Purchasing a house can be an expensive affair. The costs that accompany such a significant financial transaction can burn a serious hole in your pocket. The costs involved in availing a home loan if you plan to use debt for purchasing a house, the costs that have to be borne during the transaction, the tax money that has to mandatorily reach the Government coffers,
But did you know that selling a house is also accompanied by costs which we do not take into account? There are expenses and charges you have to bear to ensure that you successfully sell your house. You have to deal with lenders in case of outstanding home loan dues, agents if you want a good price for your house, the Government for the tax implications, etc. You get the idea.
Then some people want to purchase a resale house. When you decide to purchase a resale house, there are certain factors like the condition of the property, whether there is any mortgage on the house, the property papers which you need to examine before going ahead with the decision. This article seeks to address and answer some questions related to the topics mentioned above.
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Who pays for what when selling a house?
There are several costs involved in the transaction of the sale of residential property. Some of the following are:
Foreclosure charges:
If you have any outstanding dues on your home loan at the time of your plan to sell your house, you may need to prepay your loan if your buyer is availing a home loan himself to purchase the house. In this case, the bank may levy a charge called foreclosure charges on you for prepaying the loan.
Taxation:
The Government is not far behind if you plan to sell your house. The transaction involving the sale of residential property is taxable. If you sell your house within three years of purchasing it, you have to pay short term capital gains tax (STCG) under the provisions of the Income Tax Act, 1961. However, if you were to sell your house after three years of its purchase, you have to pay long term capital gains tax (LTCG) under the provisions of the Act.
Commission:
When it comes to ensuring a good price for your house, hiring an estate agent goes a long way. However, an estate agent’s remuneration in the form of the commission has to be borne by you for that.
Transaction costs:
Purchase for one is a sale for another. Therefore, stamp duty and registration fees payable on property transactions have to be paid. This is borne by the buyer. However, in the case of an exchange of property, both seller and buyer bear the cost of stamp duty.
Staging and repair costs:
When your potential home buyers arrive to inspect the property, you need a presentable house to show them. This involves bearing staging and repairing costs to fix whatever flaws that can lead to a deal-breaker.
Notary fees:
Some buyers insist on the verification of the identity of the property and the proper maintenance of the property papers. Getting a notary to verify the above will cost you in the form of notary fees.
What are the expenses incurred in buying a house on resale?
A buyer who intends to purchase a resale house needs to take several measures like ascertaining the real ownership, the fact of any subsisting mortgages on the house, the valuation of the house etc. Some of the costs incurred for these purposes are:
Valuation costs:
When you plan to evaluate the property you wish to buy, conducting the valuation of the property is a must. Conducting such valuation by an independent expert could make a huge difference in the quantum of the loan you avail for a home loan in case you choose debt to finance your purchase of the resale house.
Existing mortgage:
You need to check for any existing mortgages on the resale house in question for helping you make a decision. It is in your best interest to purchase a house unencumbered with debt. If there is any debt, either get the seller to settle all outstanding dues before purchase, or settle the dues as part of the purchase price paid by you.
Transfer of property and re-registration:
When you purchase a property on resale, you need to ensure that it is officially registered in your name. For this, you need to pay transfer and registration fees to get the property registered to your name. However, you can negotiate with the seller to decide who bears these expenses or in what proportion in case of a shared burden.
Commission:
To ensure that you find a potential house for a good price, you may appoint a broker who will facilitate such a transaction in your favor. Her/his remuneration for this is the brokerage that you pay in return for her/his services.
Repairs:
In case you purchase an old property, you may need to undertake repairs for its maintenance. For this, you may have to shell out for repair expenses to get the repairs done.
Access to amenities:
As an extension of the prior point, an old house may not yield or contain access to uninterrupted electricity, clean and hygienic water supply, proper sewage facilities, parking space etc. For this reason, you may have to conduct renovation, modifications or additions to the house to make it accommodative.
What are some things you have to pay besides monthly payment and interest in buying a house with a loan?
Buyers make significant payments in monthly installments consisting of the principal amount and interest amount towards repayment of home loans, but these are not the only payments made by a buyer. Other than transacting with the seller for purchasing the house, the buyer has to get the property registered in his/her name. For this, s/he has to pay the registration fees to the sub-registrar of the area where the house is situated and get the property registered in his/her name. All this is done by The Registration Act, 1908.
Also, stamp duty is levied on property transactions by the Indian Stamp Act, 1899. This has to be paid by the buyer under Section 3 of the Act. However, in the case of property exchange, the buyer and seller share the burden of paying stamp duty equally. Stamp duty is payable to the State Government of the state where the property is located.
Conclusion
There are several expenses related to the reselling of a house both on the buyer and seller’s side of the transaction. Added to this are parties like the lender/s of the buyer and seller, the Government, agents, and brokers, etc. who are a part of this major transaction. The parties are supposed to conduct due diligence and deal with each other in good faith for ensuring fairness in the sale of the house. Paperwork needs to be appropriately maintained and shared with the potential buyer for disclosure requirements and ensuring that dealings between the parties are not riddled with ambiguity over the subject matter of the transaction.
Keeping yourself informed of all the charges involved and ensuring fair valuation of the property being resold for availing a home loan for the purchase of residential property is of paramount importance. Also, inspect and evaluate the condition of the house you plan to buy to ascertain its state. All these factors can help you save money and enjoy the ownership of the house you have purchased.
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