What is offset when purchasing?
Offsetting is understood as a legal and financial transaction in which existing housing is transferred upon purchase to offset the payment for an apartment purchased in a new building.
The parties to the transaction are:
- salesman;
- the buyer is the owner of the registered apartment;
- intermediary – developer or real estate company.
Offsetting is a scheme involving the use of residential real estate instead of money when making a property transaction.
It emerged in the vehicle purchase and sale market, where it has proven itself to be an effective tool that offers certain advantages to both parties. On this basis, it began to be tested in the real estate market, where it is gaining increasing recognition.
Requirements for qualifying housing
Each construction company, acting as a developer, puts forward its own requirements for real estate that will be provided to clients on credit. The general requirements include the following:
- Any real estate for which the client has issued title documents is accepted for offset.
- Objects must be legally and physically free, or their owners can vacate them in record time.
- There should be no illegal redevelopment of the property.
- Objects must be personally owned by their owner for at least three years.
- Some developers, or buyout companies, require that the property be located in prestigious cities or areas.
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Advantages and disadvantages
Such a property transaction is considered a purchase and sale, although it carries significant signs of an exchange with an additional payment. But if during the exchange the current value of each object is established, then the assessment is made on the residual principle. From this identity arise the pros and cons of this method of calculation. The advantages of a purchase and sale transaction include :
- reduction in the cost of a new apartment;
- reduction of time for its implementation;
- support of the transaction by the company as an intermediary;
- package of services offered by the company during the transaction;
- reservation of the selected apartment for the period of sale of the old one.
The main significant drawback is the rough assessment of credit housing and its redemption at the minimum cost. The next one is the need to find a place to live before the new building is commissioned.
The valuation of residential premises involved in the transaction is at least 10-15% lower than the market value of housing. And for instant purchase – up to 30%.
The problem of undervalued apartment value
In most cases, the assessment of objects offered for purchase is carried out by separate divisions of real estate companies. Their employees use the analogue method in this matter, which involves comparing apartments with similar parameters in a specific area. After leaving the client’s address, an inspection of his property is carried out. The appraiser may deliberately underestimate the value of the property, focusing on any defects. Next, the foreclosure company offers the owner an amount that is slightly lower than the appraised value. The discount amount is set individually by each company and can reach 25.0%. But, if good real estate is offered in an elite area, the discount can be reduced to 5.0%.
Attention! If a person wants to get the most accurate assessment of his property, he needs to insist that this procedure be carried out by professionals working in specialized private or government agencies.
Risks and problems for the person purchasing housing
Risks associated with equity participation in the construction of a new building:
- the developer may go bankrupt;
- the administration will impose sanctions for violations of building codes;
- construction will be frozen for other reasons;
- .
In this case, even after termination of the contract and return of the old premises, the company’s client will bear property risks. And if the apartment is sold to third parties, the invested money may be burned or returned after an indefinite period, during which the buyer will have to live in a rented apartment. Smaller problems may include:
- increase in the price of new housing;
- reduction in the quality of new buildings;
- unauthorized reduction of footage;
- refusal of the developer to register ownership.
In addition, the risks that may be associated with the circumstances of the buyer himself are taken into account if he cannot find the balance of money to pay for a new apartment - due to getting sick, losing his job, etc.
Read more about how to protect yourself when purchasing housing from a developer, what questions to ask and what documents to check, here.
What do clients themselves say about this?
Even 7 years ago, specialized media wrote that there were a number of serious problems in the real estate trade-in scheme. These are the same payments for the reservation and for sales services, as well as the fact that the “lured” real estate agency will somehow force the owner to sell the old apartment at a large discount
.
Two years ago, material appeared that in fact this scheme is not popular in Russia - although up to 40% of home buyers were interested in it, in fact it is not suitable for almost anyone due to the same problems.
And on specialized forums, experts and ordinary users categorically advise against resorting to this option. The arguments are:
- the scheme works only if prices on the market are constantly rising, and the “saved” price will be so lower than the current market price that it will pay off the discount when selling the old apartment;
- real estate agencies are interested in selling the old apartment as quickly as possible (and therefore cheaper), and given the fact that new apartments are very expensive, the client is almost guaranteed to lose;
- in almost any case, it is more profitable to sell your old apartment yourself and draw up a contract for a new one after that;
- “alternative schemes”, for example, when the client continues to live in the apartment given as a trade-in until the developer completes the construction of a new house, are too exotic and unlikely in practice;
- if the old apartment is completely illiquid, the real estate agency may refuse to sell it at all.
To summarize: the trade-in scheme makes it relatively easy to book a new apartment and sell the old one a little faster, but at the cost of a large discount. And whether it is worth resorting to this option must be decided in each individual case.
What options are there?
There are several ways to buy an apartment using the offset scheme . The first is associated with the mediation of a real estate company or developer manager. At the same time, for the same period, they conclude:
- agreement on the sale of old housing;
- temporary reservation agreement for an apartment in a new building.
If the apartment is not sold within the specified period, the reservation in the new building will expire. This option is characterized by the unpredictability of the result and the timing of its achievement, but the assessment of the object occurs relatively adequately.
When conducting a transaction with old housing, the money is not transferred to the client’s hands, but goes to the developer’s bank account, with the execution of a DDU or a purchase and sale agreement if the new building has passed state acceptance.
