The costly red flags home buyers should never ignore

This story has significance for readers across Kenya and beyond.

Buying a home is one of the biggest financial decisions many people will ever make. After years of saving, taking out a mortgage or committing a substantial portion of their income, the excitement of finally finding a house can easily overshadow the questions that should come before signing on the dotted line.

But property experts warn that a beautiful house, or a piece of land somewhere at a seemingly attractive price or an eager seller should never replace due diligence. For some buyers, the dream of home ownership can quickly turn into a financial nightmare when they discover that the person who sold them the property was not the rightful owner, the land carries an encumbrance, approvals are missing or the property cannot legally be transferred.

Property lawyer Doreen Onwong’a says that the first question a buyer should ask is who actually owns the property.

“Title ownership is as basic as it gets,” Ms Onwong’a says.

A buyer should establish whether the person they are dealing with is the registered owner, and if not, what legal arrangement gives that person authority to sell. One should also establish whether the property actually exists, whether it has occupants and whether it is charged to a bank or another financier. These checks, she says, form part of preliminary due diligence before a buyer commits money.

Alfred Ndambiri, also a property lawyer, says refusing or failing to produce a title document should immediately raise questions.

“If the seller has no title document, that should always be the first red flag,” he says.

A seller may offer several explanations, perhaps the property is being subdivided, the family is still processing succession or titles are supposedly being processed, however, the buyer should not allow these explanations to replace documentary evidence.

“Honestly, you can't sell that which you do not own,” Mr Ndambiri says.

But even possession of a title document is not enough. A document could be fake or could have been obtained through irregular means. That is why a buyer should proceed to conduct an official search. Ms Onwong’a explains that a land registry search can reveal registered encumbrances, cautions, restrictions, the acreage or size of the property and any special conditions attached to it. For properties owned by companies, additional searches at the Companies Registry or LLP Registry can help establish the company's ownership, directors and whether its assets are charged.

Ndambiri says buyers may also need to go beyond the ordinary search where doubts arise. A Green Card, for example, can provide the history of a parcel, including transfers, subdivisions and amalgamations. A Deed Plan can help establish the measurements of a parcel, while in some cases a Mutation Form can be used to verify the size of land through a surveyor. This is particularly important where a buyer is told a property is a certain size but has no independent confirmation.

Don't let the bargain blind you

Price is another major warning sign.

David Wanjala, a property manager with more than 10 years' experience, says a property whose price is significantly below the prevailing market rate deserves closer scrutiny.

“A cheap house is not necessarily a bad investment. A seller may genuinely need money urgently, but the low price could also be linked to problems with the title, approvals, location, construction, access, tenants or ownership,” Mr Wanjala says.

The first step is to compare the property with similar homes in the same neighbourhood. Buyers should consider land size, location, access roads, age of the house, development standards and amenities, not just the asking price.

“If a property is substantially cheaper than comparable properties, ask the seller or agent to explain why,” he says.

There is also danger is allowing an attractive price to create a sense of urgency. Mr Wanjala says urgency should never replace due diligence. There may genuinely be other interested buyers, but a buyer should not be pushed into paying a deposit before establishing who owns the property, whether the seller has authority to sell and whether there are issues affecting the transaction.

Another warning sign is being told: “Pay now, we will provide the documents later.”

“Watch out for requests to send money to personal accounts, make cash payments without proper documentation or bypass an advocate should also raise alarm,” warns Mr Wanjala.

A legitimate transaction should give a buyer reasonable time to ask questions and verify documents.

Don't pay before reading the agreement

The deposit is another area where buyers can expose themselves to unnecessary risk. Ms Onwong’a advises that, as a rule of thumb, the deposit should be capped at 10 per cent of the purchase price. Depending on the circumstances, she says, buyers may also consider having the deposit held in escrow. Ndambiri also strongly warns buyers against paying what some sellers or developers describe as an “offer price” before they have seen and agreed to the sale agreement.

He says buyers are sometimes asked to pay Sh50,000 or Sh100,000 before the draft sale agreement is provided. The payment may be presented as a way of securing the property, with the buyer promising that the agreement will follow.

