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Sellers, here’s how your agent should word the ‘backdoor clause’

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Often sellers do not want to cease marketing if the purchaser also has to sell his or her property before they can buy. Others want to continue marketing if it is uncertain whether the purchasers will qualify for a loan.

Many a transaction has met its end due to the inadequate wording of the so-called “back door clause”.

Important aspects to record as part of the continuation of marketing:

  1. The clause should define what types of offers shall be deemed competitive and may be accepted by the seller.

  • Can it only be cash offers?
  • May it be subject to the approval of a bond?
  • Must it be a higher or similar purchase price?
  • Once the seller has accepted a competing offer, how and when will notice be given to the first purchaser?
  1. The notice should be accompanied by a copy of the competing offer.

  • Notice should only be given once the second purchaser has complied with the conditions of the competing offer, for example, if the second offer is a cash offer, the clause should read that notice can only be given once the second purchaser has paid the cash into the transferring attorney’s trust account. It is of no use to give notice to the first purchaser, only to find out that the second purchaser does not have the cash. It may very well be that the first purchaser has found himself another property after being given notice. The seller is then left with no purchaser.
  • The transfer and bond costs must be paid by the second purchaser before notice is given.
  • The seller does not want to give notice and then the second purchaser does not have the means to pay the costs.
  • Proof of compliance with the aforesaid should also accompany the notice.
  1. The clause should educate the first purchaser about what his or her options are when receiving notice.

    It should stipulate that the purchaser may:

  • waive the condition that he/she must sell his/her property in writing, within a specified timeframe, alternatively;
  • timeously fulfill the suspensive conditions. The first purchaser must thus sell his/her property and/or qualify for a loan within the notice period. Note that the purchaser’s property can only be deemed sold if all the suspensive conditions in that agreement have been met.

This article has been reproduced here with the kind permission of MC van der Berg Inc

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