Race for property finance is 'unfair'

2014-10-23 15:42
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 Surely a prospective buyer must be given ample time to obtain financing, asks a Fin24 user. (Photo: Shutterstock).

Cape Town – The practice that allows estate agents to give multiple offers to a seller so that the first one with financing gets the property seems unfair, a Fin24 user said.

However, property law expert Liora Bamberger explains that the act, known as the “Gezumping Clause” is common practice originating from England.

Fin24 user Ziets van Oene said as a mortgage originator, she has found that some estate agents put a clause in the offer to purchase that states that the agent or agency will present more offers to the seller.

“If accepted, whoever gets the finance first is the person that gets the property, not quite in these words but boils down to the same thing.”

“They might take seven offers on a property and the person that puts in the last offer might be the one that gets the property because he obtained his finance before any of the other prospective buyers,” she said. “I have sent a query to the Estate Agency Affairs Board, but have not had a response from them yet.”

“I don’t know if this can be done by law as I don’t believe it is fair practice,” she said. “Surely a prospective buyer must be given ample time to obtain financing. Furthermore, it costs the banks a lot of money to process a loan application just to be withdrawn at a later stage because another buyer obtained finance first.”

Explaining the 'Gezumping Clause'

Bamberger said the “Gezumping Clause” is based on the practice in England whereby the seller is allowed to accept a better offer at any time prior to registration.

“The relationship between the seller and the buyer is governed by the terms of the Sale Agreement, and if both of them agree to this clause then it is valid and binding between them.

“The buyer is entitled to request that the estate agent deletes the clause and if the estate agent and/or seller refuse to do so, the buyer can refuse to sign the Offer to Purchase / Sale Agreement.

“The obvious purpose of this clause is to give the seller the freedom to entertain other offers until the buyer/s obtain a bond, because of the difficulty that many buyers are experiencing in obtaining bond finance.”

* Learn more about Liora Bamberger.

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