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Buying a house
23/08/2005 The Star Articles of Law with Bhag Singh
Most people want to buy and own a house. However the manner in which house
buyers acquire the property can vary from case to case.
Today many, if not most, first-time house buyers purchase property from a
housing developer. The procedures for such purchase are well regulated by
the law and, to a limited extent, by practice.
Such transactions are not necessarily always smooth and without problems.
Whilst a vast majority of them are carried through successfully and
satisfactorily, this is not always of any comfort to those who are aggrieved
and left stranded.
Others who do not buy directly from a developer may buy from another person
who already owns a house. Such a person would have earlier bought the house
from a developer and now wants to sell it. Such a sale is often referred to
as a sub-sale.
There are cases in which a person may have either bought or inherited a
piece of land and later arranged to build a house on it. The principles that
apply in this case would be the same as those where a person had earlier
bought the property from a developer.
It is in the context of the latter group of situations that a reader wants
to know how a house buyer would be protected – as the law relating to
housing development would not apply to such transactions.
The reader also wants to know whether when in such situations the services
of a broker are engaged, such a broker is entitled to be paid commissions if
the negotiations do not go through and the transaction is not actually
carried out.
It is not correct to say that a buyer is not protected where the law on
housing development does not apply. In such a situation the purchaser as
well as the seller will be protected by the Sale and Purchase agreement
which is the contract that will govern the transaction.
All the rights and obligations will be set out in the Sale and Purchase
agreement; this is the document that enables each party to protect himself
adequately. Each party must therefore foresee the difficulties likely to be
encountered and provide for them in such an agreement.
It is common in most Sale and Purchase agreements to provide for payment of
10% of the purchase price on the signing of the agreement and for the
balance to be paid within a further three months, with a possible further
extension of one or two months subject to payment of interest at an agreed
rate.
It is also normally agreed that if the balance of the purchase price cannot
be paid within the agreed initial or extended period that the 10% paid as a
deposit will be forfeited. If and when this happens it is not because the
laws provide for this but because the parties have agreed to it. Hence it is
merely that the parties must honour what they have agreed to.
Therefore if a person who is entering into an agreement to buy a house is
not sure that he will be able to obtain a loan which he needs and without
which he cannot or will not be able to pay the balance, he could negotiate
with the seller so that if he is unsuccessful in obtaining a loan then the
deposit of 10% will not be forfeited.
It is open to the parties by mutual consent to agree that in such an event
the entire deposit will be refunded or that a part of it forfeited and part
of it refunded. If the parties so agree, that is what will govern them and
no other law.
Whether the seller is agreeable or willing to agree to such a proposal will
depend very much on his disposition as well as the circumstances. Some
sellers, though rare, may not want to forfeit any monies if the property
continues to belong to them.
Others may not agree to such an approach. If this is the case then what
actually is agreed to may depend on the prevailing market conditions. If the
seller is more keen to sell than the buyer is to buy, the seller may be more
willing to comprise and accommodate.
On the other hand if it is a seller’s market, and the buyer is more anxious
and keen to buy, then he will agree to the terms proposed by the seller.
Thus if the provision for forfeiting of the deposit for non-payment of the
balance is insisted upon, then the buyer will have to take the risk of
losing the entire deposit if the loan cannot be obtained.
To minimise the risks, the buyer can make more intense and serious inquires
with regards to whether he can get a loan. He should meet up with an officer
of a bank to disclose to him detailed information and seek an assessment of
his eligibility on a tentative basis. Whether a particular bank will
entertain such a request will depend on the particular bank, and the
relationship that exists.
The issue of brokers gives rise to different considerations. The word
“broker” is a common word and refers to an intermediary who helps to bring a
seller and buyer together. In the Oxford Advanced Learner’s Dictionary,
“broker” is defined as “a person who buys and sells things, i.e. shares in a
business to other people”.
At one time persons who played this role were free to act as they wished.
Today, such activities are regulated through licensing, and such persons are
referred to as real estate agents. There are also others who are
legitimately allowed to carry on this activity by virtue of being duly
registered.
Whether such a person is entitled to a commission or fee if the transaction
is aborted will depend on the nature of the appointment as well as the
reasons which are the cause of the deal being not concluded. This could be
the subject of a more detailed examination on another occasion. |
