Dealing with pitfalls in secondary market

Buying a property in Dubai directly from a developer is straightforward. In theory, you find a property, you put down a deposit, then you pay the balance when you do the transfer in a few days with a copy of your passport. It sounds easy, doesn't it?

Though it seems straightforward enough, however, you may already have found out it can be difficult to accomplish this simple feat. I am referring of course to the secondary market, because buying directly from a developer is much simpler and less problematic. Most people, however, do not want to wait two years for their property to be ready, so they have no choice other than to buy in the secondary market. Let me take you through a typical scenario of trying to purchase a property on the secondary market, highlighting the various pitfalls.

John Smith wants to buy a five bedroom villa in the Meadows, with a park view. John's budget is Dh2.5 million let us assume he is paying by cash. (I will discuss buying a property with financing in my next article in two weeks time.)

First port of call is the Gulf News Freehold supplement. Here John can see thousands of properties and get an idea of how much the asking prices are. However, after ringing several agents he finds that the villas are either sold, have increased in price or are no longer for sale. This brings us to pitfall number 1 You need to be persistant in your search and your research.

Eventually he finds a villa that is still available and wants to view it a simple request. What happens? The agent doesn't have the key. The reason could be the owner has not paid the 70 per cent balance yet, or he could be out of town. Maybe the agent just has not been given a key, because it is on with several agents. The agent advises John to go along to the property and try to find the key man, who is wandering around somewhere in the vicinity, and ask him to open the villa. We have just met pitfall number 2 viewing can be very difficult.

John phones another agent. This time, the agent has the key and will meet him at the property at 3pm in the afternoon. John arrives at 2.50pm and waits until 3.30pm. No sign of the agent! He calls him. The agent picks up and, in a very sleepy voice, says he is on the way. At 4pm, he arrives. Pitfall number 3 never assume people are on time or even remember the appointment.

The villa looks promising. On careful examination, John finds it only has three bedrooms. The agent says it is a five bedroom villa, as there is a study and an upstairs family lounge as well as three bedrooms. The agent even shows him the brochure which states clearly "five bedrooms". This leads us to pitfall number 4 lack of communication and understanding.

By now, John is feeling despondent, and decides to try again the next day. He religiously goes through the paper again, only to find 90 per cent of the ads are the same as the previous day's. Therefore, he decides to leave it for another week. Still not much change, so instead he asks a few agents what they actually have available right now and at what price. They say they will call him back. We will call this pitfall number 5 never rely on anyone calling you back soon or even at all.

Eventually one of the agents calls back and offers him a five-bedroom, Type 8 villa with a park view for Dh2.3 million. Sounds good.

John meets with the agent who has a key, but there is no view of the park as requested. The agent apologises, as the park is not directly behind or in front of the villa but a couple of streets away. It is only ten minutes walking distance, the agent says. We have just met pitfall number 6 check the location by asking to see a map of the plots.

The agent remembers he has one in the next street backing onto the park but it is Dh2.5 million, and he just happens to have the keys with him. "Great," says John, "let's see it."

The villa is perfect, with a good location, five bedrooms, and within his budget. "I'll take it," he says enthusiastically. "Do I need to do now?" he asks.

The agent says he needs a Dh100,000 deposit to secure the villa. So John gives him a cheque payable to Conners And Stitch Homes. The agent asks to make the cheque out to the initials of the company, ie, cash. John flatly refuses. "Then, I need cash," replies the agent.

This one is important: Pitfall number 7 never give cash to an agent, unless you are in his office, and get an official receipt.

John says he will come to the agent's office next day morning with the cash and will expect a receipt. Next morning, he arrives with the cash and confirms the price again of Dh2.5 million. The agent says the price is Dh2.5 million net to the owner. The total price is Dh2.575 million, ie, another Dh75,000. This is because he has to pay the transfer fee of 1 per cent and the 2 per cent commission to the agent. The price of Dh2.5 million was not all-inclusive. Pitfall number 8 ask for the all-inclusive price when looking for a property.

After much haggling, John is able to reduce the commission to 1 per cent, after which he hands over the cash and gets an official receipt.

"Is this deposit refundable?" John asks, "No only if the owner pulls out of the sale", replies the agent. "So what stops the owner selling it to someone else for a higher price?" exclaims John. "Absolutely nothing!" comes the reply. Pitfall 9 don't delay the transfer, do it as soon as possible.

"So when can we do the transfer?" asks John. "After four weeks as the owner is out of town," says the agent. "Oh dear! So I have to wait?" John sighes.

"Yes, but we can do an MOU to secure the deal until transfer," the agent replies. (An MOU is a memorandum of understanding between the buyer and seller.)

"But if the owner is out of town, who's going to sign it?" asks John, "Oh, his brother is here and has a power of attorney [POA]," the agent replies confidently. John asks to see the power of attorney. The agent shows him a letter printed on the owner's personal letterhead appointing the brother as POA.

Pitfall 10 make sure the POA has been attested by the court in Dubai; otherwise the developer will not approve the transfer.

Finally, John asks to see the sales contract, and receipts. "Sorry, the owner has them," comes the prompt reply.

Pitfall 11 always make sure you see a copy of the original sales contract from the developer. This establishes the identity of the owner and verifies the specific details of the property.

Pitfall 12 make sure you see receipts confirming payments have been made on time otherwise there may be penalties, and the transfer could be delayed by a further two months. John gracefully declines the villa and retrieves his cash.

Better luck next time John!

John has been to see a mortgage lender already and it has agreed to lend him 90 per cent of the original price. He has 1 million in cash for the balance.

He has already found the sort of villa he wants and it is a type 8 in the Meadows, where the original sale prices are around 1.4 million. So 90 per cent is 1.12 million, plus his one million, giving him a budget of 2.12 million to include transfer and commission.

The writer is managing director of Best Value Property Consultants.