Tips about Second-Hand Housing Sales

The Real Estate Market for Second-Hand Housing is Expanding. Discover how to navigate the sales process:

With decades of rapid development in the imperial capital, there is very little residential land within the urban areas. New housing construction and sales have long been suburbanized with the transaction volume shrinking. However, the proportion of resale has continued to rise transforming the market from real estate development to primarily dealing in resale.

A Key Question: How Much Does the Realty Agency Charge?

When it comes to second-hand housing, it is impossible to ignore an important role in the transaction: the real estate agency, with the key question being: What’s their 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 real estate agencies use the market position to maximize benefits. All transactions will be charged at a maximum of 2.2% and additionally they will require an extra guarantee agreement for charging 0.5% as service fee, which helps to achieve “compliance”.

Buy-sell or sell-buy?

At present, 60% of the buyers in the market are people who plan to sell their home to buy a new one. With the question then being, should we buy or sell our house first before buying the next one?

Based on our experience, buyers are used to sign a house purchase contract first to secure the house they want to buy. In this contract it stipulates a certain period in which the whole transaction (usually within 6 months) should happen. This period being the time available for the buyers to sell his/her current house successfully. Due to this situation, the buyers can then continue the process of buying a house without having to sell his/her current house first.

Other solution is of course the classic solution of first selling and then buying a new property.

The advantages are:

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

2.In the past, purchase restriction policies also frequently happened. By choosing Buy-sell, the buyer can avoid the embarrassing situation of becoming ineligible to buy a house after selling their 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 monitored.Those government policies have triggered the market to become a more buyers’ 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 ready to be paid at once, you can fight for at least 2% -5% discount over buyers who does not have the entire funds ready while 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 can be done to minimize 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 many buyers this way, the buyer will be caught in an endless lawsuit. Therefore, it is suggested that the seller raises 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, most potential buyers are those who need to sell property under the title to prepare the purchase fund, which are very risky for sellers, so you need to be very careful.

Practical tips to cope with risks as sellers

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, 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 your buyer’s  buyer also requires a transaction period to make the funds ready?

2.The buyer’s risk of breach of contract: in addition to the risk of funds, qualification is another key point. Before signing 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 from the buyer: for example, before any official online property transaction contract registration, not less than 10% of the total selling price could be collected by the seller from the buyer. This would prove the seriousness and money ability of the buyer and can be a good guarantee by the seller in case of buyer stopping the transaction during the buying process.

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. For the cancellation of online contract registration, both of buyer and seller as well as the real estate agency must show up together to cancel at registration bureau. Due to this possibility that buyer might not actively cooperate to cancel the contract registration after its breach of purchase agreement, the risk of buyer default must be minimized before the online contract registration.


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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!