June 21, 2019

Who to contact when buying real estate - a realtor or a lawyer?

Real estate (buildings, facilities, land) in Ukraine remains one of the most popular assets for investment. There are several reasons for this: volatility of the hryvnia, low confidence in banks and pension programs, underdeveloped stock market, etc.

Real estate is also often offered in exchange for stakes in a business or goes toward paying off a debt. However, whatever the reason for buying it, one should make sure that the deal is profitable and legally secure before proceeding with it, since any mistake could turn your new acquisition into a burden rather than investment.

For this, first assess the following aspects:

  • expenses for the acquisition and maintenance of such property, including taxes;
  • risk of losing property after purchase;
  • risks associated with the use of real estate (for instance, unauthorized connection to utility networks or lack of connection to them, hidden defects that cannot be detected through visual inspection, impossibility of using the property for the investor’s purposes (the latter happens particularly often in case of land plots), etc.);
  • property protection options and potential costs of such protection;
  • options for generating income using the property.

Who can find drawbacks in the transaction: lawyer and/or estate agent

It may sometimes seem that in real estate transactions, lawyers and estate agents are interchangeable or that they are competitors. That is not the case. A lawyer and an estate agent are a duo that makes a transaction secure.

Who can find the asset, ensure its compliance with the client's requirements for the area, location, price and other characteristics? Estate agents.

They will also check whether the seller is the owner of the building or land and help screen risky offers. They will help you find a notary and negotiate the price with the seller. They will obtain certificates confirming the absence of debts on utilities (which is important when buying apartments and residential homes) and will help you save time and money.

As for lawyers, they will calculate how much money you’ll be paying annually in taxes and what tax benefits you can expect. They will study the asset’s previous history and determine whether there’s a danger of losing it in the future. It’s the history of a building and/or land plot that often hides pitfalls that could cost you that property somewhere down the line.

It is the lawyers that will check whether the seller’s rights to the asset are legal and whether there are ongoing legal disputes or criminal proceedings concerning these rights; they will check the documents in terms of connections to utility networks and arrange for inspections of the asset’s technical conditions and communications. They will find out whether the building and/or land plot can be used for the investor’s intended purposes and whether the law has any restrictions in this regard. They can also help make the asset secure from any outside attempts to take it away, which is especially relevant in this day and age.

Let’s clarify the difference using three real life examples.

Story 1.

A businessman wanted to buy a land plot from a company (legal entity). The estate agent saw no problems: the title documents were there and the land plot was registered in the cadastre. The lawyer, however, discovered a fact that was very important for the deal: criminal proceedings had been opened in connection with the abuse of authority by officials and other violations committed during the privatization of the land in question, which could have left the buyer without his land in the future.

Story 2.

A company decided to buy a land plot, the rights to which were established by an outdated title, meaning that the land in question was not included in the state land cadastre and its borders were not clearly defined. The documents for the plot were valid, the procedure for entering the plot in the cadastre and assigning it a cadastral number was clear, and the price was good – it seemed there was no reason not to proceed with the deal.

However, after a document audit, it turned out that a part of the land plot was located on the land attached to railway tracks, which may not privately owned. This was a violation of the law committed during the registration of ownership rights to the land by the seller. Considering that the Ukrainian Railways and its branches are currently conducting a rigorous inventory of state-owned lands under their jurisdiction, the investor could have lost the land soon after purchasing it. It would have been very difficult or outright impossible to identify this risk without a lawyer.

Story 3.

A company wished to purchase a building in the center of Kharkov. The estate agent checked the documents for both the building and the attached land and found them to be in order. The lawyer, however, discovered after an audit that the building had been declared a monument of local architecture, making its use subject to a number of restrictions under the law. Moreover, the seller had failed to follow the law-prescribed procedures when buying the property in the past, which could have rendered the deal invalid and could have potentially deprived the company of the building.

Are lawyers and estate agents interchangeable?

No. They have different functions. The estate agent finds assets for investment, while the lawyer checks their security and determines associated costs.

A lawyer checkup will also protect the estate agents themselves from potential lawsuits by disgruntled buyers demanding compensation for their losses. After all, if the investor incurs extra costs or loses the rights to a building and/or land plot, they may demand compensation from the estate agent who had made an offer of that asset in the first place.

Published at https://delo.ua/