The current situation is such that 10-20% of developers who are constructing houses - direct participants in the Russian construction complex - are involved in various stages of operational work, development, and other operational and investigative actions.
Not all of these checks will lead to irreversible problems for developers, but if the authorities are checking, then they have certain reasons for doing so. It is no coincidence that statistics show that more than 55% of bankrupt companies in the construction industry drew the attention of law enforcement agencies during the six months preceding bankruptcy.
Later in the material we will describe in detail, point by point, how to actually effectively check a developer. Simple, effective verification algorithms are used by both real estate agencies and professional firms. By adhering to a certain “checklist”, there is a chance that you will be able to check the developer yourself. Let's share the professional secrets of the process - learn the subtleties, choose the most convenient method for the situation. The main thing is to exclude the possibility of your own participation in risk groups of careless shareholders!
Initially, you need to decide on the basic parameters for checking the reliability of the developer. Understand the main issues regarding the economic activities of the developer. It is easy for lawyers and practicing economists to compile a list of significant criteria. For the rest, we suggest using a practical list of the most important points. The list is not exhaustive, however, the answers to its questions create a clear picture of the legality and integrity of the developer’s work.
- Affiliation. Interdependencies. Company manuals
- Trials. Number of legal proceedings and nature of claims filed
- Failure of the developer to comply with the Federal Law
- Failure to meet deadlines and obligations
- Financial characteristics of the developer's activities
- Prerequisites for bankruptcy, early risk assessment.
- Insurance, ensuring the risks of building a house, residential complex
- “Weaknesses” of the project - possible negative prospects for the construction of a house or residential complex
- Relevance control, real customer reviews
- Reliability, safety, specificity, features of the construction location
- Dynamics of work, assessment and comparison of the speed and volume of construction of a residential complex
The final general list of the most important questions on the “check list” during the reliability check turned out to be rather large. We will look for answers to them together with you. For an uninitiated person, the task is not easy.
Many developers make certain efforts to hide data, complicating their search on the Internet, limiting, making it difficult and closing access to information.
Why is it not easy to check the developer yourself?
There is an answer. Of course, many people can now “surf” and know how to use search engines quite well. The problem is that a lot of information is closed. It is stored in the public domain without indexing by search engines. That is, the search robot does not display these pages at the user’s request. It turns out that if you do not know the exact addresses of such pages and resources, it is almost impossible to find the necessary information and material.
Specialized paid search and storage systems could make the work easier. Such resources include: “My Business”, “Bureau”, Kontur, “Focus”, Tax “Dossier” and a number of others. But paying for expensive access to such resources for a one-time use, and even learning to use them, is not a very advisable idea.
Analysis of company cases
A good lawyer knows that it is possible and necessary to check the developer’s company by researching judicial practice. To do this, you need to go to the Arbitration Court website and search by company name. First, we recommend using a filter by region, then, if there is nothing, a general search.
Let's see if the company is listed as a defendant. If yes, then this is a reason to be wary. Often, cases involving construction organizations involve non-payment of funds to contractors and subcontractors. It’s bad when the authorities act as plaintiffs against the developer - study the case materials, perhaps the developer has problems with permitting documentation. If you have a lot of debts, look for a bankruptcy case - the worst possible option. If such a thing exists, categorically weigh all the pros and cons. Getting involved with a company that is going bankrupt is a very big risk.
When a company acts as a plaintiff and demands money for itself, on the one hand, this is a reason to give it a plus. On the other hand, also study the case materials. If the amount demanded by the plaintiff is too large, then the option of freezing construction until the debt is collected is possible.
Litigation with resource supply organizations can lead to problems in the future. For example, when putting a house into operation, it turns out that the company committed multiple violations when laying pipes or electrical networks.
Checking the management of the developer company - stage 1
This is a check not only of its connections, but also to obtain more information about the managers, founders, and owners representing the company. Sometimes, only information about managers, their connections, financial and economic activities, and the history of work performed become the determining factor when deciding to purchase an apartment from a given company.
The general methodology for finding this information will be similar to checking any legal entity, and the buyer will have to face about the same difficulties in obtaining basic information.
What is checked by the developer
There are a large number of construction organizations operating in the real estate market, actively advertising their projects. But advertising is just the engine of trade. A tool for attracting co-investors, providing financing for construction, selling finished products or services. Therefore, advertising has never been a guarantee of the quality of the product or the integrity and reliability of the seller.