It is envisaged that the developer will buy out the old apartment immediately, but at a minimal cost . An agreement for the purchase and sale of old housing and a contract for the receipt of a new one is drawn up with the developer. He puts the apartment up for auction, depositing the established price received from its sale into the personal account of the shareholder, and leaves the profit for the development of his enterprise. Since the proceeds are not enough to obtain a new apartment, the arrears are paid from the buyer’s personal funds in proportionate installments, or are taken out as a mortgage.
In the following case, the purchase of the DDU is made with a mortgage, secured by the old home. It can be sold encumbered and debts paid off. Or, pay off your mortgage with a consumer loan. But nothing prevents you from continuing to live in such an apartment until the new building is completed, paying off the mortgage with monthly payments. If these funds are not enough, the apartment is sold at the stage of completion of the building, when a mortgage can already be issued for housing in a new building.
Where to begin?
In order for your home to be attractive for purchase and sale, and also to increase its market value a little, you need to carry out preparatory actions.
Remove all unnecessary residents from the apartment, thereby removing the burden from it. Pay for utilities if you have debts. In addition, obtain permission to sell from the remaining owners and spouses, if any.
Only after these steps can you put your home up for sale yourself, or contact a realtor.
Step-by-step instruction
How to buy an apartment if you have housing, but no money? Despite the variety of options for using the netting mechanism for a real estate transaction, there is a general algorithm that should be used when executing such a transaction.
Step-by-step instructions for completing:
- The buyer chooses a developer company and an apartment in a new building, where the sale of housing by offset is used.
Real estate specialists (managers) evaluate his apartment according to the standard established by the company. - If the proposed conditions are acceptable, the parties sign a service agreement for the sale of the apartment.
- Already at this stage, the buyer makes an advance payment, which provides for the assignment of a fixed, subsequently not changing cost of the premises in the new building, and enters into a reservation agreement.
- The client's property is put up for auction. They find a buyer for it, with whom they sign a purchase and sale agreement, alienating him or her of the credited housing. The money received from the transaction goes to the developer, registered as a payment for housing in a new building. A DDU or assignment agreement is signed. If a purchase and sale agreement is concluded, then a mortgage is issued for an apartment in a new building or a consumer loan. If there are personal savings, the client repays the difference in price without additional credit.
- This agreement is registered in the branch of Rosreestr or MFC.
- After the new building is put into operation, the client receives a new apartment.
- Based on the contract and the received acceptance certificate, ownership rights are formalized.
The transfer of rights can only be carried out by the developer, who transfers the apartments belonging to him before the transfer. - In Rosreestr, the new copyright holder receives an extract from the Unified State Register of Real Estate, which indicates the right to take ownership.
If the developer refuses to register the apartments, then they must be registered through the court . In this case, a purchase and sale transaction is a more convenient way to purchase housing in a new building than a residential building, since ownership is formalized in this case immediately.
When transferring your old apartment to the company, you must attach a standard package of documents required for the transaction:
- establishing title and certifying documents for an apartment;
- spouse's permission - for those who are married;
- cadastral and technical passports;
- certificate of absence of rent debts;
- cadastral certificate confirming the absence of arrest and encumbrances;
- powers of attorney – for representatives.
When registering an agreement, a fee of 2,000 rubles is paid . Buying a new apartment by renting out your existing home is very attractive. If not for one significant BUT: the buyer cannot instantly leave the “rented” property and move to a new one.
The opportunity to first buy an apartment in a new building and then sell your existing home is quite real today. Programs under which developers implement such a scheme, as a rule, bear the name of an apartment for credit.
Upon completion of the procedure, ownership of the new housing for its intended purpose is allowed, and if it is without encumbrance, property disposal of it.
Buying an apartment using existing housing is one of the ways to buy an apartment in a new building. When purchasing real estate under any type of transaction, be it offset of old housing or assignment of rights, from a developer or contractor, always check the documents of the construction company. Also, be vigilant and prepared by reading the advice of our experts on how to buy an apartment in a new building profitably and safely, what documents to prepare before purchasing an object and which floor is better to choose.
Disadvantages of the “apartment credit” scheme
There are also disadvantages. Firstly, as was said, not all housing is suitable for credit, but only those that are easily sold. Secondly, not every apartment can be purchased under this scheme. Studios and one-room apartments, which are in high demand, are usually sold by developers without any programs. And finally, thirdly, if you do not participate in the described “stay before moving in” options, then the “apartment to offset” program does not cancel the unpleasant need to vacate the sold living space and move into rented housing for several months or years while waiting for The purchased apartment has been completed. During economic crises and declines in demand, construction companies are making attempts to solve this problem. For example, they are launching programs for the sale of apartments under an offset scheme in an already rented house with half the payment deferred for several months. But such examples are rare.
Timing and cost
The title to the new property is registered within one week . The process cannot be rushed. But it may last if one of the parties does not correct the error in the provided documents, if it is discovered.
The Tax Code provides for a deduction of 13 percent from the transaction in favor of the state. For non-residents of our country, this figure is 20 percent.
The tax is paid before submitting documents to the Rosreestr service; a certificate or receipt about this action is kept.
Without additional payment of funds to the state budget, your transaction cannot be officially registered.
