Buying an apartment offset

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Published: March 31, 2018

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Offsetting is a scheme in the real estate market that involves the simultaneous sale of an old apartment and the purchase of a new one. This scheme is most common in the primary market, when a buyer sells his apartment from a secondary fund to buy an apartment in a new building.

• Advantages and disadvantages of netting
• Difference between netting and exchange
• Step-by-step offset algorithm
• List of required documents
• Risks during netting

What is it and how is it different from exchange

In the standard version, the offset of apartments for a new building involves the following actions:

1. They select a suitable new building according to the specified criteria and make a reservation.
2. Selling their own home.
3. The money received is used to pay for the new building.

In fact, we are talking about two ordinary purchase and sale transactions with the reservation of the purchase object for a certain time. This is the main difference from an exchange, where one of the parties simply pays the difference in value.

It is advisable to resort to this procedure if you want to move into a new home if you have an old one. With the help of a real estate agent, you can save time and, on the one hand, sell your apartment in a fairly short time, and on the other hand, immediately receive ownership of a new building.

Offsetting when selling and buying an apartment is sometimes confused with Trade-In. The corresponding technology is widely used to conduct transactions with cars. As part of the current commercial program, the dealer buys out old equipment at a negotiated price while simultaneously registering new ownership.

For your information! Similar procedures are rarely used in the real estate market with new buildings. As a rule, quick redemption offers are associated with significant discounts relative to the average price level.

Settlement or direct purchase of an apartment: what to choose?

Today, apartment owners seeking to improve their conditions and replace their existing apartment with a new one with a larger area are considering two transaction options - trade-in, known as offset, and direct purchase. According to developers, over the past two years, the cost of secondary housing has almost equaled the price of a new building, making such transactions even more relevant. Legal adviser Zhanna Alexandrova spoke about the pros and risks of both options.

— Settlement: what are the advantages of the deal?
Why do buyers make a deal, and is it worth exchanging an apartment for a new building now and in the future? — In advertising you can often find an announcement about purchasing an apartment using offset. This scheme is called trade-in. The essence of this service is that a real estate agency or the developer himself purchases an old apartment with a one-time registration of a new apartment in a new building. Simply put, the old apartment is sold, and after its sale, its former owner receives an apartment in a new building.

Of course, there are advantages to this: the owner, who contacts a real estate agency or a developer working under the trade-in system, first of all saves his nerves and time. At its core, the system works as a “one window”, when the owner applies once, and the “one window” takes on all the functions of finding a new buyer, appraising the apartment, checking the purity of the transaction, and completing the transaction. The second advantage of offset is the fixed price of the new apartment and the fact that the former owner will not find himself in a situation in which he will have to quickly look for additional funds for additional payment. The netting system allows the owner to quickly receive money for a new property and not have to pay interest on a loan secured by his own apartment. And in some cases, the use of a netting system allows large real estate agencies to “link” transactions in different regions.

— When is the best time to sell and buy an apartment?

— The natural desire when making a real estate transaction is to sell your apartment at a higher price and not to make it cheaper, but to buy a new one cheaper so that there is money left over for repairs. Ideally, you should sell your apartment during a period of peak prices, and buy during a period of stagnation, when prices are reduced not only by developers, but also by owners when selling secondary properties.

In practice, I can note that, taking into account seasonality, it is best to make transactions to sell your apartment in April and November, and the most successful months when you can buy a new apartment are May-June, December-January (most are on vacation and during the holidays, to attract developers can give buyers a discount).

But the seasonality factor does not always work during an unstable economic situation, when periods of peak prices and stagnation may shift. So if the owner has nevertheless decided to sell his apartment in order to buy housing of a larger area in a new building, I can recommend monitoring the decrease in prices for apartments in a new building at the foundation pit stage.

— Does mutual offset help protect against financial risks? What is the benefit compared to the “first sell, then buy” scheme? Could the second option be safer? What other risks does the netting scheme pose?

— It should be noted that the netting system is currently extremely widespread. This is due, first of all, to the fact that an alternative transaction common on the market brings the owner/seller of the apartment the market value of the proceeds from the sale of the apartment without any discount. When offsetting, the discount is significant - 10-30 percent of the market value. In addition, unlike an alternative transaction on the secondary market, when purchasing a trade-in, the buyer does not have the opportunity to register at the place of residence: until he receives his ownership of a new apartment purchased in a new building, he, in fact, lives without a registration address and without a formalized ownership right (ownership rights are formalized only after the facility is put into operation). When making alternative transactions on the secondary real estate market, such problems do not arise, since the exchange of ownership occurs at a time.

