What happens if a bond is not approved?

The bank says no. The buyer assumes they are in trouble, the seller assumes they can claim something, and the agent starts talking about the commission.

Usually all three are wrong. The general law of suspensive conditions is set out in our guide on suspensive conditions in a sale agreement; this is about the bond clause specifically, which is the one that actually fails in real transactions and has its own set of traps.

Nothing has been breached

A bond clause makes the whole agreement conditional on the buyer obtaining a loan, usually of a stated minimum amount, by a stated date.

Where that does not happen, the condition is unfulfilled. The agreement falls away of its own accord. That means:

No breach. Nobody defaulted. There is nothing to cancel, because there is no enforceable sale.

No damages. The seller cannot claim the difference between your price and the next offer.

No commission. The agent's entitlement depends on a sale coming into existence, and none did. This is why agents push hard for extensions, and the pressure is real but it is not a legal entitlement.

The deposit comes back. In full, with interest where it was held in an interest-bearing trust account for your benefit. Ask which account it went into at the time you pay it, not afterwards.

The three numbers in the clause

Most disputes about bond clauses come down to reading them, and there are three variables that matter.

The amount. The clause names a minimum loan amount. If the bank approves less than that figure, the condition has not been fulfilled, even though you were approved for something. A buyer offered R1.6 million on a clause requiring R1.8 million is not obliged to proceed, and a seller cannot insist on it.

This cuts both ways in practice. A buyer who is happy to proceed with the smaller amount, by putting in a larger deposit, can do so, but that is a fresh agreement in writing rather than an automatic continuation.

The date. This is the operative deadline, and it is usually far shorter than people think: commonly a couple of weeks to thirty days from signature. It runs whether or not anybody is chasing the bank.

The rate, sometimes. Some clauses qualify the approval by reference to an interest rate or to terms "acceptable to the purchaser". A clause of that kind gives the buyer more room; a clause that simply requires a loan of an amount gives less.

Read those three things before you sign, not when the bank declines.

What "approved" actually means

Buyers conflate several stages, and it matters because the clause is satisfied by a grant, not by encouragement.

Pre-qualification is an indication of what you might afford, based on what you told somebody. It is not an application and it commits nobody.

Approval in principle is a conditional indication from a bank, subject to valuation, to verification of your income, and to the bank's final credit decision. It is progress. It is not a grant.

A formal grant or final approval is the bank committing, and it is what the clause requires. It comes after the property has been valued and your documents have been verified.

The gap between the second and third of those is where transactions die. A valuation that comes in below the purchase price, or a bank statement that reveals a commitment you did not mention, converts an approval in principle into a decline.

Extensions must be in writing

This is the failure that causes real litigation, and it is entirely avoidable.

Nearly every agreement of sale contains a clause requiring any variation to be in writing and signed by the parties. A bond date extended by an email from the agent, or by a phone call in which the seller "said it was fine", is a variation of the agreement that has not been made in the required form.

So a transaction can be in the position where everybody believed it was alive, the buyer's bond was granted three weeks after the original date, and the agreement had in fact lapsed weeks earlier. The seller who has meanwhile received a better offer then has every incentive to say so.

The discipline is simple and it belongs to the buyer as much as the seller:

Diarise the bond date the day you sign.

Ask for an extension before it expires, not after.

Get it signed by both parties, on an addendum, with the new date stated.

Do not accept "the agent says it's fine." The agent is not a party to the agreement.

If the bond is declined

Find out why, in writing. Affordability, credit record, the valuation and employment verification are the usual reasons, and they have different answers.

Apply elsewhere. Banks assess differently, and an application to one bank is not an application to all of them. Many buyers use a bond originator to submit to several at once, which is the efficient version of this.

Check your credit record. A listing you did not know about, or a judgment from years ago, is fixable and is a common cause. Our guides on disputing a listing on your credit report and rescinding a default judgment set out how.

Reduce what you need. A larger deposit lowers the loan amount, which is often the whole problem.

Deal with the valuation. If the decline is because the bank valued the property below the price, no amount of persistence about your income will fix it. The answer is a lower price or a bigger deposit, and the seller needs to know.

Do not let it lapse by accident while you work on it. Ask for a written extension covering the time you need.

Be careful about multiple applications. Several formal applications in a short window leave enquiries on your credit record. A single submission through an originator to multiple banks is generally treated better than four separate approaches over four months.

You must actually apply

The one situation in which a buyer can be held to a lapsed deal.

A buyer is obliged to make a genuine, diligent application. A buyer who decided they no longer wanted the house, and then simply did not submit the documents the bank asked for, cannot rely on the failure of a condition they caused. A seller who can show that will argue that the buyer is not entitled to escape.

Keep the evidence that you tried: the application, the reference number, the list of documents requested, the dates you provided them, the decline letter. That file is what answers an accusation of bad faith, and it costs nothing to keep.

For sellers

Do not take the property off the market in your own mind. Until the bond is granted, the sale is conditional.

Watch the date yourself. It is your protection, not just the buyer's obligation.

Sign extensions rather than agreeing to them verbally. A verbal extension is bad for you too: it leaves the position uncertain and gives the buyer an argument they should not have.

Ask what stage the application is at, specifically, rather than accepting "it's with the bank".

Understand the occupation risk. Letting a buyer move in before the bond is granted, on occupational rent, is a common arrangement and it is the one that turns a clean lapse into a mess. If the condition then fails you have an occupier in your house and no sale.

Our guide on what happens if the seller pulls out deals with the position once a sale is unconditional, and our transfer costs calculator sets out what a buyer needs in cash beyond the bond, which is itself a common cause of a deal failing late.

Worked example

This example is illustrative. A buyer signs an offer of R2 100 000 on 5 April, with a deposit of R100 000 and a clause requiring a bond of at least R1 900 000 to be granted by 5 May.

On 28 April the bank gives approval in principle subject to valuation. The buyer relaxes. On 2 May the valuation comes in at R1 950 000, and on 6 May the bank grants a bond of R1 755 000, being what it will lend against its own valuation.

Two things have now happened. The date has passed, and the amount is below the figure in the clause. The condition has failed on both counts, the agreement has lapsed, and the deposit is refundable with interest. No commission is payable.

If the buyer still wants the house, the route is a fresh written agreement: a reduced price, or the same price with the buyer covering the R145 000 shortfall from savings, recorded in a signed addendum.

If the seller has by then accepted a better offer, the buyer has no claim, because there was never an enforceable sale.

Now the version that produces litigation. On 3 May the agent emails both parties saying everybody is happy to extend to the end of May, and nobody signs anything. The bond is granted on 20 May at the full R1 900 000. The seller, who has since been offered R2 250 000, says the agreement lapsed on 5 May. He is probably right, because the variation was never put in the form the agreement required, and the buyer has spent six weeks and a valuation fee on a contract that no longer existed.

One signed addendum, dated 3 May, would have prevented all of it.