In this series, I have been talking about my purchase of a property. (Which is a liability for me). The first two parts of the series are published which you can read here. 👇
I am buying a liability
We all know that in order to be financially free, one needs to build assets but I am buying a liability. It is not a…
I am buying a liability — Due Diligence
In the previous story, I talked about why I am buying a property (a liability in my point of view). So, if you haven’t…
Now, after deciding that I want to buy a property and finalizing a property, price negotiation, etc., the next step is to get the agreement of Sale registered. In this story, I will be sharing all the research that I did for the same and what the process was like for me. (My place of purchase being Karnataka, India). This is part 1 of 2. The main reason I decided to split it into two stories because it was getting to long and I wanted to keep the read times short.
What is Agreement of Sale?
This is the first document which needs to be registered in order to officiate the sale of a property. As the name says, this document is an agreement between two parties that a property will be sold. It has not been sold yet, just agreed that it will be sold in future when the conditions specified in the agreement are met. This is an assurance that the seller will sell the property on receiving the funds and the buyer will buy the property when it the construction is finished.
This document also prohibits the seller to sell the property to someone else whereas if only the token amount was paid and the Agreement of Sale was not registered, then the seller technically can sell the property to someone else. This is a good thing for buyer as the seller cannot go back from this deal. But, at the same time. If the Agreement of Sale is done, then the token money given by the buyer will be forfeited in case the buyer refuses to buy the property. This is a good thing for the seller.
So basically, this document gives peace of mind to both the seller and the buyer that the sale will happen in the future. After getting the Agreement of Sale registered, now I am peaceful that the property will be mine. (It is technically not yet mine as the Sale deed has not been executed yet).
Things to Check in this document
This is a very long document. (For me, it was roughly 55 pages of legal-technical language). This document was prepared by the builder and I found that most of the times, it is prepared by the builders as they have a strong legal team and wants things in their favours even if the deal goes south. Still, I checked the following things and made sure that the Agreement was fair enough for me as well. Now, obviously this will change from builder to builder and from property to property based on who creates the document, but for me I checked these things in the 52 pages long fine print.
Details of both the parties
This includes checking the name, addresses and identifiable information (Like Aadhaar Number, PAN Number, etc). For builders, this maybe the representative who might hold POA (Power of Attorney) to sell the property on behalf of the builders. This is to ensure that both the parties are who they claim to be.
Description of the property
This involves checking the size, dimension as well as location of the property. Generally a map is also included in the Agreement which shows the location of that specific property with respect to the whole project. This might also include a brief description of things which are on each side of the property. Checking this ensures that I am getting the property I paid for.
Earnest (Token) money information
Also referred to as Advance Payment, Blocking Amount, Booking Amount, etc. This is the money paid upfront to make the booking and block the property. Generally this is 10% of the Total Property Value (sometimes also referred to as Total Sale Value). It is to note that this excludes the GST that is paid on the property as that goes to the government. I also checked what would happen if the deal was to be backed off from my side and as expected, that would be forfieted.
Since only 10% of the total property value is paid to the builders, I need to pay the rest of the amount. In my case the builders have given a 12 month payment schedule with payments being due every quarter. So, I checked the amounts and timeline. I also checked the bill generation date and the bill due date. So, on the generation date, the builders will generate the bill and send it to me and then I will have a couple of weeks to make the payment. If I don’t pay within those couple of weeks (defined in the due date), I will be charged penalties.
Penalties on Late Payment
Now, although I don’t plan to miss any of my payments, I still would check this part of the agreement to get an idea what territory I am getting into. For my case, teh builders were following SBI standard interest rates with additional 2.5% interest on that. I also checked the charges on dishonouring of check or non payment as well. It was pretty standard stuff.
This is important. This is the date before which the sale deed has to get executed. So, as a buyer, this date ensures that I will get the property before this date. Now, obviously this is a couple of years after what the builders have promised, but then this is considering any issues that might arise during the construction and might delay the project (like COVID-19). So, to be on the safe side, builders put buffer time on the officially promised posession date.
Penalties on Late Posession
Now just like if I make late payments I have to pay a fine to the developers. Similarly, if the developers delay the handover beyond the promised posession date, they will have to pay penalties to me. This is not something I expect, but again. It is good to know what will happen in a ‘What if?’ kind of a situation.
So, this was the first half of this story. You can check the second half and even other stories of this series in this list. 👇
I am willingly buying a liability, check this to know why.
Like this? Show some love by applauding. hate this? Let me know in the comments and also share your experiences on what you checked in the Agreement of Sale. And as always, see you in the next one. 👋