Buying home during turbulent times (5): Ten mistakes to avoid

Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid

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9. Buy only the properties built by reliable developers

If you buy first hand from a developer with bad reputation, your risks are:

• abandon project - the developer bankrupts, you loss your deposit and owe bank on sum released to the developer.
• late delivery - you get your house after few years of delay. Not only you incur extra interest cost, you incur extra rental cost.
• bad quality house, i.e. bad finishing, leaking, cracking, structural problems, etc.
• bank may not want to lend you money for this project.

If you buy a property built by a developer with bad reputation from second hand market, your risks are equally high:

• still, quality of the house. Not all quality issues are apparent to novice home buyer.
• bank may not want to lend you money for this project after you have paid your down payment to the second hand seller.

In the case of apartment or condominiums where there are common interests & amenities:

• if the developer go bankrupt later, liquidator (of the developer) can charge owner 2% of unit's value for whatever transactions involved, i.e. refinancing, selling, etc. There are laws restricting such handling or admin fees charged by developers to minimum. However, liquidators claim they are not subject to this law as they are not developers. If you wish to sell your property, you will have no choice but to pay the liquidator.
• three party fights among resident association, financially dire developer and ever changing property managers over collection and usage of sinking funds and management fees.

I remember in 1998, Citibank & Standard Chartered declined to finance our purchase of a property precisely due to bad developer of the property.

10. Use your own lawyer

We did this right. Being accountants, my wife and I always insist on choosing our own lawyer. Even if my lawyer friend is not in the bank/ developer panel list, we will not let the bank/ developer to choose our lawyer for us. We try our best to decide which lawyer we want to deal with.

On buying our home, the bank delays the release of fund due to matters arising from the seller. The seller was having problem in redeeming her loan from her bank. She had two units of condominiums under one loan agreement. She had to refinance the remaining unsold unit.

We knew that the standard S&P agreement states that our 10% downpayment will be forfieted if the full payment is not made within 3 months. With our own lawyer who drafted the wordings in the S&P, we are protected as the delay was due to the seller's fault.

One of my friends, bought a house from a lawyer. He almost lost his 10% deposit to the seller as the bank refuse to release payment to the seller due to technical deadlock. His lawyer and banker helped him to overcome the technical issue.

Look at this clause:

"In the event that the Seller disagree to any and/or the all the above conditions you shall refund to us the earnest money in the sum of RMxx which we now pay to you within 3 days from the date of the seller’s disagreement."

What's wrong with the clause? The buyer seems well protected. Not really.

This happened to the company that I worked for. It was a renting of office case. After the down payment, the landlord gave ridiculous conditions that the tenant could possibly met. The landlord forfeited the down payment. You see, it was not that the landlord/ seller disagreed with buyer's conditions, but the buyer disagreed with seller's conditions (regardless how ridiculous they were). It was a court case now.

You don't want to use seller/ lender's lawyer.

I started this "Ten Home Buying Mistakes To Avoid" series of posts in 2011, it took me 5 years to reach the final part of the series.

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Part 1: Buying home during turbulent times: Ten mistakes to avoid
Part 2: Buying home during turbulent times (2): Ten mistakes to avoid
Part 3: Buying home during turbulent times (3): Ten mistakes to avoid
Part 4: Buying home during turbulent times (4): Ten mistakes to avoid
Part 5: Buying home during turbulent times (5): Ten mistakes to avoid