Buying house? 10 blunders to avoid
What you need to know:
- In a world where property vendors would do anything to milk you dry, caution is never a bad thing. Industry players advise that, while going it alone in the house-buying process may save time, it may not necessarily save you money, or the headaches. To ensure that you get the right deal, consult widely, scour the market, and, most importantly, use your wits.
1 Going it alone: Buying a house is probably the most intricate and time-consuming thing you will ever do. While, for instance, buying a car only requires a sale agreement and a couple of handshakes between you and the seller before the log book is transferred to you, a house requires a lot more than just that cushy mutual consent.
Statutory requirements demand that you seek professional help, especially when it comes to drafting the sale agreement, doing the land title searches, conducting a valuation study, and filling land transfer forms.
Unless you have some magical ability to read between the lines, you cannot afford to go it alone in this case.
The easiest and most convenient way to go about it is to identify a law firm to guide you through the process.
Lawyers who deal with conveyancing are particularly good at this and may save you a pretty penny in the end.
If you are buying the property through a mortgage scheme, the financiers are likely to link you with reputable valuers.
While some buyers choose independent valuers who are not accredited to lending institutions, for mortgage purposes, reports by such individuals are not encouraged and may not be accepted by some banks.
2 Operating on the basis of faith: They say faith is taking the first step even when you do not see the whole staircase. However, when it comes to real estate deals, you cannot afford to close your eyes and assume that all will be well. You must not just see that staircase, you must also climb it.
Isaiah Opiyo, a personal financial consultant, once told the Business Daily that, as Kenya’s real estate sector basks in the glory of an unprecedented boom, many people “are being conned daily in the name of buying property or land through bogus land buying companies”.
So, before you sign on the dotted line, make sure you are clear on whether the land has any encumbrances such as caveats and family wars, and verify whether it has proper documentation.
The bit on family wars is important. While many only seek to confirm whether the title deed is valid, spousal consent in the discharge of a property must be confirmed, especially with the new land laws that, among other things, insist that a spouse is deemed to be a co-owner of a property even when not on the title.
That means that, where land is held in the name of one spouse “but the other spouse has contributed to the productivity, upkeep, or improvement of the land”, the contributing spouse is deemed to have acquired an ownership interest in the land.
One cannot, therefore, sell, transfer, lease, or charge the land without their spouse’s consent.
So, who are you dealing with? Are they married? If so, have you, in the process of negotiating your deal, also met their spouse?
Other than spousal consent, you also must ensure that the property you are buying actually belongs to the vendor, or whether it is there in the first place. Stories abound of people who have been conned broke after failing to investigate.
In October last year, five property agents conned at least 400 people into buying non-existent houses in Shah Alam, Malaysia.
While the crime may have occurred many kilometres away, it offers lessons on the tricky business that is real estate. Some of the victims were eventually declared bankrupt by the banks for not settling any of their payments.
Reports indicated that they had paid about 10 per cent deposit to the property agents and signed the agreement without the presence of lawyers (see Going It Alone, above).
Even in Kenya today, buyers are being pushed to pay at least 10 per cent of the value of the property beforehand, sometimes without even seeing the property itself. It gets even more tricky when buying off-plan.
3 Waiting for the price to come down: Have you identified a property that you think suits your needs?
Has someone told you it is a bit overpriced? Do you believe it is? They may be right.
But unless the property is ridiculously priced, go ahead and buy it. The right time to buy a house is “now”, advise real estate specialists. And, unless there is a major bubble burst on the horizon, the price of that house you want to buy will have appreciated by a couple of thousands of shillings in the next few months.
To understand how heady things look, all you need to do is study the Knight Frank 2011 Prime International Residential Index, which monitors price changes across the world’s best property markets (Nairobi is one of them), and which reports that Kenya’s high-end market is ahead of all other countries in the world in terms of growth and expected profit margins.
Now, if you are interested in a low-end property, you might argue that this report does not cover your area of focus, but history has proven that a rise in high-end property prices results in a corresponding rise across all other levels as investors buy down.
The Knight Frank report indicates that the value of Nairobi’s prime real estate grew by 25 per cent in 2011, and along the Kenyan coast by 20 per cent.
That is higher than other major cities in the world, including Miami, which had a growth of 19.1 per cent; and London (12.1 per cent).
Whatever you do, buy now!
4 Thinking with your heart rather than head: The sink may be a killer, the bedrooms fabulous, but you are not just buying a sink or a bedroom. Look at the bigger picture. Evaluate every aspect of the house, bit by bit.
Where is the house located? What is the pricing of other houses in the vicinity? Are there enough social amenities around? How about security?
