The right steps to acquire a property
By Timothy Mutisya
The first step to purchasing a property is to hire a real estate agent. A title search on the property is key to determining the ownership of the property.
Once a property has been identified and the price agreed upon, the agent prepares a letter of offer as a conditional preliminary contract, signed by the buyer.
Upon execution, the buyer pays a deposit of ten to 30 per cent of the purchase price, which is usually refundable if the seller defaults on the transaction. The seller’s lawyer comes in at this stage. He prepares a sale agreement, which is signed by the parties.
Closing is usually within 90 days from signing. During this time, the seller must obtain a clearance certificate from the municipality. This is presented to the buyer to ensure all local taxes and utility bills have been settled.
Apart from the clearance certificate, there are other completion documents as original grant (title), signed transfer forms, land rates clearance certificate and valuation for stamp duty, which are presented to buyer’s advocate to register transfer. This is done simultaneously with payment of the purchase price. Registration of the transfer takes two to four weeks.
The transaction costs are borne as follows. The buyer is responsible for paying stamp duty transfer, which stands at four per cent of the purchase price, 1.5 per cent legal fees and Sh500 for registration, all totalling to 5.51 per cent of the cost of transaction.
On the other hand, the seller caters for the cost of agent commissions, which stands at 3.3 per cent.
Minimising risk of fraud
Title Search: This needs to be carefully done. The sale contract should allow you to exit should the seller fail to negotiate any uncovered title violations such as caveats and easements among others.
Public land, building code, zoning regulations violation: The purchaser should be wary of buying public land/property. Proper due diligence is a must to ensure the property adheres to laid down council requirements.
Environmental assessment: This is another vital aspect, which should be written broadly in the contract to allow the buyer get out of the deal should you uncover environmental issues that will not allow you to achieve your objective.
‘As is where is’ purchase deal: Most properties are sold as "As is where is" basis. However, representations made by the seller need to be checked and an exit strategy detailed should the representations prove invalid. These may include legal or tax proceedings against the seller on behalf of the property, or a pay-off letter from the seller of the existing mortgage on the property. Ascertain in cases of commercial properties that there are indeed valid leases with tenants.
Financing: It’s important to have well-drafted agreements detailing the buyer’s exit strategy and anticipated financing fall through. Otherwise you will risk losing the deposit. In the event the seller is not willing to accept refund of deposit, an alternative can be offered to ‘leave some money on the table’ — just not the total deposit but anywhere from two to ten per cent in a negotiated settlement.
Escrow account: Consider negotiating to keep an amount — say balance of purchase price — in an escrow account (joint account by both seller and purchaser) in the event a title issue is imminent, such as the title documentation not being processed.
The writer is the Commercial Director with Lloyd Masika
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