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resale

Resale Property Transaction

You buy a property from someone who is already an owner of the property by virtue of having a registered sale deed in his/her name. Unlike a direct purchase from a builder the process here is a bit different. You are dealing with an individual who could be a corporate profile or a landlord profile

You as a potential buyer would meet the seller online or through a real estate broker. Once you firm up the property, the price etc and express your desire to purchase it the first step which is suggested to you either by the broker or the seller himself is your Expression of Interest - By way of a certain Token Advance

In our experience of handling the finance for so many resale cases we have seen many deals being called off after this so called first step of Token Advance stage. In many cases the token advance is kind of gone unless there is a written agreement, which is seldom put in place at the token advance stage. That’s like 50k or Rs 1 lac gone.

We try to put down the various reasons why the deals are called off

1) Seller gets a better price: Another potential buyer agrees to pay a lakh or two more than what you had agreed to pay. Take it from us, most sellers irrespective of their profile, will instantly disassociate themselves from Salman Khan and his commitment theory.

2) Seller’s Existing Loan: The seller has an outstanding loan and the logistics of closing that loan does not match with the process & terms & conditions of the bank of your choice

3) The Registration Value Mismatch: The seller wants to register the property as per government rates and the bank of your choice expects you to register it as per the market rate

4) Deviation in Construction: The bank of your choice is not ready to fund the property as there is deviation between the actual construction and sanction plan issued by the authority

5) Legal Issues: The legal papers given to you after the Token Advance stage are incomplete & your lawyer or your bank’s lawyer wants more documents which the seller is unable to furnish. Or there are obvious legal complications in the property papers and therefore you decide against the deal

So therefore a resale transaction needs a different approach. digiHOMELOAN has put together the flow of events leading to the registration

Before the Token Advance/Expression of Interest itself ascertain the following

Step 1) Register with digiHOMELOAN & get Banker/s on board

Step 2) Get clarity on the seller’s loan outstanding, if any and take a buy in from your banker on the logistics of the disbursement

Step 3) Get clarity on the seller’s expectation of the registration value. Match it with the banker’s terms & your own expectations of the registration cost & the corresponding expenses

Only when the there is a complete clarity and a three way agreement (The seller, You and Your Bank) you move to the next step which is

Step 4) Expression of Interest By way of Token Advance

Step 5) Technical valuation

Step 6) Legal Scrutiny

Step 7) Sale Agreement

Step 8) The Bank Loan Process

Step 9) The TDS Payment

Step 10) The Registration

Now let’s look at each one of them in detail

1) Register with digiHOMELOAN: Once you do this you can get different banks on board and start evaluating them on the basis of ROI & other costs and also on terms and conditions specific to Resale Transaction

2) Get Clarity on Seller’s Loan Settlement, if any: If the seller has a loan outstanding from some bank, then how it would be closed.

There are 2 possible options

a) The seller’s loan outstanding is less than 20% or 25% of the sale value and can be closed using the self-margin that you give at the sale agreement stage

b) The seller’s loan outstanding is more than 20% or 25% of the sale value and cannot be closed using the self-margin that you give at the sale agreement stage and will also need money from the loan that you take on the property. So your bank will make a payment to the seller’s bank against the seller’s loan account number to settle the loan outstanding

You need to provide the following to your bank

i) List of Originals held by the seller’s bank

ii) Outstanding Balance Amount of the seller

Once the loan outstanding is settled and the original papers are freed from the seller’s bank and submitted to your bank the balance payment will be given to the seller.

Some banks will make the seller as an interim guarantor in your loan (only till he brings back the originals). Let’s look at an example

Sample Resale Case

a) Property Transaction Value – Rs 80 lakhs

b) Your Loan Amount – Rs 60 lakhs

c) Self-Margin – Rs 20 lakhs

d) Seller Loan Outstanding – Rs 40 lakhs

Your self-margin of Rs 20 lakhs cannot close the seller’s loan outstanding and therefore your bank loan component has to be used to do so

3) Get clarity on the Registration Cost: It is 6.6% of the sale deed value in Bangalore urban and 6.65% in Bangalore rural

What will be the sale deed value? Or at what value will you register the property. Again there has to be 3 way agreement between you, your bank and the seller. Government guidance value or circle rate in most part of India will be lower than the market value

Depending on what value you register the property the registration cost @ 6.6% will have an impact on your registration expenses

What value you register the property will depend on the bank you choose

a) Some banks will let you register the property at the government guidance value irrespective of what the market value is or loan amount is

b) Some banks will insist that you register it at a value which is higher of the market value(sale agreement value) or guidance value

c) Some may relax the terms to atleast the loan amount

Sellers may insist only on guidance value and not market value/loan amount as they will have their own capital gain/income tax consideration

If you were to factor in sale of the property in future the potential capital gains that you will attract will also have to be considered

Once you have a 3 way agreement on the above you move to the next step which is

4) Expression of Interest (Give a certain token advance): You express your interest in the property and pay a certain token advance to the seller and get the copy of legal papers along with the sanction plan of the building/house /layout. If the seller has got an outstanding home loan on the property then please obtain the loan papers concerned aswell like LOD – List of Originals Documents held by the bank and the Outstanding Loan Balance Letter.

