PREPARING YOUR HOUSE FOR SALE

On making the decision that you wish to sell your existing house, you will have to prepare the house for sale. To do so, you can follow certain guidelines such as:

Disassociate yourself with your home

There will be several memories attached to your home, some pleasurable and some not so pleasurable. Together, they make up the years that you have spent in your home. However when there is a need to shift, you will have to detach yourself from the property mentally. This is the first and the most important step and without this your efforts towards selling a house will be slow.

Rearrange bedroom closets and kitchen cabinets

Over the years, your bedroom and kitchen cabinets would be full of articles and knick-knacks. Spend some free time to sort out the important items and discard the ones that you think are not required anymore.

Remove/replace favorite items

You may have certain favorite items in the house that you associate with your day to day life irrespective of their utility. You can take along all these items and rearrange them at your new place for a feel-good factor. In case these are very essential for the house, you can consider replacing these with other quality items.

Make minor repairs

Before you plan to sell, focus on all repair related work in the house, which remained unattended so far. These small repairs will give a neat and complete look to your home and would also help you command a higher price for the property.

Make the house sparkle!

Attractive, neat, clean and sparkling objects draw everyone’s interest. A house is no different to this rule. By giving your property a clean and sparkling look, you can cover the not-so-attractive corners of your house. It will also give the buyer a positive vibe for your house.

GETTING YOUR HOME SALE READY

Detailed description about your home

Before putting your property on sale you need to prepare a brief advertisement on your property mentioning all details pertaining to the house (interiors and exteriors) such as the carpet area, number of bedrooms, etc. for e.g. 3BHK furnished house, carpet area 1100 square feet, in Bandra (W), well maintained, north facing, with windows opening to the lawn etc.

Be very specific and true to how you are describing your property in a few lines. Doing so will allow you to meet buyers who are interested in the kind of house that you have, rather than wasting time by interacting with other buyers who have different requirements.

Appointing and selecting a real estate broker

There are a number of good reasons to use a broker:

1. Brokers save your time, energy and costs in finding you a suitable property.

   They help you find a house specifically looking at your needs. You may never come across a sale of a house not advertised for by the owner, without the help of your broker.

   They can inform you about the locality and the type of people residing there, which you may be unaware of.

   They help you with regulations such as payment of stamp duty, registration, etc.

   They help you find lenders, giving you insights about their requirements and helping you fit into their eligibility norms.

   Most of all, they help you negotiate terms with the seller and close the deal.

You need to consider the following points before selecting a broker:

Reputation:Shortlist some real estate intermediaries of good standing, who specialize in your area. Brokers with good reputation will be known to most of the people in your locality. Experience:Seek information about the broker’s past experience of dealing with real estate. You can also get this information from your neighbors; they might have dealt with the same person at some point of time in the past. Number of properties available:See how many instant options are available with the broker. Normally a good and an active broker will have many properties for sale ready with him during normal market conditions. Knowledge and behavior:Meet the broker often for general discussions and advice, and to get an idea about his level of knowledge. Try to understand his behavior and level of co-operation. Do not discuss your sale plan until you are convinced about the genuineness of the broker. Be particular about documentation and legal requirements.

Real estate industry is dominated by grey market and hence one needs to be very choosy in selecting the right broker. By selecting a professional agent you can evaluate the scope of bargain; seek co-operation and advice during documentation; and count on him in case of any legal issues.

Arriving at the list price

1. Get a basic idea about prevailing market conditions in and around your area. The best way would be to wear a prospective buyer’s shoes. Enquire from various sources about valuations in your locality. Check the price at which recent deals were closed.

2. Analyze the factors which will impact near future prices in real estate industry.

   For instance, news of a construction of airport/ railway station or a five-star hotel near your locality could impact the prices of the property in the future. Opening of mall/school/college/hospitals/garden could also prove beneficial.

3. Prepare a comprehensive list of positive points about your property. Look at your property from the buyers’ perspective and see where you find value in your property. Short list important points and discuss all these with every intermediary and/or perspective buyer.

After evaluating the above factors arrive at a reasonable sale amount bracket in your mind. Keep your mind flexible and give reasonable cushion for adjustment in deal amount. Being very rigid may lead to either no deal or may lead to sense of frustration if you don’t get an expected deal.

Getting all documentation in order

Selling your home can be a stressful time; you'll have to have strangers walking through your house, you'll have to negotiate the price, you'll have to pack up all of your belongings and move. So, why not take some time before you've got an offer and locate all the documents you'll need to complete the sale. In addition, you may find that you cannot locate something you were sure you had. If you get all of your documents together ahead of time, you will have plenty of time to replace anything that you can't find. If you begin the process now, you won't have to hold up your sale or make any last minute negotiations.

CLOSING THE DEAL

Receiving an offer

Once you receive an offer, spend time evaluating it. If it’s in line with what you expect, try closing the deal without much negotiation. Also, ensure that you do not get much deviated from the estimated amount.

Negotiate to sell

In case the offer price received is lower than your expectation, try to negotiate to get a better price. If the negotiation does not work, do not simply reject the offer. Just put it on hold for the time being.