The widespread use of the offset scheme when purchasing real estate in a new building is also hampered by the lack of reserve housing for the majority of ordinary citizens-sellers, in which they can wait for the completion of the new building, as well as high prices for rental housing.

There are a number of other risks and obstacles: firstly, an increase in the cost of an apartment in a new building while the search for a buyer for the old apartment is underway. Secondly, if the buyer makes an advance payment for an apartment in a new building, for example, in order to fix the price, but the transaction on the regular market may not take place due to some reason. In this case, there is a very high probability of losing the advance payment. Thirdly, if the buyer purchases an apartment in a new building in the early stages of construction, and the construction period may be delayed, then the facility may not be put into operation.

The most profitable, safe and widespread scheme is indeed to sell your apartment and purchase an apartment in a new building using the proceeds. If the latter are not enough to fully pay the cost of a new home, then it is possible to use both credit funds and installment payments. In this matter, it is important to adequately assess your own strength in repaying the installment payment/loan and related expenses (for example, renting a rented apartment). It is also important to be sure that the developer will keep the price of an apartment in a new building unchanged during the period of searching for a buyer for the old apartment being sold, which happens extremely rarely.

The safest scheme is to sell your apartment and purchase a new one in a new building in the case when the stage of its readiness is very high, for example, after receiving permission to put the facility into operation, with a fixed cost. But this approach is usually unprofitable for the developer. It is usually much easier to sell an apartment in a finished house than at the construction stage. Developers don’t want to wait several months while they search for a buyer for an old apartment.

The main advantage of this scheme is the opportunity to receive the full price when selling your apartment. The main disadvantage is the dependence on real estate prices set by the developer.

— Experts predict that the “resale” will fall in price so much that it will become equal to the prices of new buildings. Is the scenario real? Will netting lose its relevance?

— Each owner-seller of an apartment himself chooses a scheme that suits him and that he can afford. It is difficult to say whether mutual offset will be in demand among citizens during periods of economic instability or not. Almost all real estate objects for which the buyer has registered ownership and which are physically and legally free, or can be vacated in a short time, and also do not have illegal unregistered alterations and have been owned for more than 5 years, can be accepted for offset. Most real estate companies involved in home purchases require that the properties being transferred be located in large cities, for example, Moscow or St. Petersburg. It is likely that the netting scheme will replace the well-known and widespread alternative transaction scheme. However, it would be an excellent addition to this scheme if the seller-owner of the apartment could live in the apartment being sold before its sale in order to save money on renting an apartment for temporary residence.

Ekaterina Balaeva

Settlement scheme

There are three parties involved in a typical new building transaction:

• client;
• real estate agency;
• developer.

It is permissible to conclude an agreement only with a realtor if there is appropriate authority from the company that owns the apartments in the new building. Usual scheme:

1. The cost of the housing you like is fixed for 3-4 months.
2. The agency evaluates old real estate and sells it.
3. After sale, the proceeds are transferred to the developer’s account.
4. A new building by offset is registered in the name of the client with registration of the property in Rosreestr.

In terms of terms - some agencies (developers) offer a year or more to search for buyers. However, in such cases it will not be possible to exclude a change in cost. Typically, contracts take into account inflation based on the current Central Bank rate with an increasing coefficient. If the time frame is reduced to 1-2 months, in order to quickly sell your apartment, you will have to take a significant discount from the average level in the corresponding market segment.

In more complex schemes, external financing is added - mortgage loans. For the down payment, use the amount received after the sale of the old apartment. The new building will be purchased in full, but it will be possible to dispose of the purchase without restrictions only after the mortgage has been repaid and the collateral in the Unified State Register has been removed.

List of required documents

In order for an apartment to participate in the offset scheme, it must be owned by the buyer (i.e. it cannot be non-privatized, municipal, rented or rented housing) and not encumbered with a mortgage or seizure.

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1. Current extract from ERGN.
2. Certificate of ownership, extract from Rosreestr.
3. The document on the basis of which property rights were acquired: donation agreement, purchase and sale agreement, etc.

