Making an offer on a property: what should you look out for?
Coronavirus crisis or not, the Belgian property market proved immune to any bad news in 2020. Even after the steep rise seen in recent years, residential property prices continued to climb. In some regions, prospective buyers took the fear of missing out seriously, with offer prices going significantly over the asking prices in some cases. In this kind of climate, emotions can take over, and prospective buyers may find themselves making an offer that they actually can't come through on.
Although we often think otherwise, an offer is indeed binding. Whether it's an auction organised by a notary (via biddit.be or another option) or an offer in a private sale (from one person to another, for example), it doesn't matter – as soon as your offer has been received by the seller and they accept, it's binding. Even if you, as a buyer, fail to get a mortgage from the bank, that doesn't count as a valid reason to withdraw the offer. Once an offer has been accepted, neither the buyer nor the seller can get out of it (unless they both reach an agreement to pull out).
Fortunately, however, there are a number of techniques at your disposal to avoid getting caught in a trap as a prospective buyer.
1. Attach an expiry date to your offer
If you make an offer in a private sale, you're advised to attach an expiry date to it. You then decide exactly how much time you want to give the seller to make up their mind. If you make an offer without attaching an expiry date, the seller can, in principle, take as long as they like to consider your offer. If the seller accepts your offer, ask for written confirmation (this can also be done by e-mail).
The situation's a little different when it comes to an auction. Your offer remains binding, even if another party outbids you. If, for example, the notary establishes that the offer from the highest bidder can't be accepted for whatever reason (the bidder appears to be legally incapable, for example), the next highest bid may then come out on top. You should therefore bear in mind that any bid made at auction remains binding for 10 working days after the end of the bidding period.
2. Use conditions precedent
If you make an offer, you can always make it subject to some conditions. More specifically, by attaching one or more conditions precedent to it. If any of the conditions aren't met, you can walk away.
A condition precedent that frequently applies is obtaining a mortgage. The requested loan amount must be mentioned in the condition precedent. If you make an offer subject to this condition precedent and you can't get a loan to finance the purchase, the offer loses its validity. Of course, the seller can ask you to provide the necessary proof in this case (proof that you've applied for a loan with one or more banks and that the application has been refused, for instance). Count a lead time of up to three weeks for obtaining this proof and be sure to mention the requested loan amount.
You can also attach other conditions precedent to the offer, such as obtaining clean environmental certificates, the absence of town planning violations, and so on. You should also link an end date to these conditions precedent, too.
3. Know your numbers
Before making an offer, you need to work out your budget. That may sound logical, but emotions can sometimes take over in the heat of the moment, meaning you end up offering more than you can handle. Set a limit, and make sure you stick to it.
You should always do your homework first, too. What registration fees and notary fees are involved? How much do I have in reserve and what's the best buffer to maintain? What renovation costs do I expect to incur on the property? Is my job sufficiently secure? The list goes on.
Be sure to run a mortgage simulation at an early stage before making an offer. That's easy to do online with Keytrade Bank.
4. The highest bid isn't always the winning bid
Most people always assume that the one with the deepest pockets wins. And that's often the case, particularly at auctions. In a private sale, however, the seller isn't obliged to accept the highest bid and can choose who they want to sell the property to. You can also take this into account when preparing your offer and during any negotiations. You can then make a friendly offer. Yet if you attach a long list of requirements and conditions to the offer, become pushy, or automatically copy your real estate lawyer in on your e-mails, you could cause the seller to get cold feet.
An auction and a private sale are different things
As you've already noticed, the rules for an auction sometimes differ to those for a private sale.
If you're buying a property in a private sale (for example, through an estate agent or from a private individual), you first need to make an offer, sign a promissory agreement, and the deed of sale will follow within a period of four months. You can agree a deposit, and the outstanding funds will then be settled when the sale is executed.
In an auction, the situation is different. No promissory document is signed, while a notarial deed is signed immediately instead. You must pay its registration fees and the notary's fees within five working days of signing the deed. And six weeks after you've been awarded the property, you must pay the seller. As the buyer, it's important to know that you can no longer ask for a cooling-off period or introduce conditions precedent at this point.
If you're selling, note that you're not allowed to organise an auction where you let prospective buyers bid against each other in public. This is strictly a notary's domain.
This article does not contain any investment advice or recommendation, nor a financial analysis. Nothing in this article may be construed as information with a contractual value of any sort whatsoever. This article is intended for information only and does not constitute in any way a commercialization of financial products. Keytrade Bank cannot be held liable for any decision made based on the information contained in this article, nor for its use by third parties. Every investment entails risks such as a possible loss of capital. Before investing in financial instruments, please inform yourself properly and read carefully the document "Overview of the principal characteristics and risks of financial instruments" that you can find in the Document centre.