When you decide to buy a sub-sale property, the property agent or negotiator will ask you to sign an Agreement (Offer) to Purchase form together with your payment of earnest deposit (usually 3% of the purchase price). At this point, this is only your offer to purchase the property. There is no contract yet unless and until the owner accepts your offer to purchase by signing the same form.
Question: You have viewed and like the property. Is it ok to buy even if you agree to the asking price which is above market value?
Answer: Banks will base the margin of financing on the market value and not on the property purchase price. For example, if the property market value is RM500,000 (based on valuation report) and the purchase price is RM530,000, banks will only finance e.g. 90% (assuming you are eligible) of the property market value i.e. RM500,000. As such you have to pay the difference between the agreed purchase price of RM530,000 and market value RM500,000 amounting to RM30,000 plus the initial 10% downpayment of RM50,000. when you sign the S&P Agreement.
Question: The real estate negotiator wants you to pay 3% of your offer price as earnest deposit for the property. Can this amount be negotiated?
Answer: Yes, you can forward a cheque, say 2% of the offer price and it is up to the owner to accept or not. If it is accepted, you will then need to pay the remaining 8% as downpayment when you sign the Sales & Purchase Agreement. Do note that if you pay a higher amount as earnest deposit, it is not easy for the owner to abort the deal( once he has signed the Agreement to Purchase form) as he has to refund the earnest deposit plus liquidated damages of the same amount (if you elect for this).
Question: You are prepared to pay the earnest deposit but are afraid that you may not be able to get a bank loan. What should you do?
Answer: You can insist that a clause be inserted in the Agreement to Purchase form (under Special Conditions), that says that the earnest deposit will be refunded in full in the event you cannot secure a bank loan of a specified margin of financing. It is then up to the owner whether to accept this extra clause. Another alternative is to ask your bank to assess your loan eligibility first before paying the earnest deposit.
Question: Who should you issue a cheque to when paying the earnest deposit?
Answer: Any real estate agency or legal firm (payable into their clients account) are authorised by BNM to accept earnest deposits as stakeholder. If you are unsure of the identity of the real estate agency, you can go to this website: http://search.lppeh.gov.my/ to check whether they are a registered real estate agency. Just type in the firm’s registration number (the real estate negotiator’s name card should have this) and you should see the name of real estate agency which you are suppose to issue a cheque to. Under no circumstances should you issue a cheque in favour of the owner or other third parties.
Question: Once the owner has signed the Agreement to Purchase (accepted your offer to purchase), can you get back your earnest deposit should you later decide to abort the purchase (reasons not due to the owner’s misrepresentation, misconduct or fraudulent acts) or you failed to sign the Sale & Purchase Agreement within the prescribed period?
Answer: The owner has the right under the Agreement to Purchase to forfeit the earnest deposit
Question: When should the Sale & Purchase Agreement be signed?
Answer: The Agreement to Purchase would specify when you and the owner are required to sign the Sale & Purchase Agreement i.e. within a certain number of days (normally 14 or 21 working days) from the date the owner has signed the Agreement to Purchase i.e. accepted your offer to purchase. If you are not comfortable with the duration, you can change the number of days before signing the form. Of course, this must be acceptable to the owner.
Question: When do you need to pay the remaining 90% of the balance purchase price?
Answer: The latest time period (plus any time extension) to pay the remaining 90% would be specified in the Purchase & Sale Agreement (will follow the Agreement to Purchase)
Question: Should you insist the real estate negotiator explain to you all the terms and conditions of the Agreement to Purchase form before signing it?
Answer: To protect your interest as a buyer, you must understand the terms and conditions of the Agreement to Purchase so that you can amend those terms and conditions which you feel is not acceptable to you . It is therefore to your benefit to ask the real estate negotiator to go through with you clause by clause and explain its meaning.
Tip to real estate negotiators: After viewing the property, potential buyers will always want to reduce the asking price by giving reasons e.g. repairs need to be done or the property is above market value etc. To gauge the seriousness of the buyer, you must always ask potential buyers to issue a cheque as earnest deposit (based on a percentage of the reduced price) and sign the Agreement to Purchase. With the earnest deposit collected and the form signed (this will boost the chances of the owner accepting the offer by the buyer), proceed to meet with the owner to tell him of the seriousness of the buyer’s price reduction offer and provide reasons on why he should agree on the reduced price, if applicable.
From experience, it is a waste of time to go back to the owner on any price reduction request when potential buyers refused to sign the Agreement to Purchase form and pay the earnest deposit – these people are normally not serious buyers and will not proceed with the purchase even when the owner has agreed to the price reduction – this will not look good on you in the eyes of the owner.