Tips about the second-hand housing sales

The real estate market for second-hand housing is expanding. Discover how to navigate through the sales process:

With the rapid development of the imperial capital for decades, there is little residential land to develop in the urban area. New housing construction and sales have long been suburbanized and the transaction volume has been shrinking. The proportion of second-hand housing transactions has continued to rise. The real estate market in the past two years has actually entered the stock market, which means common people will deal more with second-hand housing.

How much does the realty agency charge?

When it comes to second-hand housing, it is naturally impossible to ignore the important role in the transaction: the intermediary (the housing agency), what is the range of their intermediary fees?

According to the relevant regulations of the Housing and Urban Construction Committee, the intermediary fee for second-hand housing transactions should not exceed 2% in principle. For complex transactions, it can increase by 0.2, which is 2.2% at most. The standard charge on the market is between 1% and 2.2%. Some intermediaries use the market position to maximize benefits. All transactions will be charged at a maximum of 2.2%. In addition, they will require to sign an extra guarantee agreement and charge 0.5% as service fee, which helps to achieve “compliance”.

No matter how much the service fee is charged, the process and content of the service are basically the same: from the signing of the tripartite intermediary contract to the completion of the property delivery, the service is terminated immediately. As for security, the intermediary company provides intermediary services. As long as there is no major negligence in the normal service process, the dispute between the buyer and the seller is basically settled through legal channels.

Buy-sell or sell-buy?

At present, buyers for improved demand in the market account for at least 60%. Then the question arises. Should we buy or sell the house first?

Based on past experience, many buyers are used to sign a house purchase contract to secure the house they want to buy, in which stipulates a certain period to complete the whole transaction (usually within 6 months) until buyers’ house is successfully sold out. Then buyers can continue the process of buying a house. Compared to selling a house before buying one, this is a more popular and practical way in the seller’s market.

The advantages are:

1.Buy-sell can avoid the potential risks of sell-buy because the price may rise too quickly during the transaction, which shall cause insufficient funds to buy the house or the intended house to be signed by others.

2.In the past, purchase restriction policies frequently happened. Buy-sell  can avoid the embarrassing situation of ineligible to buy a house after selling its house.

Unfortunately, with the implementation of a series of restrictions on loans and purchases by the state and municipal governments from March 2017, the real estate market has been severely suppressed. This is reflected in the fact that the seller’s market has been transformed into a buyer’s market.

In the case of a buyers’ market, the safest way should be the reverse:

Check the intended property when posting your own house for sale. After the sale of your own property (or at least after the signature of the property sales contract and the buyer’s large down payment is received), then go for the house purchase contract to pay the deposit on the intended property.

There are three main reasons:

1.The current real estate market is in a continuous downward trend, and the probability of a sharp rise in prices within the short term is very small.

2.The real estate market has declined steadily, meeting the government’s regulatory expectations, and the possibility of additional stricter regulatory restrictions is almost zero.

3.The current transaction cycle of second-hand house is getting longer. If you apply buy-sell, you may not be able to complete the sale of the house within the agreed period or have to sell at a very low price with tremendous losses. In addition, if your purchase funds are already in place or can be put in place within a short period of time, you can fight for at least 2% – 5% discount over buyers who do not have the funds in place when negotiating.

Transaction can be risky and there are traps to avoid

Regardless of whether you are a buyer or a seller, second-hand housing transactions are not 100% safe. What then can be done to minimize the transaction risks? For buyers, there are three main points to start with:

1.Due Diligence: in addition to the normal due diligence by the intermediary, the buyer can also try to check the property and owner background through other channels to see if there is any dispute or risk of property rights.

2.Mortgage repayment: in case there is a mortgage on the property for selling, some owners will require a portion of the purchase payment paid by the buyer to release the mortgage before proceeding with the sales process. There is a risk that if the mortgage seller does not continue the process of selling the house or the seller scams from many buyers in this way, the buyer will be caught in an endless lawsuit. Therefore, it is suggested that the seller raise money to release the mortgage, and not use the purchase payment.

3.Fund supervision: except for small deposits paid directly to the seller, all other funds are subject to fund supervision. After the transfer of property rights is registered, the funds are transferred to the seller’s bank account.

For sellers, because the major portion of the market is for buyers there may often be many serial deals, which are very risky, so you need to be very careful.

Practical operations to pay attention to through the process:

1.Fully understand the situation of the buyer: if the buyer is buying a house before selling its own house, they must know the source of the buyer’s funds (existing funds / expected house sales funds / whether a loan is required) as well as the buyer’s compound name and layout, market price, etc. to assess whether the property is easy to sell. In addition, how long is the transaction period for buyers? What if the buyer of the buyer’s own property requires the transaction period?

2.The buyer’s risk of breach of contract: in addition to the risk of funds, qualification is another key point. Before the signing of the contract, you must know well the buyer’s qualifications. If he/she does not meet the requirements, what methods does the buyer plan to use to meet with qualification?

3.Collecting a big deposit or down payment from the buyer: (for example, not less than 10% of the total turnover) can prove the ability of the buyer and can also have sufficient and controllable liquidated damages. Before the official online contract registration, the buyer may be required to pay a big down payment. For the agreed transaction completion period, several deadlines should be specified: the deadline for the payment of the deposit, the deadline for the payment of the large down payment before the online contract registration, the deadline for the online contract registration, the deadline for registration of transfer of property rights, and the deadline for property delivery.

Note: The online contract registration is quite important. Once the buyer breaches the contract after the online contract registration, the seller can withhold the deposit and the down payment, but if you want to resell the property, you need to cancel the online contract registration first. In the past, there was a case in which the buyer defaulted because of funding problems, but did not cooperate with the cancellation of the online contract registration. The buyer actively cooperated with an intermediary to allow the seller to refund a portion of the liquidated damages. Due to this possibility, the risk of buyer default must be minimized before the online contract registration. In this regard, housing transaction agents rarely realize this point or avoid extraneous thing, which is rarely mentioned.

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About Marketing

I am living in China since 2007. I am sharing my experiences for other expatriates to make their stay in Beijing more enjoyable. As I am writing this blog for SCOUT Real Estate agency, I am also computing updates about the Real Estate market in Beijing, not only on residential properties, but as well on commercial locals and offices. Hope you enjoy your reading!