Due diligence matters

Real estate is one of the soundest investments a person can make, whether it’s for profit or personal use. Barring a major economic decline or environmental catastrophe, real property values tend to rise over time. They are also ideal investments for estate planning purposes, compared with other heirloom items such as jewelry or art, because they cannot be easily lost, stolen, or fenced.

Although investing in real estate is a good and exciting idea, interested buyers must understand that there’s more to buying a property than just choosing location and design. As with other business transactions, there are risks associated with the purchase of real estate, and the substantial costs involved make it necessary for buyers to manage the risks and make sure that their dream purchase doesn’t turn into a major headache.

If you are planning to buy a property soon, you should exercise due diligence and consider critical factors, such as legitimacy, viability, and the terms and conditions in the sales contract, before closing a deal. Knowing the right questions to ask the seller or real-estate agent is a must, and it may be a good idea to consult your own lawyer or investment advisor before proceeding.

Background and Property Checks

A highly critical but often ignored step in purchasing a property is doing your due diligence from the very beginning. We at BPI always advise housing loan applicants to never skip this. It is important to study the developer and its reputation in the industry. Check their previous performance when it comes to turnover time, project completion, property management services, and resale value.

If purchasing from an individual seller, make sure the seller is the legitimate owner of the property. You will need to check the transfer certificate of title (TCT) to determine the registered owners and if there are any liens or encumbrances which may be annotated on the title. This you can do by asking for a copy of the title and checking with the Registry of Deeds. It would also be good to know the owner’s reason for wanting to sell, as this may reveal issues with the property itself.

If you are dealing with a real estate broker, always make sure that he or she is duly licensed and is the authorized representative of the seller. The best way to find out is check with associations of brokers such as PAREB and REBAP for a list of their member-brokers. It would be best if you are dealing with somebody you know, otherwise you may conduct a background check to see if there may be integrity issues with the seller and the agent.

Have a checklist of all the documents needed, such as valid identification cards, professional licenses, proof of residence and income, etc., and be sure to have the information and contact details of all parties involved in the contract signing. It is advisable that you include your lawyer’s details as well so that it would be easier for both parties’ lawyers to coordinate with each other and your banks.

Critical Aspects Of Property Contracts

Scrutinize your contracts carefully. Transactions involving property acquisition have contracts that are often much more complex and entail higher stakes, so having your own lawyer to protect your interests would be ideal. Read the contract thoroughly and have your lawyer explain the terms before signing to make sure that you fully understand what is expected of you as the buyer, and what you can expect from the seller.

Double checking important details, such as names and addresses, and the exact property description, is necessary to ensure that the details of the unit being purchased are correct. If the contract has exchanged hands more than once, read and know the details at every exchange carefully.

For condominium purchases, special attention must be paid to ensure that details regarding the unit being purchased are correctly indicated in the contract. These include the name of the project, unit number, floor, building, unit size, purchase price, and terms and manner of payment. The contract must also clearly state how taxes will be handled and how the process for the registration of the property will be undertaken, including the enumeration of costs and other expenses to be borne by the purchaser. It must also state the manner of transfer of title and ownership, and the process for accepting units upon completion. If the project is still under development, the estimated date of completion must be indicated as well.

Keep in mind that condominiums also have a “Master Deed or Agreement.” It documents the intention of the developer for building the condominium and the details of how the condominium will be managed. Purchasers must read this document thoroughly as this contains the detailed guidelines on the use of the residential units, parking units, and common areas. It also lays out the establishment of a Condominium Corporation, design limitations for all units, house rules, to name a few.

The standard practice is that all purchasers are responsible for the regular upkeep, repair, and maintenance of their respective units. For common areas, maintenance costs are usually covered by the administrative fees paid by all unit owners. The deed or agreement must clearly state how the share of each unit owner will be computed. In case the project is partially or totally destroyed or lost, it should be restored by the Condominium Corporation by using proceeds from its insurance. However, in case insurance proceeds are not enough, the deed or agreement must also clearly state how the deficit will be covered.

When purchasing in the secondary market, it is very important to determine the civil status of the seller. Under the family code, a real estate property is under communal ownership of the spouses. Thus, the parties to the contract must involve both spouses for the sale to be valid. This holds true for as long as spouses are legally married, even if estranged or living separately, and even if divorced since divorce is not recognized in the Philippines.

Negotiating the terms of a contract requires give-and-take from both parties. You may have to give up something you want in order to take what the other party wants. Take note of what concerns you most, what you want, what you need, and what has to happen in order for you to agree. Once you’re clear with where you stand, communicate it calmly and confidently. Never agree to the terms that make you uncomfortable. If there is a provision in the contract that you are unwilling or unable to do, say so. And don’t sign without consulting trusted professionals.

The Bank As A Party To The Transaction

People do not realize that obtaining a loan from a bank to buy a property is beneficial in more ways than one. Aside from providing financing, banks have stringent verification processes. In BPI Family Savings Bank, developers and brokers go through an accreditation process. Properties are subjected to field appraisal and investigation to determine if there are technical errors in the TCT, if the property is free from any liens or encumbrances, or if there are encroachments on the properties.

The bank also conducts title verification to establish legitimate owners, to trace transfers of ownership and to ensure real property taxes have been religiously paid. The bank also needs to make sure that the TCT is transferred in the names of the buyer upon issuance of the bank guarantee to the seller. For the seller, the bank guarantee is an assurance of payment as soon as the TCT is transferred in the name of the buyer. With the bank as a party to the transaction, both the seller and buyer have greater peace of mind.

Should you find yourself in a position to make property investments, consider yourself fortunate. Surround yourself with trustworthy professionals and institutions to help you understand contract legalese and navigate the intricacies of real estate investment and ownership. Getting yourself off to a good start may very well be the beginning of a bright future in real estate.