There are several ways to check the developer when buying an apartment in shared construction.
Reputation in the market
Any commercial organization has an established business reputation in its market segment. Conscientious businessmen consider it an important asset and strive to make honest money and maintain a positive image of their business.
In our time of information accessibility, you can check the reputation and information about the developer in several ways:
- On specialized online forums, study the reviews of equity holders about this developer. At the same time, attention should be paid not to the emotions in them, but to specific facts of violation of legislation and contractual obligations.
- If this developer has completed houses, then ask its residents about any violations of the terms of their residential building permit.
- On the Internet, in the database of decisions of the Arbitration Court, check for open cases or decisions made with the participation of the developer as a defendant. Or bankruptcy proceedings have been initiated against him.
- On the official website of the Federal Bailiff Service, check the availability of enforcement proceedings against the construction organization as a debtor.
- Obtain an extract from the Unified State Register of Legal Entities on the official website of the tax office. This information is provided free of charge about all legal entities. From it you can find out about the date of registration of the legal entity, the status of liquidation, reorganization or exclusion from the register of legal entities.
His participation in self-regulatory organizations in the construction industry can say a lot about the reputation and reliability of a developer. For companies building residential buildings, this is a mandatory condition.
Project documentation
Having studied the reputation of the construction organization, you can begin to analyze the project documentation. This will allow us to understand the competence of the company’s management, its solvency, and the possibility of completing construction.
All project documentation must be posted on the developer’s website and provided to interested parties upon request at his offices.
Permission
The developer is required to obtain a building permit for this particular object, which is issued before the start of construction. In the permit you must pay attention to the following information:
- expiration date of the permit;
- presence of the date of issue, signature of an official and seal of the authorized local government body;
- name of the legal entity to which the permit was issued. It must be the same as the name of the developer.
Project declaration
The declaration must be posted on the website of the construction organization before the conclusion of the first equity participation agreement. This is the most interesting document for the future shareholder. It contains all the information about the house under construction:
- type of building, commercial name of the complex, by whom and when engineering surveys were carried out, various examinations;
- permission to build an apartment building;
- about the developer’s right to a plot of land under the house;
- long-term plans for landscaping;
- location of the construction site, characteristics of the building, total area, number of floors, material;
- deadlines for completing construction and obtaining permission to put into operation;
- on securing the obligations of the developer and on the bank for opening escrow accounts when participating in shared construction;
- agreements under which investors’ funds are raised (except for DDU).
State examination
The developer is obliged to obtain an expert opinion on the compliance of the design documentation before starting construction. Such examinations are carried out by supervisory and control structures of state authorities in the field of construction. The results of the examination are also posted on the construction company’s website.
Land documents
There are several options for registering a land plot under a house under construction - long-term lease, sublease or ownership. Very rarely there are cases of registration for free use for a certain period.
You can check information about rights to a plot by ordering an extract from the Unified State Register of Real Estate. It contains information about the owner and tenant. All information about land rights must be posted on the developer’s website. If it is not available, you can ask the builders for a copy of the contract, which will show the terms of the lease of the site.
Important! The lease period for the plot should not end earlier than the expected date of commissioning of the house, otherwise the shareholders will have big problems with the registration of the purchased apartments.
If there is a sublease for the development territory, it is necessary to analyze the legality of its transfer to the subtenant and the relationship between the validity periods of both agreements.
Checking the condition and financial stability of the company – stage 2
This is the most difficult part of checking the reliability of the developer. The developer publishes a certain amount of data for analysis and drawing up an idea of financial stability directly in the project declaration for the construction of the facility.
But, due to the fact that the information in the declarations is incomplete and generalized, it is extremely difficult to draw any intelligible conclusion based on them.
As a rule, additional sources and databases with limited access, which are described above, provide more information. About a specific residential complex or, conversely, about the financial performance of the developer company. But when analyzing this data, it is necessary to take into account whether the developer has other types of economic activities besides the construction of this facility. Depending on the attitude of management and the strategy for its development, then it is already possible to make at least some assumptions and conclusions.
What documents does project documentation include?
The fact that everything is in order with the company’s constituent documents is not a reason to unconditionally trust it with your money. Since financial resources will be provided for the construction of a specific house, you need to request documents that give the developer the right to do so.
To begin construction work, he must have the following documents:
- Appropriate permission to carry out work on the construction of a house;
- Documentation for the construction of a residential apartment building;
- Conclusion of the state examination of this documentation;
- Documents by which the developer company receives the right to carry out construction work on the plot of land allocated to it.