It is worth considering that apartments for offset are usually subject to high requirements. Thus, developers often require that the apartment belong to the owner for at least 3 years (this fact is confirmed by title and title documents).

We suggest you read: What documents are needed to increase your pension?

Also among the standard requirements: the absence of registered persons (confirmed by an extract from the house register or a certificate of family composition obtained at the passport office or ERIC) or the ability of them to vacate the apartment as soon as possible, the absence of debts on utility bills (confirmed by an extract from the personal account).

Sometimes certain requirements are imposed on the age of the building in which the apartment is located and its layout (presence of a kitchen, etc.). The absence of illegal redevelopment is important. To do this, an explication and a floor plan from the BTI are presented.

Also, depending on the situation, consent to the transaction may be required from the guardianship authorities and the seller’s spouse.

Approximate costs for collection

When purchasing an apartment by offset, the final costs depend on the chosen scheme. Realtors take a fee from buyers or make a profit through cooperation with the developer.

To avoid problems, you should carefully study the proposed conditions and the text of the agreement. In case of early termination, the agency has the right to demand reimbursement of advertising and other costs. Exceptions and payment procedures, along with penalties, are specified in detail in the thematic sections of the agreement.

As a standard, you need to take into account the following offset costs for a new building:

• remuneration to a real estate agency – from 50,000 rubles;
• state fee for registering a right in the Unified State Register of Real Estate – 2,000 rubles;
• obtaining an extract from the Unified State Register of Real Estate for the sale of your apartment – ​​300-600 rubles;
• notary services (spouse consent for purchase and sale) – from 1,000 rubles.

For your information! Notarization of contracts for realtor services is not required. Notarization of the DCT is required if a share in an apartment is being sold or if the owner of the property being sold is a child.

Tax issue

Two points need to be taken into account when offsetting an old apartment for a new building:

• tax on the sale of your home;
• receiving a tax deduction when purchasing a new building.

Taxes upon sale are paid on the income received at a standard rate of 13%. The report on form 3-NDFL is submitted for verification until the end of April next year after the sale of the old home. Moreover, if you have owned the property for more than 5 (3) years, you do not need to pay anything. Read more about personal income tax on sales at this link. Additionally, read the rules for applying the seller's tax deduction.

After purchasing a new building, you can receive compensation from the state of up to 260 thousand rubles, plus a refund of mortgage interest up to 390 thousand. Property taxes are regularly paid for new properties. Tax authorities send a notification of this obligation with the exact amount annually.

Exchange and netting

From a legal point of view, pure exchange is quite rare. It is possible only by replacing one non-privatized apartment with another.

Offset (offset) is used in the case when the buyer plans to replace the existing housing with an apartment in a new building. This scheme is not an exchange in the literal sense. The general exchange scheme is as follows:

• the buyer books an apartment in a new building;
• during the booking period, the old apartment is assessed and sold;
• The proceeds from the sale of the apartment are used to purchase reserved housing.

As a rule, the sale of an old property is undertaken by the same agency that helps with booking a new building. It conducts an active advertising campaign, which allows it to meet booking deadlines.

Some real estate agencies themselves buy the housing that is planned to be exchanged, but in this case its price will be at least 10-15% lower than the market price. The advantage of the deal will be the accelerated sale of the home - no need to wait until a suitable buyer is found. This scheme is called trade-in.

Remember that when booking a new apartment, most often you immediately make a down payment towards your future purchase.

Pros and cons of netting

How much is lost during offset will become clear during the implementation of the project. The realtor's interest in accelerating the sale explains the proposals to the client to reduce the cost of his property. Other cons:

• limited period for reserving apartments;
• the risk of violation of obligations by the developer (in terms of quality, equipment, commissioning);
• a small number of offers in the relevant market segment.

Additional difficulties are created by agencies that prefer to work with highly liquid real estate. In addition to discounts, the following requirements are quite common:

• favorable location of the apartment;
• long-term ownership (3 years or more);
• absence of encumbrances;
• preliminary or expedited discharge of residents with written obligations.

A significant advantage is qualified legal support of the transaction. It should also be noted positively:

• effectiveness of professional promotional activities;
• no additional costs when searching for a buyer;
• purchasing new real estate at an affordable price;
• reduced mortgage obligations due to a large down payment.

Housing exchange options

There are several options for implementing such a scheme.

