Friday, February 29, 2008

Buying Property - Part IV: The Agreement to Sale

The Agreement to Sale is the legal agreement between the buyer and seller for the selling / buying transaction. This agreement is made once or twice depending on whether the transaction involves cash or if it is a ‘full cheque’ deal.

Full Cheque Deal: If there is no cash component in the deal, then there is just one ‘Agreement to Sale.’ This agreement is signed between the buyer and seller, the day the entire payment for the property is made.

Cash Deal: If there is a cash component, then there are two agreements which are made – the first which has the details of both the cash and the declared value and the second, which has the details of only the declared or the white value. The two agreements are signed the day the buyer pays up all the cash involved. The first agreement (with both cash and cheque values) is kept with the buyer and seller. The second agreement (with only the cheque value) is given to the bank for a bank loan. A copy of it is also given to the builder.
The day the buyer and his bank pay up the declared value and the property is transferred to the buyer, the first agreement is destroyed. Therefore, on records it is only the second agreement which shows up. The first one is the documentation that the buyer has for paying the cash between the time that he pays the cash to the time that the property is transferred to his or her name.

When there is cash and a bank loan involved, usually there is a gap of a week between the signing of the Agreement to Sale and the day of property transfer, because the signed agreement is a requirement for the bank to make the cheques and disburse the loan.

The Agreement to Sale:
An Agreement to Sale has clauses mainly pertaining to the payments and who needs to make them. The following should be the mandatory clauses:
- Description of the property (Area, Car park)
- Seller agrees to sell and the buyer agrees to buy
- Seller gives an undertaking that he has not transferred his rights to sell to anyone nor has he agreed to do so to anyone
- Details of the token amount payment. The agreement for the declared value will have the details only the amount paid in cheque, along with cheque details (cheque number, date, and bank). The other agreement (cash and white value) will have the details of the token amounts paid in cash as well as cheque.
- Balance amount payable to the seller. Again, the ‘cash’ and the ‘white’ agreements will have different balances.
- Balance amount payable to the builder. In case the property is still under construction, then there will be certain number of instalments due to the builder. This balance has to be paid by the buyer to the builder.
- If charges like EDC, IBMS etc. have not been paid by the seller, then they have to be paid by the buyer.
- Any interest or charges accruing to the builder due to late payment of dues by the seller has to be paid by the seller. These dues will be specified in the account statement that the builder will provide.
- All transfer or nomination charges are to be paid to the builder by the seller. Transfer or nomination charges is a fee that the builder charges a property owner, any time he or she wants to sell and transfer the property to another individual or a buyer.
- Registration charges and stamp duty will be paid by the buyer.
- The date by when the agreement has to be executed
- If the seller fails to transfer the rights to the buyer within the specified date, then the buyer has legal right to get this agreement executed in a court of law under specific performance or receive double the money paid till that day
- If the buyer fails to carry out his obligations, then all the money paid will be forfeited

This is meant to be an indicative list and by no means is comprehensive. My strong recommendation is to consult a lawyer before finalizing the agreement. Do not depend on the broker, who might try and give you a templatized Agreement to Sale.

The agreement is usually made on a Rs. 100/- judicial stamp paper. Once the document is signed by both parties, it has to be notarized otherwise banks will not accept it. Your broker is supposed to do this for you. Therefore, in your planning for the dates, please allow time for this activity as well.
Here's a summary of the property buying process that I've covered so far:
- Key Players in the Property Buying Process
- Key Steps in the Property Buying Process: Selecting Property, Negotiation, and Deal Finalization
- Key Steps in the Property Buying Process: Property Due Diligence
- Key Steps in the Property Buying Process: The Agreement to Sale

Coming up next: getting a home loan.
Please feel free to send me an email or leave a comment if you have anything to clarify or add.

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