The presence of such a package of documents allows you to avoid the risk that the construction of the house will not begin. One of the tricks of unscrupulous companies is that as soon as they acquire a plot of land for construction, their representatives immediately begin to conclude agreements for participation in shared construction. However, all other documents have not yet been completed.
In such cases, it is better to wait and wait until all the listed documentation is completed. This can take a very long time. The preparation of a project declaration alone takes many months. Please note that there is no guarantee that all permits will be obtained. It may also happen that the developer will have to abandon the project. He will most likely return your money. But having “laid” with him for a year, or maybe more, they will not give you any dividends.
Check the developer for bankruptcy - stage 3
An equally important factor, the presence of which must be present when checking the reliability of the developer, is the presence of prerequisites (even hypothetical at some stage) for the bankruptcy of the company.
Unfortunately, neither the developer nor any authorized organization has any obligation to collect or provide such data under the legislation of the Russian Federation.
From a legal point of view, given the presumption of innocence, this is quite justified. After all, the fact that any of the business entities, counterparties, or the same shareholder filed a claim to declare the developer bankrupt before the court’s verdict, in fact, is not a basis for premature assumptions and speculation.
However, some buyers or investors may find this information somewhat alarming and can be quite useful.
However, even if you have access to paid resources, you will have to work hard to find such data. Not all resources update them in a timely manner.
In each of these systems, it is allowed to select only individual indicators that are well represented in it.
And it is far from a fact that this data is available at all. A large number of developers in this regard, thank God, are positive. But there are also exceptions.
Next, you need to check whether the organization has permits.
What to pay attention to:
- permits for construction;
- design documentation;
- documents confirming the fact that the developer has rights to the land plot.
If a company does not have a permit, all work it carries out will be illegal. The company must have permission from a self-regulatory organization to conduct such activities, which was previously confirmed by a license. The website of the new building and the developer must have design documentation and permission to carry out construction work. If in addition there are technical conditions for communication and a sample DDU, then this will be a positive thing.
It is recommended that you read and study the following documents:
- Constituent documents;
- Certificate of state registration by the company;
- Certificate of registration with the tax office;
- Balance sheet and profit and loss account;
- Audit report for the last year of activity of the developer.
The developer's refusal to provide permits is a bad sign. They can be canceled, which occurs when the company loses the right to the site or the document expires. The absence of a building permit and title papers for the site means that the developer does not have the right to attract investment from citizens in shared construction.
Check the developer’s documents for compliance with the Federal Law - stage 4
Also indicative is the fact of comprehensive, partial compliance of the company’s policies and actions with the requirements of Federal legislation regarding insurance, updating and publication of open data about the facility under construction. Some developers, for various reasons, do not always fully comply with even these seemingly fundamental and quite important postulates.
Such an irresponsible approach can also be a “bell” as loud as the company really respects the rights of the buyer of their apartments.
The list of such mandatory published data changes from time to time, in accordance with changes in the legislative acts of the Russian Federation, but any customer that respects its clients must comply with it.
We check compliance of construction with the declared pace - stage 5
Finally, the construction itself. According to Federal Law 214, raising funds from equity holders can begin at very early stages. How can the buyer figure out whether the pace of construction corresponds to the schedule and whether the construction will meet the stated deadlines or whether the construction will be delayed and, God forbid, even suspended?
A very ambiguous question, the answer to which can only be obtained by having a complete picture of what is happening with the financing of the facility and what is happening inside the company itself. Since such insight is practically impossible, it is necessary to analyze only the available
Here it is no longer possible to do without a specialist who thoroughly knows the specifics of production during the construction of housing.
During the construction of a facility, there is a complex coordination of the timing of construction of structures, installation of equipment, finishing, connection and distribution of utility networks and communications, landscaping, commissioning work, and each type of work “pulls” its own individual financial and time indicators, the combination of which is taken into account in the analysis and checking compliance with the pace of work directly on site.
Information about the new building
If you purchase an apartment under the DDU, it is worth checking not only the developer, but also the new building. It is recommended to study the sources of construction financing and the list of investors. It doesn’t hurt to evaluate the pace of construction and the developer’s ability to complete the construction on time.
Sources of financing
When constructing a property, it is possible to use several sources of financing:
- own funds;
- attracted from participants in shared construction;
- finances of co-investors and partners;
- borrowed funds and bank loans.
