Owning a house is a lifetime dream for all those living in rented houses. Own house brings many advantages with it. Solving the problem of changing houses frequently is one of them. Freedom of living in one's own house is another. Own house also comes with many problems too. It has to be maintained properly since the remedy of passing on the related issues to the landlord is no longer available. Rates and taxes are to be paid and repairs often cost considerable sums of money. This may even lead to taking a house repair or remodeling loan!
There are many options available for owning a house. Purchasing a plot and getting a house constructed thereon is one. Buying a newly built house is another. Buying an existing old house is a third option. Now we also have the option of buying a flat. Buying a flat is more a compulsion than an option due to increasing cost of vacant plots. This is even more true in respect of large cities. One cannot rely upon allotment of plots by the development agencies. Buying in secondary market is cost prohibitive. For working people, buying or constructing a house and paying the mortgage debt for the rest of working life is the norm. Some have to pay the installments even after retirement.
There are many important issues that one has to grapple with while buying a house or flat. Arranging for suitable funds is one of the main challenges faced by a prospective home buyer. One plans to buy a house within one's own means, but always ends up buying a bigger or more expensive one. Accommodating the needs, views and requirements of the members of the family is a big challenge to the decision maker. Then there are unsolicited advice from well-wishers (?) to make further additions to the original plan. Ensuring that the house or flat purchased is with clear title and making certain that the quality of construction is good are some of the major issues that are to be looked into. Many problems are observed after taking possession and starting living in the house or flat. One can heave a sigh of relief if everything ends on a happy note. But all are not so lucky. There are many who end up with very sad experiences and life time woes.
Purchase of houses and flats in complexes developed by various builders is the norm today in major cities. A buyer is required to register for a house or flat, pay amounts in installments and wait for completion of the building and taking possession for living therein. There have been many instances of builders delaying the projects inordinately and causing undue hardship to the prospective buyers. Builders fail to complete the project but do not refund the money paid by the prospective buyers. Sometimes projects are stopped due to various disputes and issues with civic authorities. Once a house or flat is booked, funds are blocked and the buyer cannot venture to try elsewhere. Lenders start demanding installments on loans after the gestation period, but possession of the house or flat is not received from the builder. Poor borrower ends up paying installments for a unoccupied and nonexistent property.
Recently (September 6, 2016) Supreme Court of India reprimanded leading builder Supertech for failing to deliver flats to buyers as per agreement. "We are not concerned whether you sink or die. You will have to pay back the money to the homebuyers. We are least bothered by your financial status", the judges told the builder. Court also gave directions to the National Building Construction Corporation (NBCC) to inspect the site and find out whether the buildings had been built in the green zone in violation of the norms. Unitech and Parsvanath Builders had similar problems but the apex court directed them to refund the money to the buyers. Many buyers do not have the resources to knock on the doors of the apex court. This remedy is also costly and time consuming.
Then there are cases in which several years after taking possession and living in houses or flats, buildings are demolished by civic authorities. The same authority which approved the plan and amenities and accepted the taxes for several years, later declares that the building is unauthorized. House is demolished, but loan remains outstanding. The dream of owning a house ends up as a nightmare for the gullible and unsuspecting home buyers. Efforts are now being made by the governments to bring in the laws to remedy these situations. But it is still a long way to go.
An interaction with a young couple who recently purchased a house in a city on the Pacific coast of USA threw out some very pertinent features in home buying. The systems and protections available to the home buyers are significant and give supporting environment to them. There could be problems still but the overall framework offers scope for better planning and comfort. The procedure followed generally is as under:
- A builder has to make disclosures about the property to the buyer at the outset.
- Buyer appoints a building inspector (services available for a fee) to inspect the property and list the items requiring action before proceeding with sale/purchase.
- After discussion on the items identified by the inspector and satisfactorily resolving the issues, mutual acceptance between builder/seller and buyer is arrived at.
- Thereafter sale/purchase agreement is signed.
- Buyer in the meanwhile identifies the financing agency and finalizes loan arrangement.
- Earnest Money (also known as down payment or advance money) is deposited by the buyer with an Escrow Company. Now the funds are with the Escrow company. (Buyer has parted with the amount but seller has not received it.)
- After the financing company or bank is satisfied with the details of the property, buyer signs the documents for lending.
- Financing agency deposits the loan funds with the Escrow company.
- A representative of the City authority also inspects the property for clearance from the point of compliance of state building laws.
- The deal is closed and sale deed is signed by the seller and buyer.
- Sale is recorded in the books of city authorities and buyer gets the title.
- Buyer gets the keys of the building and seller gets funds from Escrow company.
Escrow mechanism is used as a intermediary to protect the interest of both seller and buyer. This prevents either party from backing out after agreement is reached.
The seller also gives a warranty to the buyer to cover a period of 12 months (one year) from the date of sale. A warranty is an assurance given in connection with the sale of an item or property by which the party conveying title (seller) assures the grantee (buyer) that he or she will enjoy the premises free from any person claiming under a superior title. In sale of property like what is discussed here, it is also a written guarantee given to the purchaser specifying that the seller will make repairs or corrections to the structure on any deficiencies free of charge for a specified period of time. Thus the seller's responsibility is not over when the property is sold. It continues for a further period of 12 months.
Before expiry of the warranty period, buyer (now owner of the house) again appoints a property inspector (services available for a fee) to inspect the property once again and identify items on which the seller is required to act.
- The warranty period of 12 months is arrived at to ensure that the building is lived in for a full cycle of the seasons of the year. Leaking in the roof is known only in rainy season. Cracks due to hot days is known in summer months. Thus any deficiency due to seasonal happenings will be clear in one year time.
- Home builders do not build the property themselves. Usually they hire subcontractors for doing the job. Even the subcontractors may outsource certain jobs. A full year warranty can bring out deficiencies in the entire property. Buyer need not rely on the mere reputation of the builder or seller.
- Inspection by civic authorities is from the point of enforcement of local laws. Inspection by the agent appointed by the buyer will make a 360' verification of the property.
- Things can go wrong even in new properties. This needs to be taken note of.
- An expert's eye is needed to identify the deficiencies. Merely living in the house will not be sufficient to spot present deficiencies that may lead to major repairs later on.
- Cost of inspection by an expert is much less than likely major repairs if it is not done.
Marriages and buildings have one thing in common. Cracks will be visible only after sometime. Hence warranty period is indeed a justified requirement!