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Buying a Property from Builder – Beware of 5 Common Traps

buying a property from builder
buying a property from builder

I am buying a property from builder; please tell me how to proceed. This query must be sounding very familiar to those buyers who bought the property from the builder. Typically, the buyers put a lot of emphasis on points after finalizing the property/project. What about pre-sales interaction with the builder or his sales team?. Pre-Sales is also very crucial phase, and most of the buyers are unknowingly get trapped. In my post, Sample Flat – Trap from Builder i discussed one such significant factor of pre-sales. If you are buying a property from builder, then you have to be cautious at every stage. Mostly, you are buying a virtual asset at this point. In short, instead, of physical asset a lot depends on other factors like a sale pitch from builders end.

The sales pitch is an art. The sales team of a builder is smarter than beyond your imagination. You will not realize that you are trapped in the sales pitch of the sales team. When i was Management Trainee, i did sales for one of the reputed brand. From last many years, i keep interacting with the sales team of the builder. I can say that only street smart buyers should think of buying a property from builder :). From my experience, i would like to salute the sales team of builders. I must say for a good salesman it is not difficult to close the deal. The only trick is to play with the psychology of the buyer.

An excellent Sales pitch is all about playing with the psychology of the buyer. The two factors that play a crucial role in controlling psychology of a buyer is to convince the buyer that buyer is making best investment of his life. Second is to create a fear of being left out. All other factors revolve around these two factors. As i also shared in my other posts on personal finance that fear of being left out is most imp factor. Let’s check five most common traps in case you are buying a property from builder.

Buying a Property from Builder – Beware of 5 Common Traps

1. Last Few Units Available: This one is one of my favorite sales tricks. While buying a property from builder, the sales team will show you a list of flats in the project. Out of total units available in the project, more than 90% will be crossed on the list. When you enquire about the crossed ones, you will be told that these are already SOLD. The sales executive will give you only 3-4 choices from the list. For other unsold inventory, they will tell that some other buyer will deposit booking amount in a day or two. If he does not turn up then, he will show those flats to you. Quite interestingly, on day of pre-launch, i found 60% inventory sold out on one of the builder’s flat list :).

This approach will put immense psychological pressure on a serious buyer. Now remember two factors shared by me i.e. you are making best investment of life and fear of being left out. The marketing objective behind trick is that buyer should not be given too many choices. More choice means more confusion to the buyer. Therefore, chances of property deal are high with limited choice to buyer. Buying a property from builder is not as simple as resale property. If you tell the sales executive that you will think and get back. In this case, he will say that he cannot guarantee availability of units shortlisted by buyer even next day.

2. Price will increase in few days: Another most common trick to trap buyers. The fear of monetary loss put psychological pressure on the buyer. As i keep highlighting in my posts that Builder’s Rate Card is like your age, it will keep increasing :). The builder has to keep existing buyers happy that their investment is increasing multi folds. Therefore, i always suggest that instead of buying a property from builder, you should Buy Resale Under Construction Property. Moreover, builder overcharges property buyers. You may get a good deal from early bird buyers in the project.

3. Premium Flats are SOLD in Last: The builder adopts dynamic pricing model. If you are buying a property from builder, then it is imp to understand how it works. As the property near completion, there is natural appreciation or premium a buyer is willing to pay for ready to move in property. The principle of cost averaging is used to determine the price. Builder can command premium for premium flats or once project is nearing completion. Therefore, financially it is more beneficial to sell premium flats nearing completion. It can increase the profit of builder. Buying a property from builder during initial stages means, he is offloading non-premium inventory. It is at the discretionary and negotiation power of buyer to identify premium property and negotiate with builder.

4. Waiting Time: This sales technique i learned while working on an assignment with premium brand. As a thumb rule, sales team should immediately attend the potential buyer for a relatively low-value purchase. On the other for product assets/products of relatively high value, the potential buyer is made to wait for some time. Now this rule perfectly fits real estate. When you are buying a property from builder, you are made to wait in a beautiful lounge.

This lounge will have a couple of LED’s with videos of completed projected. There will be a lot of visually attractive literature around you to go through. You will be offered water/tea/coffee. The receptionist will tell you that sales team is busy attending other customers. You will be attended in 10-15 mins. This technique has a lot of influence on perceived value of the project/property. As a buyer, you will perceive that project is in demand. The second objective is to give time to potential buyer to check video/literature around you. Half the sales pitch is done by the time sales executive approach you provided you are serious about buying a property from the builder.

5. Dummy Customers: This technique is effectively used for high-value purchase like real estate, holiday membership, etc. Imagine you are discussing property deal with sales executive & no other potential buyer is around. The chances of property deal are bleak in this case. Usually, builder hires a dummy customers (families) who will be all around your table/cabin. Some dummy customers must be completing some documentations or handing over cheque. I observed these dummy customers are used effectively by most of the builders :).

