’s no longer needed, or by reducing your daily coffee stops. Get rid of credit card debt. The inflation on your credit card debt is eating away at your savings. Avoid making purchases that you can’t afford to pay back immediately, and speak to your bank about lowering your overdraft limit. Put your savings in a separate account. This way you don’t risk tapping into your savings, as this account should be strictly off-limits. Make sure that the account is interest-bearing, to increase your savings efforts. Finally, once you have successfully saved up for a deposit, make sure that your hard work doesn’t go to waste by ensuring that it is protected from cybersecurity threats. Third-party options, like Buyers Trust, offer you security, full transparency, free bank guarantees, and a high return on your investment as a result of it being stored in a maximum interest-bearing account. WRITTEN BY JACKIE SMITH Jackie Smith is the head of Buyers Trust (a subsidiary of ooba Group). This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Awaiting your deposit
What to know when your landlord has your deposit and has failed to pay it out You have viewed the new property and secured it by paying the correct deposit amount to the landlord. With the transition into your new space being as breezy as it was, no red flags were raised as to how your landlord could trick you going forward. How do you approach a situation where your landlord won’t pay you back your deposit after you move out? Firstly, a pre- and post-occupation inspection of the rental space must be completed before and after the tenant moves in. This inspection is the landlord’s responsibility and if he or she does not conduct the said inspection, they are then unable to claim against the tenant upon the lease expiration. The Rental Housing Act states that the tenant has the right not to have their home or property searched by the landlord, and thus, the landlord must give reasonable notice for inspection 3 days before the lease ends. Regarding deposits, section 5 of the RHA states that, should there be damages incurred by the tenant under the said lease needing repair after the post-occupation inspection, the landlord must refund the remaining deposit amount, if any, to the tenant within 14 days. In the case where no claims for damages have been made by the landlord, and the tenant is debt free in terms of charges and rent, the deposit must be refunded within seven days following the lease expiration. A tenant who refuses to take part in the inspection process, and damages have been found, is liable to receive their remaining deposit 21 days from the expiration of the lease. If a landlord refuses or has failed to refund the tenant their deposit, the tenant may approach the Rental Housing Tribunal. References Rental Housing Act No. 50 of 1999. (2017). [PDF] Cape Town: Republic of South Africa, pp.6-7. Available at: https://www.gov.za/sites/www.gov.za/files/a50-99.pdf [Accessed 20 Nov. 2017]. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)