In a nutshell, think beyond what you see to what you do not see. A house, especially if bought for residency rather than business purposes, should present the prospect of a home immediately.
It should not be just an imposing edifice of brick and mortar, but a homely address that offers peace, tranquillity, value for money and, above all, that warm, cosy feeling that every home owner cherishes.
5 Forgetting the hidden costs: The booming property market is creating a lot of interest, especially among the young middle class, in homeownership.
However, many are shocked to learn midstream down the buying process that there are a myriad costs hidden beneath the welcoming façade of their dream homes.
There are inspection and appraisal fees to pay, stamp duty to go the government, insurance costs if going the mortgage way, higher utility bills if you move to the “wrong” neighbourhood, valuation fees, legal fees… the works.
So, while many may be able to pay the 10 per cent of the sale value up-front, the hidden costs, which run into hundreds of thousands of shillings for a modest home, become a deterrent in the long run.
Before you commit yourself through a sale agreement, make sure you have done the math right.
Lawyers demand a 10 per cent cut on the deposit should you wish to withdraw from the deal, not to mention any other losses you may encounter in the process.
6 Biting off more than you can chew: A wise man once said that the down side of being outrageous is that you have to go around explaining yourself to people.
If you are too cocky, somebody might just pull out a gun, cock it, and blow your face off. In the property business, you cannot be “too cautious for nothing”.
Do not bite off more than you can chew to please your friends. Operate within your means, so if you cannot afford the house in Utawala, move further down to Ruai.
You are setting yourself up for a lot of heartache and sleepless nights and auctioneer visits if you mortgage a house you can hardly afford.
Employers insist that at least a third of your salary must remain intact after all statutory and loan deductions have been made, but sneaky, over-ambitious folks have a way of circumventing such restrictions.
Also, think about any future inhibitions that may come your way, and whether, in the event that you lose your source of income, you will be able to sustain the loan repayments for at least a year as you seek other revenue streams.
7 Falling for anything: While there is always a lot on offer in the market, you will soon discover that few of these units meet your tastes and preferences.
The general rule is that you have to scout the market for at least a month before you settle on a particular house.
Many have reported that their preferences had changed so much from the time they started searching for a house to the time they settled on one.
You probably want to buy a flat in Mlolongo, but you may discover that, five kilometres away, an old but well-maintained bungalow sitting on half-an acre is going for almost the same price.
While scouting the area, look for the tell-tale signs of a troubled neighbourhood; graffiti on the walls, abandoned jalopies on the streets, broken gates, crumbling homes… the like. That tells you the kind of neighbours you will have.
Also, once you identify a particular house of interest, visit it during different times of the day. It may be all peaceful and quiet during the day, but wait until the 14 teenagers next-door come home from college and turn up the decibels.
8 Taking too long to commit: It has become standard for vendors to draft offer letters to prospective buyers, and also commonplace for those prospective buyers to take forever to commit — legally and by paying a deposit — to the deal.
If you have the money and are sure the deal is clean, commit at the appropriate time, usually within two weeks of receiving the offer letter and by paying the requisite deposit witnessed by a lawyer.
After that, ask the vendor to take the property off the market to avoid gazumping, where the seller agrees to a higher offer despite a sale agreement being already in place.
Many have discovered rather too late that, until papers and contracts and agreements and deeds have been exchanged, the deal is not yet sealed.
9 Forgetting to inspect the house: If you are not careful, you may end up buying a tired house stripped bare of all fittings.
Check whether the plumbing works, the ceiling needs replacement, the walls cry for a new coat of paint, or the roof is as leaky as a smuggler’s boat. Are the taps working? How about the door knobs… and the doors themselves?
The truth of the matter is that in the process of signing million-shilling sale agreements for houses that look superb in photos, many forget to carry out specific, thorough inspections of the houses they are buying.
Eventually, they discover too late that they will have to spend another fortune to make the house habitable.
Where possible, insist on a written list from the vendor of all the fittings that may require repair or outright replacement before signing the sale agreement.
Then seek advice on how much it would cost you to carry out the repairs and who would meet the cost.
10 Quoting too high: They are selling the house for Sh7 million, but you know they can go lower than that.
So, how low can you wring them? Offering Sh4 million may attract jeers, while Sh6.9 will attract cheers.
If you do not know how much to offer, consider seeking advice from professionals in the field. Also, check how much similar properties in the area are fetching and use that as a guide.
A time-tested way of going about it is to use the valuation report, which forms the basis of all mortgage calculations.
You may, however, find that the house is valued much lower or higher, in which case you will have to scout the neighbourhood, knock on doors, and peruse documents to know what is right and what is an absolute rip-off.