Have a small written agreement or atleast a verbal commitment from the seller stating that incase the bank of your choice were to reject the loan on account of legal issues or on account of construction deviation then he/she is suppose to return the token advance. Some sellers will be fine with an agreement some will not.

5) Obtain a Valuation Report (Technical Report): We suggest having a valuation done before you initiate a legal scrutiny specially in case of mid sized and small builders or even independent houses for that matter. The valuation report will cover

a) The deviations, if any , from the sanction plan

b) The market value of the said property

Smaller & midsized builders tend to deviate from the sanction plan thereby decreasing the chance of getting a bank loan for the purchase of the property. If the engineer approves it and confirms that there is no deviation or the extent of deviation is in the acceptable limits of the bank then you can go the next step which is legal verification

So have a good engineer involved to check if it’s built as per the sanction plan issued by the sanctioning authority or are there any violations. For buildings in Bangalore where the sanction plan was issued after August 2013, violations are generally not accepted by most banks.

For plan sanctions issued prior to August 2013 certain extent of violation is accepted. The extent of violations accepted will differ from bank to bank

Secondly the valuation report will have the market value of the said property thereby indicating the right price point

Lastly obtaining valuation report is more economical than obtaining a legal report and less time consuming aswell. Only if there are no deviations or if they are in acceptable limits and there is certainty of getting a bank loan you can proceed with the next step which is legal scrutiny. The cost of valuation will be in the range of Rs 3000 to Rs 4000 plus taxes

Please write to us at This email address is being protected from spambots. You need JavaScript enabled to view it. if you need help in obtaining a valuation report for any property located in Bangalore

6) Legal Scrutiny: In case of resale transactions it is advisable to have a personal legal scrutiny of the property carried out irrespective of whether the project is approved by the bank of your choice or other banks in general

Hire a lawyer and get the property papers legally scrutinized. This is in addition to the legal that the bank will carry out. Also prefer lawyers who have an office setup and few people working for them. One man legal army type lawyers will take eternity to evaluate and give you the legal report

Once the legal is cleared and the lawyer gives a go ahead you can proceed with the next step

7) Execute Sale Agreement: Once your personal legal & technically scrutiny of the property is cleared, and you have clarity on different parameters discussed so far you can get into a sale agreement with the seller

In the agreement stage you need not pay the entire 20% or 25% self-margin. You can get into one with only a 5% or 10% advance and can give the balance just before the registration. But if the seller has a bank loan outstanding and he expect the complete 20/25% self-margin from you to close the loan then you can go ahead and pay the complete self-margin

Some banks will expect you to do a sale agreement on a stamp paper worth 0.1% of the sale agreement value/transaction value and some will be fine with Rs 200 stamp paper

The 0.1% cost that you incur can be offset against the registration cost if you were to register the property at the same value as that of the sale agreement value

8) Start the Bank Loan Process: So once you have decided on what value you are registering the property, how the bank is going to settle seller’s loan & the associated conditions and mutual agreement on those conditions between you and the seller, the ROI and other costs offered by the banks, the general terms and conditions offered by them you can select one and start the banking process with the sale agreement.

The bank will verify the legal papers and sale agreement and subject to legal and technical clearance and on your personal credentials the loan will be sanctioned.

9) Pay the TDS - It is your responsibility as buyer to pay the 1% TDS on behalf of the seller if the transaction value is above 50 lakhs in case the seller is a resident Indian. In case you are buying from a NRI you need to pay the TDS irrespective of the transaction value. The TDS percentage will not be 1% but higher in case of NRI Sellers. The seller will get information on the TDS amount to be paid from an Income Tax Officer. The IT officer may take a month to arrive at the amount based on the indexation, purchase price etc . The final deal price with the seller should be inclusive of this TDS amount

Without the TDS paid challan the Sub Registrar Office will not let you do the registration

10) Register the property: The bank will disburse the funds in one go if there is no bank loan outstanding for the seller. With that you can execute the sale deed in your name and become the proud owner of the property. If there is bank loan outstanding for the seller then the disbursement will be in two stages as discussed earlier. The registration will coincide with the 2nd stage disbursement.

11) Repay the Loan: Pay EMI’s every month, make regular part payments and close the loan at the earliest and free the papers from your bank and become even more proud owners' of the property.