Selling your property is one of the most critical steps of a real estate investment life cycle. Real estate as an alternative asset class is lumpy and illiquid in nature, i.e., it does not have an active trading platform to execute buy and sell transactions. The real estate transactions are traded in an information asymmetry market i.e. market where one participant has access to more and better information than other. Hence, selling real estate requires effort, sometimes even more effort than one took to buy it, in order to get full value for the property. This blog delves into factors that every property sellers/investors should know before selling their house.
There are various motives behind selling a flat. Some may sell it to cash-in good return on the investment, some due to migration to a new city or bigger house while others for liquidating due to personal reasons or estate planning. Irrespective of the reason, the most important factor to sell real estate is the existing local market conditions. The current real estate cycle of the area, i.e. where your property is situated will determine whether it is a buyers’ market or a sellers’ market, value of the property, selling strategy – with or without broker, etc.
If the real estate market is pro buyers, i.e. during the end of sellers’ market and beginning of buyers’ market, the property is likely to sell like hot cakes. In this market, buyers are more than sellers! Noteworthy properties might sell above their current valuation and you might not need a broker to sell them. Moreover, the time to close the transaction will be less. Key characteristics of this kind of a market include moderate to high construction rate, employment rate, rental growth and absorption. Vice-versa, for a cold market, the seller needs to be prudent in his pricing and selling strategy. Even consider giving the property for rent, if no buyer matches the price you want to exit then, wait patiently for market to improve. Remember real estate cycles are long, hence it may take substantial time for the market to recover.
Irrespective of the real estate market conditions, there are certain important things every seller should be aware of before looking for a buyer in the market.
- Determine Value and Price –
Generally for home buyers, the proper method to evaluate one’s apartment/house is through the sales comparison method. Find similar properties within your region and look for their prices for bench marking. You can either look on the listed prices on online real estate portals or transacted prices on government website. Compare the attributes of these properties with yours and accordingly add discount or premium to the property.
While, valuing your property look at the property attributes that provide premium to the property. If possible, add these attributes to your property to increase their valuation. Don’t worry, be diligent about the expenses, as these short term expenses may help you to improve your property valuation. You can also look for external valuers to value your property accurately. Depending on the market and your liquidation needs, see if you should keep premium or discount on your valuation number. Be reasonable and diligent while pricing your property.
- Selection of marketing channel –
There are multiple channels via which you can sell your property. You can list it on online portals, online social media groups, send it to your personal contacts or contact a broker. We recommend sellers to use an omni-channel strategy, i.e. multiple channels. In all these channels, communicate maximum information in a clear and crisp manner supported with decent photographs.
Hiring a real estate agent is also a good option as it will reduce your efforts to a minimum. A good broker will hold your hand in the entire transaction cycle by ensuring that the property gets a right price, prospective buyers are screened and all legal documents are available to close the transaction. It is advised that you properly screen your broker in terms of his experience, local expertise and number of deals done.
- Keeping property spick and span –
It is really important to keep the property spick and span during the selling period. Buyers are simultaneously looking at multiple options, hence differentiating your property in terms of modernization and cleanliness would certainly add brownie points to the property. Bathroom and kitchen are important areas, upgrade them with latest fixtures. Clean the property properly, make sure the place looks spacious by removing unwanted things and regularly check the odor (literally, odor can be a deal breaker!).
- Collation of Legal Documents –
While selecting or finalizing a buyer, the person would want to see if all the documents and papers of the property are in place. Some important legal documents sellers should keep handy are – previous sales deed, non-encumbrance certificate, outstanding loan statement (or loan clearance certificate), land and building tax paid receipts (easy for property mutation), No Objection Certificate from society (post finalization of a buyer).
After finalization of a buyer, new sales agreement are formed with accepted terms and condition. Make sure to register this agreement to the sub registrar office of the region.
- Tax structure –
It important to understand your taxes! Taxes have an amazing power to make or break an investment. In India, long term capital gain tax is applicable for investment period of 36 months at tax rate of 20%. For short term capital gain tax, the investment period is less than 36 months and taxed at marginal tax rate. In previous financial year, the period of 36 months has been reduced to 24 months for immovable properties such as land, building and property. Indexation benefits are available for long term capital gains.
Reinvesting in property has its own perks. As per section 54 of the Income Tax Act, you are not liable to pay long term capital gain tax, if you reinvest the proceeds received from sale into another residential property. You can also avert long term tax by investing in bonds of Rural Electrification Corporation (REC) or the National Highways Authority of India (NHAI).
Lastly, exiting a real estate investment requires time and patience. Property sellers are advised not to skip any of the above points to ensure proper value of the property and maximum realization of cash .Happy selling!