We often speak about heeding the importance of a signed offer to purchase (OTP), as this forms a legally binding contract between a buyer and seller that must be honoured. However, alongside this, most sale agreements (unless otherwise agreed by the parties) are subject to a continued marketing clause which does allow for a seller to accept additional offers from other prospective buyers under certain circumstances, even after an OTP has been signed.
In essence, the continued marketing clause allows the seller and the estate agent to continue marketing the property and holding show days for prospective buyers to view the property while the initial buyer works towards meeting the suspensive conditions contained in the offer. Most commonly, a suspensive condition relates to obtaining approval for a home loan or selling a current residence. Only once all suspensive conditions are met, will the OTP come into force as a binding contract of sale, and until this is the case, the seller is entitled to continue looking for other willing buyers.
The intention behind this clause is to protect the seller from being negatively affected should a prospective buyer not be able to raise the necessary funds or if there are delays in fulfilling other suspensive conditions. Without it, a seller would have to remove the property from the market each time an offer is received and would run the risk of lengthy waiting periods to finalise the sale of a property (and as a result may even lose out on purchasing another property) even though there might be other prospective buyers eager to put in an offer.
If this clause is included in a contract of sale, the seller has the option of accepting subsequent offers under certain conditions.
For a seller to be allowed to accept another offer on a property, such an offer must be unconditional. This means that the offer cannot not subject to any suspensive conditions and that the sale comes into force and can proceed immediately.
In addition, before this later offer becomes a binding contract of sale, the seller is required to inform the original buyer of his intention to accept a subsequent offer, and allow a set timeframe (typically 72 hours) within which the buyer has the opportunity to fulfil all suspensive conditions. If this is done, the original offer must be honoured by both parties. However, if the suspensive conditions are not met within the timeframe (for example, the buyer is not able to obtain the necessary finance), the second offer will come into force.
It is worth pointing out that this notice should only be given once the competing offer is unencumbered by suspensive conditions. Should the notice be given too early, it can be taken as a misrepresentation on the part of the seller.
As mentioned, the continued marketing clause is for the seller’s benefit, and as such, most clauses of this kind will only allow a seller to accept subsequent “clean” offers (i.e. not dependant on bond approval or the sale of a current residence) and not simply an offer of a higher value.
From the buyer’s perspective, it is important to obtain finance as soon as possible, or to apply for pre-approval to avoid missing out on a property due to later offers being accepted by the seller.
Lastly, as with all terms within a contract of sale, the continued marketing clause may vary slightly and cognicence must be paid to the detail to ensure that offers are accepted and honoured as stipulated in the contract.
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