The construction of a new building using one’s own funds confirms the financial viability of the developer. This demonstrates its independence and makes the cost of apartments more attractive on the real estate market than its competitors.
Financing construction using borrowed bank funds is a common practice among developers. This is not yet a negative signal for future buyers. Developers are vetted by a credit institution before issuing loans. Many banks offer buyers of apartments from trusted builders more attractive mortgage terms.
Currently, there is a transition to project financing, which means refusing to attract funds from shareholders and working with your own and loan money.
Project delivery deadlines
The timing of commissioning and transfer of finished housing, corresponding to the project documents, is key information for equity holders. Possible penalties against the developer will depend on them.
Federal Law 214 provides specific requirements for the time period for transferring a new building to equity holders:
- The agreement for participation in shared construction must necessarily specify the deadline for the transfer of apartments. It must be the same for all shareholders.
- In case of violation of the deadlines for the transfer of real estate, the developer is charged a penalty in favor of the shareholder in the amount of 1/300 of the refinancing rate. If the shareholder is an individual, then the penalty is charged at double the rate.
There are situations when the developer does not have time to complete construction by the deadline for transferring apartments to shareholders. Then he is obliged to notify them two months before the expiration of the deadline about the postponement and offer to conclude an additional agreement on this.
Size matters - nuance
In this case, it is necessary to take into account the construction volume - the size of the residential complex under construction. For example, if an object is rented out in queues, and the volume of one queue is not very large (for example, 1-2 entrances of a nine-story building are being built), then taking into account the dynamics may not be so significant.
But if a large residential complex is planned to be rented out entirely, and the volume is a 25-30 storey building with several entrances, each of which has 10-20 apartments per floor, then this is a much more serious story, requiring real dynamics and monitoring. Because it is often simply not realistic to “catch up” with people and equipment to perform such large volumes.
Compare construction plans and delivery quality when purchasing with a mortgage
If you want to purchase housing on a mortgage in a property under construction, or enter into an equity participation agreement with the developer, you should study the history of previously commissioned properties. A significant discrepancy between the planned delivery dates and the actual ones indicates that the company does not tend to comply with the agreements reached. Most likely, when a new apartment building is commissioned, the situation will repeat itself and construction work will be delayed.
It's worth checking out reviews from previous customers. Real homebuyers in shared-equity construction can share valuable information and their experience. It is also worth studying the opinions of potential buyers who also plan to purchase apartments in the selected new building.
What to pay attention to:
- possible tricks and promises of the developer;
- defects in completed housing and housing under construction;
- recommendations for concluding transactions and special nuances;
- actual situation of construction work;
- duration of document preparation;
- possible risks and problems.
It is also recommended to pay attention to the delivery deadlines for infrastructure facilities that were promised to buyers at the initial stages of construction. In practice, there are often situations when, after putting a facility into operation, there are nearby roads and structures of social importance that remain at the construction stage. This significantly reduces the level of comfort of living in the area.
Is it possible to check the quality of construction?
As you understand, it is impossible to check the quality and reliably remotely. However, it is necessary to pay attention to such things as culture, cleanliness, and well-groomed construction production, which can be fully assessed from photographs of the construction progress. Sometimes careless sloppiness “speaks” of poor construction site management, disrespect for consumers and irresponsible business in general.
Also, the buyer of a new building should have an idea of the features and even problems that, unfortunately, are inherent in various types of design schemes and solutions used for construction.
Check yourself or with a company? – decide
As you can see, even before the purchase, although in principle it is quite likely that after it (assignment is now quite accessible), there are plenty of criteria for checking the reliability of the counterparty.
And, since even the most persistent and sophisticated apartment buyer will need at least 40-50 hours of full-time work time and knowledge of 20-30 data source resources to perform a quality check on their own, many prefer to order the work from specialists, or even get this service for free.
Large real estate agencies, which have their own special divisions of legal departments, analyze builders for their clients free of charge. However, as a rule, since this service is conditionally free (conditionally because the real estate agency will still receive a percentage of the sale of an apartment in a new building to this client), its quality is rather doubtful: they go through the roof without getting any real problems. After all, their goal is to sell M2 and get a percentage, and not to provide reliable information.
Among the companies that provide this service for a fee, you can find the following (in the table below). We haven't done a very deep analysis, we'll just provide a complete list for comparison. Although we tried to arrange them according to user convenience and price:
