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Wednesday, December 30, 2015

Home Buyer Risks and Responsibility


Home Buyer Risks and responsibility

In a sale process, two primary parties are involved: Seller and Buyer. Both these parties have certain rights and responsibilities in order to complete the transaction successfully. The agreement to sell and sale deed is executed on the doctrine of 'Good Faith'. Let's take a look at the key responsibilities and risks of buyers and sellers:



Home Buyer's Responsibilities

  • Payment of Price:One of the primary responsibilities of the buyer is to pay the consideration. He is bound to pay the purchase money to the seller at the time and place agreed upon with the seller. This liability of the buyer is personal in nature and if the seller refuses to accept it, the buyer can deposit the money in court. This means that if the buyer so wishes, he/ she can deposit the money in court, which later can be handed over to the seller, once the agreed property is legally transferred in his/her name. However, this obligation on the buyer arises where the property sold is not free from all encumbrances. Consequently the buyer may retain, out of the purchase consideration, the amount apportionable to such encumbrance existing on the date of sale, and pay the amount so retained to the persons entitled thereto.
  • Duty of disclosure:The buyer is bound to disclose to the seller any fact as to the nature and extent of the seller's interest in property of which the buyer is aware, but of which he has reason to believe that the seller is not aware and which materially increases the value of such interest.
  • Liability to bear losses: : After the ownership of the property has passed to the buyer, any loss arising from the destruction, injury or decrease in the value of the property not caused by the seller is to be borne by the buyer.
  • Payment of public charges and rent:The obligation to pay public charges is also transferred along with the ownership of property. The rule is that when the ownership of property has passed to the buyer, he/she is liable to pay all public charges and rent outstanding/payable for the property. The obligation extends to the principal money due and the interest on any encumbrance subject to which the property is sold. However, it is the duty of the seller to disclose all unpaid liabilities on the property so that the same can be appropriately incorporated in the sale deed to avoid any future dispute.

Home Buyers Risks

  • Movement in property prices: On an average, property prices have moved up by 30-50% from 2006-2008. In some areas, for example in suburbs of Delhi, such as Gurgaon, Noida and Faridabad, prices had doubled during the same period. This has exposed the buyers to new risks. If the reason for buying a home is to have an appreciating asset, buyer is likely to suffer from less-than-satisfactory appreciation in case the property prices go down. However, if a property is bought when the prices are down, then buyer is likely to get a satisfactory appreciation.
  • Increased financial vulnerability: Housing finance institutions typically finance up to 85 per cent of the cost of the property. This means that buyer will have to arrange for the balance 15 per cent from his resources. In the backdrop of rising property prices and various associated costs (such as stamp duty payment, registration charges, maintenance charges, etc.), the buyer has to arrange for higher down payment besides taking on higher home loan liability.
  • Rising home loan rates: The interest rate on housing loans had descended from 13-14% per annum in 2000 to touch a low of 7.5% in 2004. However, there was a reversal in the trend since then and, currently, the home loan rates are quoting at 9-10%. As interest rates are revised upwards by home loan providers, the number of equated monthly installments (EMIs) and the interest paid out by buyers during the tenure of the home loan increases.
  • Hidden encumbrances on property: Some sellers may hide or may not mention the existing encumbrances in the �Agreement to Sell�. It is advisable to do a thorough check for any encumbrances that exist on the property and then ensure that these are mentioned in the �Agreement to Sell�, clearly stating who would be responsible to pay for these.
  • Fraud sellers: A buyer runs the risk of getting into a fraud transaction where the property title papers are NOT complete or genuine, or where the same property is sold multiple times to different buyers. To avoid any future disputes or tensions, the title of property and the related documents needs a thorough check, especially if the property has passed multiple hands. So, ensure that all documentation for the selected property is complete and then get these documents verified by a practicing lawyer before you finalize the property transaction.
  • Quality of construction: The quality of construction material used in the selected property is one of the most common risks faced by property buyer. It is advisable to scrutinize all related documents. You may hire services of a registered architect to ensure that the construction is as per the design plan and specifications.
  • Land use issues: With too many irregularities and violations in the land use these days, the buyer may not know what he is getting into unless it�s too late. Most cities have master plans and some even have zonal plans that indicate the land use in respective areas. A quick verification of these basic documents by your lawyer can give a lot of information about the area/locality where you are buying a house.
  • No completion certificate: The largest property misuse witnessed in most cases is with regard to the building bylaws and master plan norms. Many buildings do not have the completion certificate. You must ensure that you get a completion certificate for the house you are buying as it is an important part of the property paperwork. In case you are buying the property from a builder, then you should earmark an amount of purchase consideration to be paid against receipt of the completion certificate. In case you are constructing a house, then your architect would be responsible for getting the completion certificate.
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