Self-implementation

The most common scheme for accounting for the cost of an old apartment when buying a new one is for the client to sell it independently, with the subsequent transfer of the amount from the sale towards the purchase of an apartment in a new building. The client finds an interesting option for purchasing an apartment and enters into an agreement with the construction company. Depending on the terms of the contract, he pays either the entire amount for the apartment, which was received from the sale of other real estate, or part of the money as a down payment.

In this case, the buyer is responsible for selling the home independently. If the proceeds are not enough, it resorts to credit loans.

The client chooses a new building in which he plans to purchase housing

The stage of construction of the house is not important in this case: the house may be at the initial stage of construction or already completed. Initially, the developers and the client agree on the sale of the existing apartment and enter into a corresponding agreement.

The contract determines who exactly will be involved in the sale of housing - a real estate agency approved by the developer, or a specialist from the construction company’s staff. The key point here will be the qualifications of the expert who will sell the property. His tasks, first of all, will include the correct assessment of real estate; the period for selling the housing will depend on this.

And in this case they are of particular importance, since they will be recorded in the contract. Most often, such agreements are concluded for a period of three months, but a longer period can be chosen by agreement of the parties. For the duration of the sales contract, an apartment in a new building is reserved. If the apartment is not sold within the specified period, the new housing may be transferred to other buyers. After the old property is sold, a contract for the purchase of the previously booked apartment is concluded.

If it is not possible to sell the property within the established time frame, the fate of the selected apartment will depend on the state of the real estate market. If there is a lull in the primary housing market, then the developer will quite possibly agree to a meeting and renew the contract on the same terms.

If the demand for apartments is increased, the contract will be terminated, and a new one may be concluded with a higher price for the selected housing. In this case, buyers risk losing a booking commission in the amount of 1-2% of the purchase price or a fixed amount of 20 - 30 thousand rubles.

An important point is that the cost of housing is fixed in the booking agreement and that it cannot be changed during the validity period of the agreement. In this case, for the services of a realtor, you will most likely need to pay an additional 3-5% of the cost of the property or a fixed amount established by the developer’s price list.

The developer immediately buys the property from the owners

The third scheme is completely opposite to the one described above. Here the developer immediately buys the property from the owners. An agreement for the purchase and sale of an apartment is concluded, under which ownership rights are transferred to the developer. It would seem that the scheme is more profitable than the previous one. But not everything is so simple.

Developers most often set the price of housing 10-30% below the market price, in the hope that they will be able to sell it for more. And these are the final conditions of the construction company, under which it is ready to take clients’ real estate as credit when purchasing a new one. Next, an agreement is concluded for the purchase of new real estate with the offset of funds received from the sale of the previous one.

Depending on the stage of construction, this may be an agreement of shared participation, assignment, purchase or sale. Payment of the remaining part of the cost of housing occurs either immediately, or in installments, or with a mortgage loan. It all depends on the client’s solvency and the chosen terms of the contract.

Accommodation in an apartment until the house is handed over

In such a case, several agreements are concluded at once:

• Agreement on the purchase of an apartment in a new building with a construction company. The text of the agreement states that the client has a deferment in making payments until the official commissioning of the task.
• An agreement for the sale of the client’s secondary home, which specifies all the points relating to the legal and physical release of the apartment. These deadlines must correspond to the deadline for delivery of the object, which are specified in the agreement with the developers.
• A rental agreement for residential premises for the period that the developer provided to the client to resolve issues regarding the vacancy of housing. The lease agreement can be drawn up as a separate document, or its main points can be specified in the purchase agreement for secondary housing.

IMPORTANT: the lease agreement is concluded for secondary housing, which is subject to sale. That is, the developer allows the former owner to live in the housing he bought until the new building is put into operation.

Mortgage secured

This is the most common scheme, which includes the following steps:

• Choosing a bank and the most profitable mortgage program,
• Collection and submission of documents for completing a mortgage application,
• If the decision is positive, a mortgage agreement is concluded,
• A separate agreement is signed with the construction company,
• The bank transfers funds to the developer’s account,
• After the property is handed over, the buyer can move into a new home,
• Further, according to the mortgage agreement, monthly payments follow for several years, or the debt can be repaid early.

IMPORTANT: While the property is pledged to the bank, no legal transactions can be carried out with it without the bank’s permission