Ndambiri says buyers should be cautious about such arrangements.

“Why pay before seeing the terms under which the transaction will take place?”

A sale agreement should spell out the purchase price, payment arrangements and other important conditions. Buyers should understand what happens if completion is delayed or the transaction fails. This becomes particularly important in off-plan purchases.

For buyers purchasing property before construction is complete, the risks can be greater.

Ms Onwong’a says some of the biggest problems arise when there is inadequate accountability from the developer over completion timelines, even though the buyer is bound by strict payment schedules.

“Imagine paying 80 per cent of the purchase price only to find that the project is delayed indefinitely. The buyer needs to understand what happens if the developer fails to deliver. Is there a refund clause? Is interest payable? How long will the refund take? And, importantly, does the developer have the financial capacity to refund the money?”

She insists the sale agreement should therefore strike a fair balance between the obligations of the buyer and developer. Ndambiri also cautions buyers against purchasing individual apartment units where the necessary documentation and titles are not in place. Buyers should establish how the development has been approved and how the individual units will ultimately be legally transferred.

Check change of user

Another issue buyers can easily overlook is change of user. Ndambiri says one should establish the original use of land, particularly where agricultural land has been subdivided into plots for residential development.

Where a change of use is required, the necessary approval should be obtained from the relevant authority. The same applies to developments where a developer has converted a property from one use to another. For example, a developer may tell buyers that a property was previously a single residential home but has since been converted into an apartment development. The buyer should not rely on verbal assurances, instead, ask for documentary proof that the change of use was legally approved and reflected in the relevant land records.

The identity and legal capacity of the seller can also determine whether a transaction succeeds. Ms Onwong’a says one major problem arises when family members attempt to sell property belonging to a deceased person before the necessary succession processes have been completed. This can amount to intermeddling with the estate.

“For companies, a buyer should establish whether the people signing the transaction are authorised directors or company officials. Where someone is acting under a power of attorney, the document should be produced and verified,” she explains.

Jointly owned property also requires caution. Where property is jointly owned, including between spouses, all relevant parties should be involved in the transaction. The buyer should never assume that because one person is showing them the property and presenting documents, that person automatically has the authority to sell it. Due diligence should not stop at the registry. Ms Onwong’a says a physical site visit and surveyor's inspection are important parts of the process. A buyer should establish whether the property matches the description in the documents and whether there are occupants, boundary issues or other on-site concerns.

Also look beyond paintwork and expensive fittings. Cracks, dampness, leaking roofs, poor drainage, uneven floors, plumbing problems, electrical issues, inadequate water supply, sewerage problems and poor workmanship can turn an apparently attractive house into an expensive repair project. A professional inspection can identify problems that an excited buyer may overlook.

Ask questions before committing money

Wanjala advises buyers to ask who the registered owner is and whether the ownership documents can be independently verified. They should establish whether the person selling the property is the registered owner or has legal authority to sell it.

Other questions include whether land rates, land rent, service charges or utility bills are outstanding, whether necessary planning and construction approvals have been obtained and whether the property has previously been involved in a dispute or court case. For apartments, buyers should establish exactly what they are purchasing, including the unit, parking space, amenities and other interests. If tenants occupy the property, the buyer should understand the tenancy arrangements and whether there are outstanding rents. The seller's reason for disposing of the property can also provide useful context, particularly when the asking price is unusually low. But whatever answers are provided, Wanjala says buyers should insist on documentary evidence where verification is required.

Don't go it alone

Ultimately, buying a home should not be treated like an ordinary purchase. The emotional excitement of finally owning a home can make buyers overlook warning signs they would otherwise recognise. “Do not go it alone, carry someone along,” Ms Onwong’a's advices.

An advocate can guide the buyer through due diligence, negotiation of the sale agreement, completion and registration, while a surveyor can verify boundaries and measurements. A valuer can help determine whether the price is reasonable, and a qualified professional can inspect the physical condition of the building.

Reporting originally appeared via Nation Africa. Read the full source for additional context.