Finalizing the deal

1. Clarify the payment structure and use legal agreements to make a note of the same. Utilize the services of your real estate broker here. Various factors like interest on delayed payment, period for which offer will remain open needs to be categorically mentioned at the time of finalizing the deal.

2. Note down each and every point discussed and agreed upon at the time of finalizing the deal and make sure all the agreed upon points are clearly covered in the agreement.

3. Don’t keep the closing deal time open for a very long, try to minimise this period. Delays can lead to various hurdles coming forth.

4. Insist on an initial token amount as this is a normal market practice.

Prepare a list of other expenses

Prepare a list of expenses which you need to incur on the sale transaction, if any, as per final negotiation. You may have to spend on minor repairs, legal fees, brokerage share, etc.. This will not leave any space for ambiguity or misunderstanding at a later stage and would lead to a smooth closure of deal.

TAX IMPLICATIONS ON SALE PROCEEDS

While computing the sales proceeds at your disposal to fund the purchase of your new home, be aware of the tax implications. This is because without proper planning, you may incur a tax burden that may derail your financial plans. Any profit arising from the sale of property is taxable as capital gains tax. If the property is sold within 36 months of its purchase, it is subject to short-term capital gains tax. Long-term capital gains tax is liable if the property is sold on or after 36 months of its acquisition.

Long term capital gains on sale of your house can be set off against any long term or short term capital loss incurred on other investments or any capital loss carried forward from the previous years. If there is no such loss available, you will have to pay tax on your gains at the rate of 20% with indexation benefit.

Short-term capital gain earned can be set off only against any short-term capital loss incurred during the same Financial Year or any carried forward short-term capital loss. If the carry forward loss is lesser than the gain or there is no loss to set off, you will have to pay tax at the rate applicable to you on the capital gain on sale of your property.

Tax rate on short-term capital gain is the personal income tax rate applicable to you, taking into account all your income and using the tax slabs in the Income tax Act 1961, to work out tax payable.

In case of loss:

Tax aspects of long-term capital loss

In case of a loss on sale of your house, you can set off this loss only against any long-term capital gain you may have earned during the same Financial Year on investments that are not liable to Securities Transaction Tax (STT). If the amount of gain on these other investments is lesser than the capital loss incurred on sale of your house or there is no other capital gain, you can carry forward this loss for a period of 8 Assessment Years. Assessment Year (AY) is the year immediately following a Financial Year. For instance, for FY 2001-02, the AY is 2002-03) to be set off against future losses.

Tax aspects of short-term capital loss

Short-term capital loss can be set off against long-term or short-term capital gain, if any earned during the same financial year. If there is no such gain, you can carry forward this loss for setting off against any future capital gain for a period of 8 Assessment years.

TAX SAVING OPTIONS

To avoid paying any long term capital gains tax, you can make use of section 54EC. As per this section, if within 6 months from date of sale of your residential house, you invest the whole or any part of the capital gain in bonds of the National Highway Authority of India (NHAI) or bonds of the Rural Electrification Board (REC) and hold onto the bonds for more than 3 years, you are free from any tax liability

In addition, under section 54 if you are able to channel the sale proceeds into the purchase of your new home within 2 years from the date of sale, then, your long term capital gains attract no tax, provided you do not sell your new home within 3 years from the date of purchase.

POST SALE

Once the sale has taken place you will have to inform various entities about the change in address and/or get your new address registered with various authorities. Delay in this exercise may cause loss of important and timely communication on various matters. Prepare a comprehensive list of documents where the revised residential address needs to be placed such as your passport, drivers license, voter ID card, PAN Card, etc.

Further, inform all entities with whom you hold investments. These include mutual funds, company deposits, Government bonds, insurance policies, post office saving schemes, etc.

Inform, all other avenues from where you receive any kind of communication.

Final check of all documents

The sale agreement will remain the most important document for any future requirement on this transaction.

Keep multiple copies of sale agreement in custody, preferably at two different locations. You can also consider scanning it and saving it in electronic form. All the important documents related with sale of property should be kept in a separate file for an easy and immediate access. Avoid mixing papers of any other property deal in this file. File all the documents mentioned above with documentation check.

INVESTMENT OF THE SALE PROCEEDS

Make use of tax saving sections available. To avoid paying any long term capital gains tax, you can make use of section 54EC. As per this section, if within 6 months from date of sale of your residential house, you invest the whole or any part of the capital gain in bonds of National Bank for Agricultural and Rural Development (NABARD) or bonds of the National Highway Authority of India (NHAI) or bonds of the Rural Electrification Board (REC) and hold onto the bonds for more than 3 years, you are free from any tax liability.

In addition, if you are able to channel the sale proceeds into the purchase of your new home within 2 years from the date of sale, then, your long term capital gains attract no tax, provided you not sell your new home within 3 years from the date of purchase.

Remember, invest as per your future financial goals; don’t hurry to deploy the amount in haste. Be patient, understand your financial goals and invest accordingly at an appropriate time. You can consider taking help of your investment consultant / financial planner.