Double-check clauses in offers to purchase

THE MORTGAGE clause in some offers to purchase or agreements of sale can be confusing and both buyers and sellers must be cautious.

“The mortgage clause usually stipulates that the purchase agreement is subject to the buyers being granted a home loan within a certain period. But because different estate agencies use different documentation, the clause can be worded in different ways,” says Berry Everitt, CEO of the Chas Everitt International property group.

“So, both buyers and sellers need to check it very carefully and make sure they understand exactly what it says, especially if this is their first home purchase or sale.”

Everitt says the clause might, for instance, state that a home loan will be regarded as having been granted even if the buyers only obtain provisional approval.

This means that they will be committed to the purchase even if the bank later decides not to grant them a loan.

Alternatively, the clause might attempt to bind the buyers to the sale agreement even if the loan approval is subject to certain conditions which they don’t like – such as having to provide additional collateral as security for the loan or having to take out additional life insurance.

“In addition, both parties need to make sure that the clause gives the buyers enough time to secure a home loan – seven or 14 days may not be enough and if the time given expires it could invalidate the whole agreement, even if the loan is approved.”

Writing in the Property Signposts newsletter, Everitt says to avoid such problems buyers as well as sellers should be sure to deal only with trained and reputable estate agents who will take the trouble to explain any clause in their sale documentation that has financial implications.

“And, of course, neither party should ever agree to sign an offer to purchase in which the mortgage clause, or any other clause, has been left blank and they have been told will be filled in later.

“Doing so could put buyers in the serious position of being committed to the purchase even if they don’t obtain a home loan or having to pay hefty damages to get out of the deal.

“Sellers could find themselves committed to a sale without any cut-off date for loan approval and, similarly, facing a struggle to cancel the agreement if their buyers don’t get a bond,” Everitt says.