As we know that while buying a property entire risk rests with the buyer. It is imperative for buyer to ask a seller few imp points. In this post we will discuss 5 such questions which a Buyer Must Ask a Seller before buying a property. In India, most of the property deals are closed through Real Estate Agents or Brokers. Normally Brokers don’t allow buyer and a seller to discuss the nitty gritty of the deal. All the communication is through Real Estate Agent which might create confusion at later stage. I have observed that Real Estate Agents usually favor the seller therefore the interests of a buyer are not safeguarded in this entire process. Focus is mainly on Property Negotiations which i highlighted in my post Property Negotiations – Avoid these 5 Mistakes. Though a buyer cannot expect direct answer to few of the following 5 questions. The only objective is to get a fair idea about the nitty gritty of property transaction. Lets check out 5 imp questions.
Why Seller is Selling the Property?
In my opinion this is one of the most critical point which is generally missed. Seller will not give straight forward answer. Best way to find out is ask the various stake holders separately like Real Estate Agent, Buyer may directly ask Seller and Buyer’s spouse may ask Seller’s spouse. Also you can check with association office i.e. reason for sale. Information from various sources will help to find out why seller is selling the property. The reason behind this exercise is to check whether there is any issue with the property or with the project. Though personally i don’t believe but i observed based on client feedback that some properties are unlucky. One such client has a property in Mumbai and trust me he has to find new tenant every 6 months. Now he is planning to sell the property. In many cases, seller was fed up with structural defects in property like seepage issue despite spending huge amount to fix the same. The issue cropped up every 2 months. Finally he got the house painted and sold it within a month to get rid of same. You can also check from how long the seller / tenant is staying in the property.
What is the Resident Status of a Seller?
It is also very crucial point from tax perspective. Most of the times buyer assume that seller is Resident Indian but it is not true. In many cases, seller conceal the resident status if he or she is a NRI. Reason being, 20% TDS on sale of property from NRI. To avoid this TDS, NRI seller insist that he is Resident Indian. End Result the buyer has to pay heavy penalties to Income Tax department. From buyers perspective, it is very difficult to find the correct resident status of a seller but there are few ways to check. Buyer can check the passport of seller, PAN status on Income Tax department website & type of bank account. Last but not the least, still if there is any doubt then buyer can include a clause in agreement that seller has declared his resident status as “Resident Indian”. In case of wrong declaration in agreement the entire onus is on seller for false declaration.
What is CAGR i.e. Property Appreciation?
Not many buyers check this aspect but generally go by market trend of area. For example, if i am buying a property on Sohana Road in Gurgaon then i will just check the average appreciation of this area. Fact of the matter is that you might find specific projects with NIL or Negative appreciation or flats with above average appreciation. A buyer must ask seller how much appreciation he is booking on his property investment. Taking a cue from recent example of one of my client. She was buying a 9 year resale property for 1 Cr. I asked her to check the rate at which seller bought. She called me with great excitement and told that seller has doubled the money as he bought it for 50 lakhs in 2005. I informed her that CAGR is just 7.41%. I explained her that this much return she can get in any Govt savings scheme also discounting the fact that she is buying the property on Home Loan. In my opinion, if CAGR is less than 10% then you should drop the idea of buying that particular property.
Why seller is offering discount?
As a buyer, rather being happy about getting a discount or good deal you should find out why seller is offering discount. In some cases, seller is genuinely in a hurry to sell the property as he is in urgent need of money. If you are getting a genuine discount then its fine. If discount is being offered to hide any inherit flaw in property or future event then be cautious. I will share an example. In Mumbai, Govt was planning to build Santa Cruz – Chembur link road. There was plan to demolish large no of apartments en-route. Sellers offered heavy discount to dispose the property as news was classified and not in public domain. People who bought at discount stuck because govt acquired at much lesser price. In short, getting a good deal is not a bad idea but it should not be the case that you have to deal with after results. Do a thorough research on reason why seller is offering discount as no one would like to sell at loss. It is advisable to directly ask the seller. Most of the times, buyer don’t ask seller in fear of losing the discount.
What will be Sellers future Permanent Address?
