THE COST OF PURCHASING PROPERTY
Many people aspire to one day own their own homes and go to great lengths to achieve this. Certainly in Trinidad and Tobago we have witnessed a rapid growth in the real estate sector and have stood by and watched prices of property soar to all-time highs.
Everyone is looking for their dream property and may have budgeted for it, but many times, in the quest for the perfect home, several of the costs associated therewith remain hidden until it is time to sign on the dotted line.
Added to the cost of the property could be real estate agents’ fees, as some agents do charge a fee for locating a property for you. Then there would be legal fees, commissions and taxes involved, registration fees, stamp duty and the like. It is advised that an attorney be retained to act independently on the purchaser’s behalf instead of relying on the vendor’s attorney to act for you, too, and an agreement for the sale of the property be drawn up and vetted by the attorneys for the parties involved.
At this stage, a deposit of usually 10 per cent would be payable by the purchaser to the vendor and the balance would become due normally within 90 days.
Where the services of a real estate agent or firm have been retained by the vendor, a commission is payable by the vendor which can usually be between three per cent to five per cent of the purchase price.
Imagine what this means for a property valued $1,000,000 if the commission agreed to is five per cent!
Once the contract for sale has been executed, the purchaser’s attorneys usually employ the services of a search clerk who will conduct searches at the Deeds Registry of the Registrar General’s Department to trace the vendor’s title. This vital step will normally cost the purchaser somewhere between $500 to $1,000, provided the search is not too complicated. If the property has a good root of title and a good chain of title and is free of all encumbrances, then the next step would be the preparation of the deed of conveyance.
In some cases there may be a need for a survey to be conducted by a licensed surveyor and this should be borne in mind when considering the overall cost. This becomes absolutely necessary, however, if the property is being subdivided in some way. New and indisputable boundaries would need to be established and the registrability and precision of the entire transaction and deed could depend on a survey plan being annexed thereto.
There are guidelines on the fees which attorneys should charge for the preparation of deeds.
According to the Attorneys at Law (Remuneration) (Non-Contentious Business) Rules, 1997, the cost of the preparation of deeds for conveyances or mortgages under the common law system of conveyancing averages from about just under one per cent to just under two per cent of the value of the property. Therefore, if the property is being sold for $50,000, the cost of the preparation of a Deed of Conveyance should be around $750 and where the value of the property is about $2,000,000, the attorneys fee is $12,000.
As a necessary safeguard, members of the public should always ask to see the scale of fees to ensure they are being charged correctly, unless there is some written, signed agreement between the attorney and client that, because of the complexity or otherwise of the conveyance, the client agrees to pay a fee in excess of the scale fee.
Attorneys are otherwise bound by the scale fees. Clearly, it seems to be a lot more profitable to be a real estate agent than an attorney in this regard, where real estate agents can charge up to five per cent of the purchase price!
This scale of fees for attorneys does not include the other services that are inimical to the transaction. There may be separate billings for consultation and advice and for incidentals such as faxes, copying and telephone calls.
After the preparation and execution of the deed, the Government gets its pound of flesh. The documents have to be taken to the Board of Inland Revenue for stamping. Where there is a residential dwelling on property the stamp duty payable is as follows:
Up to the value of $350,000 is exempt from paying stamp duty, five per cent is payable on the next $100,000 and 7.5 per cent is payable on the next $100,000, and it increases to 10 per cent from there.
When the property is land only, or commercial property, the stamp duty payable is as follows, where it does not exceed $300,000 — two per cent is payable.
Unlike residential property there is no exemption for property under $350,000. Where the property exceeds $300,000 but does not exceed $400,000 the stamp duty is at the rate of five per cent and stamp duty of seven per cent is payable where the price exceeds $400,000.
An embossed stamp is affixed by the Board of Inland Revenue once the correct stamp duty has been paid. There is also the possibility of the value sale price of the property as reflected on the deed being queried. It sometimes happens that a deed may not reflect a purchase price which accords with the true market value of the property.
The Board of Inland Revenue is concerned with obtaining its correct share of duty for the actual value of the property that has changed hands. Therefore, if for example two acres of land were being sold in Maraval for $200,000, given today’s market prices, there is a good chance that the question of the sale price and thus the quantum of the stamp duty payable would be referred to the Valuations Department so that an estimate of the true market value could be arrived at, in order to determine the stamp duty payable. You can, of course, submit your own independent valuation, but the Valuations Department is not necessarily bound to accept this.
Extracted From: Trinidad Guardian Newspaper