Before signing a sales and purchase agreement regarding property and real estate, you should always ensure that the document contains an adviser approval clause.
The insertion of an adviser approval clause in the sales and purchase agreement guarantees your signature being conditional upon your advisor’s approval of the transaction in its entirety.
If there are terms and conditions in the sales and purchase agreement or the other documents relevant to the purchase of which you have not been aware or do not wish to accept, then the adviser approval clause gives you the option to legally withdraw from the purchase transaction without you suffering any monetary loss.
If an adviser approval clause has not been included in your sales and purchase agreement, and you cancel a transaction under the rules regarding the right of withdrawal, then you are responsible for paying a fee to the seller of 1% of the purchase price.
Here you can read more about what an adviser approval clause is, whether an adviser approval clause can be extended, and much more.
What is an adviser approval clause?
An adviser approval clause allows you to have your own representative thoroughly review the sales and purchase agreement, and the other documents relevant to the purchase, to ensure fairness and safeguard against risk.
If you end up regretting purchasing the property after having signed the sales and purchase agreement, you will have to make use of your statutory right of withdrawal regarding the purchase of the property.
Nevertheless, making use of your right of withdrawal is not without risk since you are legally obliged to pay the seller a fee of 1% of the purchase price.
You can avoid paying this fee by ensuring that an adviser approval clause is included in the sales and purchase agreement before signing the document.
In doing so, you can sign the sales and purchase agreement free of worry and subsequently give your adviser the opportunity to review the sales and purchase agreement, and the other documents relevant to the purchase.
If your adviser considers it necessary to carry out additional investigations or make modifications to the terms and conditions of the sales and purchase agreement, the seller must meet these conditions if your signature on the sales and purchase agreement is legally binding. Alternatively, you can as a buyer, pull out of the purchase transaction.
As a buyer, you should be aware that when noting objections to the sales and purchase agreement, after both parties have signed it, the seller will consider the objections as a new purchase offer. On this basis, the seller can pull out of the transaction legally. Admittedly, such a situation only happens very rarely. However, if there are several buyers for the same property, the seller can see an opportunity to sell to another buyer on more favorable terms. The seller may decide to take advantage of this opportunity. In such cases, a new sales and purchase agreement containing a new adviser approval clause and a new right of withdrawal would have to be drawn up. For this reason, the seller may risk finding themselves in a situation without any willing buyers.
In the sales and purchase agreement it is typically listed as a requirement that the professional advisor must be either an attorney or a registered real estate agent (buyer agent) responsible for reviewing the purchase agreement and the documents.
In addition to an adviser approval clause in the sales and purchase agreement, it may also be beneficial to include a subject to finance clause, which means that your signature is only valid once the bank has approved the financial arrangements set out in the sales and purchase agreement.
How long is an adviser approval clause valid for?
When using an adviser approval clause in the sales and purchase agreement, a specific time limit must be specified to determine for how long the clause is valid.
In other words, how long does your adviser have to review and approve the sales and purchase agreement and note any objections to the seller’s real estate representative?
The clause is typically given a validity period between 3-5 business days from when both parties have signed the sales and purchase agreement.
This means that your adviser generally has five working days to note any objections to the agreement, which must have been submitted before the stated deadline.
Be aware that the deadline for your adviser approval clause may be shorter than five business days in certain cases.
Furthermore, be aware that if your adviser has not submitted objections to the sales and purchase agreement before the deadline, as a rule, the transaction will be considered legally binding unless you, as the buyer, still have the option of exercising your statutory right of withdrawal.
For this reason, before signing the sales and purchase agreement, it is worth noting for how long the adviser approval clause is valid. As a buyer, you can also choose to have your adviser review the sales and purchase agreement before signing it to ensure that the sales and purchase agreement contains all the relevant clauses, provisions, and conditions.
Can an adviser approval clause be extended?
If your adviser requires additionl time to review the sales and purchase agreement, or the other documents relevant to the purchase, it is generally possible to extend the adviser approval clause, provided the seller accepts the proposed deadline extension.
Typically, the real estate representative will accept the request for an extension of the adviser approval clause because the buyer’s adviser is otherwise able to legally pull out of the purchase transaction on account of the approval clause.
For this reason, as the buyer, you will be able to withdraw from the purchase transaction free of charge, provided the seller and the seller’s real estate representative do not intend to accept your request for an extension of the adviser approval clause.
How to draft an adviser approval clause?
There are no legal requirements for properly formulating an adviser approval clause relating to sales and purchase agreements.
As a result, the choice of wording often varies from one agreement to another.
You should know how the adviser approval clause is worded so that the seller’s real estate agent cannot suddenly demand an explanation for any noted objections.
An example of an adviser approval clause in a sales and purchase agreement
Below is a concrete example of an adviser approval clause, which can be made conditional upon the approval of the buyer’s objections.
This case below is merely an example, given that an adviser approval clause, as previously mentioned, can be worded differently depending upon the individual sales and purchase agreement.
Example draft of an adviser approval clause:
“In accordance with clause 10 of the sales and purchase agreement, this purchase transaction on the part of the buyer is conditional upon the buyer’s adviser approving the agreement in its entirety. Any objections must be received in writing by the seller’s real estate representative no later than 16:00, five working days after signing the sales and purchase agreement by both parties (excl. date of signature). If the expiration of the aforementioned deadline has received no objections, the transaction is legally binding for the buyer, except for the buyer’s statutory right of withdrawal under the Consumer Protection Act regarding the purchase of property and real estate. It is worth noting that the statutory right of withdrawal period runs parallel to the objection period included in this clause.”
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Note, the real estate agent is hired by seller and represents seller’s interests throughout the whole process, while the buyer’s agent exclusively represents the interests of the buyer.
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