I always suggest my clients to ask for permanent address from seller at the time of buying a property. In future, if there is any issue or dispute then most of the buyers fail to locate the seller. Though i agree that after 4-5 years anyways it is difficult to locate the seller. But if there is any issue in property then you will come to know within 1-2 years. It is imp to keep track of seller atleast for a year or so. If seller is moving out of India then you may ask for local contact. If seller is moving to other city then you may ask for his home town address where his close relatives like parents or brother / sister is staying. You can also check the authenticity of the address provided.
I hope as a buyer you will take care of critical points and liked the post. Always remember that entire risk in property transaction rests with the buyer. You cannot rely 100% on 3rd party like Real Estate Agent or Lawyer to safeguard your interest. As a buyer, you should also safeguard your interests because its your money.
Copyright © Nitin Bhatia. All Rights Reserved.
I AND MY REAL BROTHER ARE BUYING A FLAT FROM A COUPLE (JOINT
HOLDER 50-50). HUSBAND HAS POWER OF ATTORNEY FROM HIS WIFE .HE WILL ALONE SIGN
ON THE SALE DEED.SALE AMOUNT IS 90 LAC. MY QUESTION IS:
1. HUSBAND WANT WHOLE AMOUNT DRAFT IN HIS NAME.CAN WE GIVE THIS
TO HIM.
HE IS READY TO MENTION THIS IN GPA BY HIS WIFE THAT SHE HAS
NO OBJECTION IN PAYING WHOLE AMOUNT IN HIS HUSBANDS NAME.
2. HOW SHOULD I KNOW
THEIR STATUS i.e. NON RESIDENT INDIAN OR INDIAN TO DEDUCT T .D .S .?from their pan no it is not found.
3. HOW MUCH TDS IS TO BE DEDUCTED ?
Seems some issue between husband and wife…Firstly check why wife cannot come for registration. Secondly, i have doubt that GPA is not registered in court therefore authenticity of GPA cannot be verified.
1. No, it has to be in proportion of ownership in property
2. Check passport and include clause in sale deed that seller has declared his resident status as resident indian. If he is NRI, GPA is not valid in India till signed by indian consulate and registered in India.
3. For NRI 20.66% and Resident Indian 1%.
Sir
How Could you pls tell me how did you arrive at CAGR of 7.41%. for a Property appreciation from 50 lac to 1 cr in a span of 9 years. As per the standard Calculation it should be 8.01% .
CAGR = (Ending Value / Beginning Value ) ^ (1/No of yrs ) -1
In this case it is
(1cr / 50 lac ) ^ (1/9) -1 = 8.01%
Good Observation :). Seller bought property in 2005 and was selling in 2015. I mentioned only completed years as the normal practice in Real Estate, Whereas for calculation, i considered exact No of Months and Days. Seller held the property for little more than 116 months i.e. 9 year, 8 Months and 10 Days. Therefore in her case correct CAGR was 7.41%.
I got to know that a reputed builder in Bangalore has build some EWS/LIG flats in their current luxurious project.Thhis new contruction falls under schedule b as ews/lig flats. I want to buy this lig flat as though it is sold by the builder above 3500/sq ft, the overall cost is 26 lacs which is in my budget. I am not LIG eligible- can i still buy it? pls tell me about repercussions in future if any?
It seems builder has either received aid or monetary support from govt for the project. Another possibility is project land is govt allotted land at discounted rate or any other arrangement with govt authority under which X no of flats are reserved. In such scenarios you are not eligible and in case of any complaint or inspection, govt may seal the property.
Hi Nitin,
I booked a ready to occupy flat with a reputed builder its a resale property which is not yet registered to the flat owner name.
After booking the flat I gave the documents to Lawer to verify. Lawer asked some stay order related documents without that he is not able to advise whether we should go ahead with the agreement or not.
When we asked the builder they told these are not important documents so do the agreement asap as from last one month Lawer has not given his opinion. After so much of request builder told that land owner son has file a case telling his father has sold the land without his knowledge. So it will take time to get the stay order related documents and case is very weak so it will be in builder favour after 2-3 hearing.
We don’t want to go ahead with this property and want to cancel the booking but builder is not ready to return the booking amount.
Could you please advise is it safe to go ahead with aggrement? Or is there any way we can get our booking amount?
Please advise.
Normally property cases take long to decide. Though lawyer will be in better position to suggest and i have not seen property documents. In my personal opinion, it is advisable to move out of such deals.