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Property Transactions Made Safer

Some rather good news in the papers today; The Ministry of Law (MinLaw) has made suggestions to improve to the real estate process. There have been cases where lawyers engaged by buyers and sellers to facilitate property transaction have fled with the money entrusted to them. Before, it was difficult to prevent such happenings – there was only so much you could do: source for a trusted lawyer and then trust him/her.

MinLaw has very wisely considered this issue and proposed this solution. Monies will not be paid directly to lawyers for any part of the transaction. The monies will instead to be payable, by cashiers’ order, to the Singapore Academy of Law (SAL) or other MinLaw approved entities. MinLaw is exploring the possibility of banks as the designated entities to hold the monies. The role of SAL and/or banks is to hold the monies for property transactions and only pay out to approved payees accordingly.

What does this entail for the clueless home buyer and seller? Firstly, more obviously, there is no possibility of errant lawyers absconding with your money since no money will be directly paid to lawyers, except the lawyers’ fee.

Secondly, there is no extra hassle for the buyers and sellers. As explained below, buyers and sellers only need to pay the money to SAL by cashier’s order, instead of the current practice of paying to the law firm by cheque. The hassle in applying to SAL to pay out the money to various payees is handled jointly by the buyer’s lawyer and seller’s lawyer, and not by the buyers and sellers themselves. The main hassle I can think of for buyers and sellers is that they have to make a trip down to the bank to get the cashier’s order; other than that, there is really no extra work.

Thirdly, there will not be delays in the completion of the property transaction due to this change. The usual completion time frame is about 3 months from the option date. Since letting SAL hold the money instead of letting individual law firms hold the money is merely a change in recipient and not an extra process, the completion date will not be delayed.

Fourthly, this change also allows for a second layer of checks as SAL pays out the money to various payees (sellers, banks, CPF etc). Before SAL pays the money out, it would check to ensure that the payees are verified and approved, that there is no manipulation of names, especially when it pays out to the individual house seller. This would ensure that the money goes exactly where it should belong to; there is no space for lawyers to manipulate names and the amounts of money.

Below is a brief description the difference between current practice and the proposed change.

A normal private property transaction

For simplicity, assume that the seller has fully paid off his mortgage loan, and the buyer secures 80% mortgage loan.

Option to Purchase (OTP)

Buyer views the house and wishes to buy the house. The purchase price is $1,000,000.

Current practice:

Buyer pays 1% of the purchase price ($10,000) to the seller by cheque and receives an OTP from the seller.

Seller receives 1% of the purchase price ($10,000) from buyer and issues the buyer an OTP.

Proposed Change:

No change at this stage.

Exercising the OTP

Buyer has 14 days to decide whether to proceed with the purchase; seller not permitted to issue another OTP to another buyer within this 14 day period. Buyer decides to proceed.

Current practice:

Buyer pays 4% of the purchase price ($40,000) to the seller’s lawyers by cheque.

Seller’s lawyer receives 4% of the purchase price ($40,000) from buyer by cheque.

Proposed Change:

Buyer pays 4% of the purchase price to SAL by cashier’s order. Seller’s lawyer does not receive any money directly.

4-6 Weeks Later

Upon securing the 80% loan, minus the 5% OTP, there is 15% outstanding. This 15% can be paid with a combination of cash and CPF. For simplicity sake, our buyer decides to pay in cash. Stamp duty is also payable; it has to be paid in cash and can be reimbursed by CPF.

Current practice:

Buyer pays 15% of the purchase price ($150,000) to the buyer’s lawyers by cheque. Buyer’s lawyer will pay the 15% to seller’s lawyer. Buyer pays stamp duty of $24,600 to the buyer’s lawyer by cheque.

Buyer’s mortgagee bank pays (80% - $800,000) to the seller’s lawyer.

Seller’s lawyer receives 15% of the purchase price ($150,000) by cheque. Seller’s lawyer receives $800,000 from the buyer’s mortgagee bank.

Note that it is most likely for the seller’s lawyer to abscond with the money at this point. He effectively holds on to 99% of the purchase price before paying them out to various payees. If the lawyer is handling several transactions simultaneously, he could be holding on to very large amounts of money.

Proposed Change:

Buyer pays 15% of the purchase price ($150,000) to SAL. He also pays the stamp duty of $24,600 to SAL. Buyer’s mortgagee bank pays $800,000 to SAL. Seller’s lawyer does not receive any money directly.

Completing the Sale

Current Practice:

The buyer’s lawyer will pay stamp duty to IRAS on behalf of the buyer.

The seller’s lawyer will pay out the 99% to various payees, including the MCST, bank loan (if any) CPF, and lastly the remaining cash proceeds will be paid to the seller.

Proposed Change:

SAL will verify and check all payees to ensure accuracy. On behalf of the buyer, SAL will pay the stamp duty to IRAS. On behalf of the seller, SAL will pay out to the MCST, bank loan (if any), and lastly the remaining cash proceeds will be paid to the seller.

Therefore, it can be clearly shown that the proposed change eliminates the possibility of the seller’s lawyer holding on to large sums of money. This precludes the lawyer fleeing with the money of possibly several big clients.

I applaud MinLaw for proposing this change to allow for a safer and more transparent method of property transaction, and I am sure many, especially sellers, will embrace it. It may take some time to finalise this change, and to iron out the details, but I’m glad that property transactions in Singapore has taken another step towards transparency and accountability.

