Subject To Loan Approval?!

I’ve recently encountered one case, which really made me think: Is “Subject to Loan Approval” clause, (which normally added as a special condition when buyer place earnest deposit to book a property) fair to owner? This Special clause is kind of normal practice especially when it’s in “Buyer Market”.

Here is real case happened. One of the seller, who eagerly want to dispose his property due to financial constraint, has been locked by the agent’s booking form for 21 working days, and he has been waited for 15 working days, still the buyer hasn’t got the loan approved. At 16th-day, he got another confirm buyer, which offer to buy in cash, but as the seller still bond by the offer letter signed, which still has another 5 working days to due date, to avoid any compensation to existing buyer, he can’t accept the latest offer. Finally the existing buyer’s loan rejected after 21 working days, and the cash buyer has decided to go for another unit. What a sad story!!

If you ask me, would this “Subject to loan Approval” fair to owner?! It’s really depends how’s the situation. To be very frank, nowadays no buyer dare to place deposit without “Subject to Loan Approval” clause. We are facing the tough time whereby banks are very strict when approving the loan. If one seller really keen on selling, they have to show their sincerity, at least give some period of time for buyer to try loan. But how many days would be reasonable? Definitely not 21 working days!! My practice is 10 working days. The due date to sign Sales and Purchase Agreement can up to 21 working days, but the period for loan approval shouldn’t be dragged until 21 working days!! This is not fair to seller! As at the end of 21 working days, if buyer’s loan rejected, seller got nothing, but waited in vain for 21 working days!!

My suggestion, when you about to sign the booking form, or some people call it as “Offer letter to Purchase”, talk to your agent, you are kind enough to agree with “Subject to Loan Approval” Clause, but limited to 10 working days, after 10 working days, you as an owner, shall have right to open for other potential buyer. We all know, to get loan approval, if necessary documents all in place, we shall get loan approval in 5 working days. As a serious buyer, they shall know what are those documents required for loan submission. As a professional real estate agent, shall always let your buyer know, what documents required by bank, when it’s time for buyer to book a unit, they at least have some idea. If you not sure about what documents to be prepared, pls refer to HERE.