Words of Wisdom: If you are buying a property from builder, you might come across traps shared by me in this post. As a buyer, you should not get influenced by these traps and take property purchase exercise very seriously. For builder, it is more of marketing gimmick to sell his project. On the other hand, for most of the buyers, it is lifetime investment. Before buying a property from builder, you should ask 11 important questions to builder as i shared in my post. I am sure you will not stop laughing when you will come across five traps as mentioned earlier on a visit to builder/project location.

Copyright © Nitin Bhatia. All Rights Reserved.

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Oudumbar Patade
Oudumbar Patade
8 years ago

Dear Sir, I saw a under construct property at CBD Belapur Navi Mumbai, Builder having Triparties agreement, please suggest what are the document need to check before giving him advance. I also told us, pls pay 1lac by cheque and take all document file verify the same, if your are not satisfy with documents in file builder will return my cheque. Please advise.

Nitin Bhatia
Nitin Bhatia
8 years ago

I suggest you to pay the token amount and sign on terms and conditions that it is refundable. Builder will handover all documents and then you hire a good property lawyer for title certificate of the property.

SK
SK
8 years ago

Hi Nitin,

I had made a payment against one land in June 2012 and Sale agreement
was signed in Jan 2015.

Signing of agreement was getting dragged/delayed, since
seller was not ready for giving the agreement, somehow managed to get it

After getting the Sale agreement signed, I had paid the
required stamp duty and I have the acknowledgment slip with me.

Now, seller is not ready to give the possession of the land
and saying the land is sold.

Please suggest, If there is any way out to get the money
back.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  SK

It’s a legal case. Please consult lawyer and file police FIR for cheating and forgery.

Barbarika
Barbarika
8 years ago

One thing buyers must know is VAT and service tax. This is w.r.t. Karnataka.

VAT is not charged if you’re buying a fully ready to move in new flat.

Also no VAT is chargeable if the number of flats in the complex is below 12 no matter what construction stage it is in.

Service tax is applicable only if registered value is above 50 lakhs. And it is 3.69%. Sellers will cheat on both %-age and applicability parameters.

If it’s a high value flat and you can’t avoid service tax, you can get the list of pending work items and its labor component.
Only that number can be taxed. That is to say only the labor part can be taxed.

No need to pay service tax on work already finished before you come into the picture.

To avoid VAT when possible and applicable, ask landowner to gift it to his blood relative – kid, brother, mother. Buy from that person. So it’s a second sale. So no VAT. Obviously everyone has to be named as consenting parties.

Skt
Skt
8 years ago

I am looking for buying a flat (2nd floor) from a builder who has been given general power of attorney by the land Owner with a 50-50 agreement. In the agreement it is clearly mentioned that builder will get 2nd floor and land owner will get 1st floor.

The land owner was an unmarried woman aged 40 years, residing in the same building at 1st floor. She is the only child of her parents and her parents were died before this agreement.The agreement was happened in between that woman and the builder.

The building completed by Dec’2015 and this woman died in March’2016.Before her death, she already lived in that building in her portion(1st floor) for three months.

Now, I have some general questions..

1) As the woman died, so is this general power of attorney not valid any more, in that case I heard, if I buy this flat, then may be I get into some trouble at the time of the mutation of this flat, though builder is saying there will be no problem, as he is selling from builder’s portion not the owner’s portion.

2) Only one uncle of this woman is still alive (as blood-related person), So in future will be there any way that this uncle can demand the sahre of this property(2nd floor). Though, we are not buying the property of that woman(1st floor). We are buying the 2nd floor from the builder’s portion as mentioned in the agreement.

3) In this case,if somehow, we are managed to take the declaration from Uncle (as we want to be always in safe side), that he will not demand any share from the flat (2nd floor)in future, will that work to be in safe side.

For the 1st floor that is the portion of his niece, whatever he want he can do, we have no issue with that.

Here,I need to mention that this woman has never make any warish for her property not even her uncle also.

4) Can you please tell me, What are the other trouble may I have to get into in future, except this.

All the documents are cleared from the builder’s perspective.

Please advise me whether I should proceed or what are the legal way through which I can move ahead.

Payel Chaudhury
Payel Chaudhury
7 years ago

Want to buy a new ready to move flat with home loan. Kindly guide.

Nitin Bhatia
Nitin Bhatia
7 years ago

You have not mentioned the city, purpose i.e. self-use or investment, psf rate etc.

Payel Chaudhury
Payel Chaudhury
7 years ago
Reply to  Nitin Bhatia

It’s in Kolkata, for self-use. Price around 25 lakhs

Nitin Bhatia
Nitin Bhatia
7 years ago

You may go ahead.

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