If you have any comments or any objections towards this change, do feel free to contact me at richardwan@live.com so that we can put our brains together and disucss it.

Regards

Richard Wan

Huttons Asia

94363793

What I hope to achieve with cluelesshomebuyer

It is my hope that cluelesshomebuyer provides a refreshing new take on the real estate market in Singapore. My passion for cluelesshomebuyer is fuelled by two factors - the demise of the property agent, and the inadequacies of online help. My vision for cluelesshomebuyer is that it becomes a premier online source of property insights, teachings, advice and tools. My vision is not grandiose or extravagant; it is simply the job description of a property agent, my profession, taken online.


The demise of the property agent

It is apparent that buyers and sellers nowadays are well-educated and resourceful. It should come as no surprise to most that they often know more about property than their agents. There are a wealth of resources online that are up-to-date, which they can utilise to make well-informed decisions. Gone are the days where buyers and sellers relied solely on their agents for information, directions and advice. And this, is the demise of property agents.

Property agents are still around, and will still be around. This industry is saturated - why shouldn't it be? The lure of big money and no barriers of entry make this industry as packed as it can be. Yet, these lures are exactly what causes the demise of property agents.

There is no industry as careless as the real estate industry. There are practically no barriers of entry, save for fees for joining an agency, printing namecards, and basic lessons. This per se does not sound any bad, but consider that property agents are assisting in major life decisions such as buying a house, and handling sums from hundreds of thousands to millions. In Singapore currently, there is no mandatory exam or qualification for property agents, very much unlike the insurance agent. For the insurance agent, she has to study and pass difficult exams before she is officially allowed to give any professional advice to clients. The equivalent of such difficult exam for property agents is the Common Examination for Housing Agents (CEHA), yet to horror, this exam is actually optional and not mandatory. It is disheartening to know that a client may put full trust in an agent assisting him and advising him in buying a house, but the agent may actually know next to nothing on property.

And it is very amusing that the industry which boasts no barriers of entry is an industry which promises the biggest money. It is this lure of big money that keeps this industry saturated. One commission from a deal can easily match the amount of a few months' worth of salary of a normal employee. That is why we read in the newspaper about rogue agents - agents who intentionally cheat clients, agents who use use underhand manoeuvres to close a deal, and agents who know so little about property that they misquote, mislead and cause financial and emotional distress to their clients. It seems that the money is enough for one to discard their honesty and integrity, to make one deal and disappear.

The demise of the property agent is not the actual decrease of the number of property agents around. The demise of the property agent is the decrease of the actual need of a property agent in property transaction. Property agents now rarely give any helpful advice; they will say what they need in order to encourage transactions, and they want to be part of those transactions to earn their commission. Buyers and sellers know that too, and the trend is that they only engage agents to maximise convenience - set up appointments, make enquires, and handle the paperwork. Whatever information that the buyers and seller need, they can easily find it online; there is no need for an agent. The job description of an agent is thus reduced to those a clerk, and agents are no longer the authority on property matters which clients can fully trust. This saddens me, and I hope to be a beacon of hope with cluelesshomebuyer.


The inadequacies of online help

Currently, there are many property websites and property portals where one can find information regarding property. However, most of these websites are advertising websites marketing myriad properties. They are thick with pictures and descriptions of all kinds of properties, but there is little content in them with regards to property advice and insight.

This is a lack glaringly apparent. People do not need more pictures and more exhortations to buy, but they do need insights and advice in property matters such as HDB/CPF regulations, financial aspects, timeframe for buying and selling, buying/selling procedures, and problems with tenants/landlords/agents/buyers/sellers. There is little help for them in this aspect.

There are several property portals (www.iproperty.com.sg, www.propertyguru.com.sg etc) where one can ask questions and have agents answer those questions. Yet, the results are mediocre. The common agents' reply is to call them for 'more discussion'. I'm not sure about the rate of help clients receive when they do actually call these agents, but I'm very disheartened that the motives of these agents are wrong. It is not that they can not genuinely reply the questions online, but rather, they want to 'snag' the clients, by obtaining their contact numbers. More so, they preclude the help they can render to other people who have the same questions as the person who asked. I have made a sweeping statement regarding the question and answer portion of property portals, but I acknowledge that there are some gems -property agents who genuinely answer-, and I salute them in their efforts to give good advice without expecting to 'snag' clients.




Thus, these two concerns that I have - the demise of the property agent, the inadequacies of online help, have culminated in the creation of the cluelesshomebuyer. Cluelesshomebuyer is the source of property advice, insights, brought online.

The aims of cluelesshomebuyer:

1. To offer good property advice, unbiased and truthful.
2. To offer updates on current real estate system and procedures, and the impact of these changes.
3. To point out inadequacies and recommend modifications in the current real estate system.
4. To highlight common property problems, and how to avoid them.


Therefore, this is an outline of my vision for cluelesshomebuyer. I do sincerely believe this will benefit many, and restore the confidence in both property agents and online property help. I also do hope that in the meantime while i figure out blogspot, that if anyone has a urgent question regarding property, do feel free to email me so that i can attend to it at the soonest.


Richard Wan
richardwan@live.com
94363793