Key criteria in choosing real estate

Which are the most important criteria when choosing real estate? Locations, price, facing direction, type of construction, neighbors and storey level are all things to consider in this matter. The purpose of this article is to look closely at all criteria, which you should definitely take into account when choosing a property.

• Location

  As it has been said long ago, there are 3 most important factors when it comes to real estate – location, locations and once again location. Let us look more closely at the different aspects of location. On one hand, central locations usually maintain high prices and so the risk of such a purchase is lower. However, on the other hand, central location homes are associated with more noise and difficult parking. The neighborhood is also very important in terms of infrastructure and regional development. If one is looking to invest in property, it is best to look for an underappreciated but fast developing area. To be able to further specify the location search, we must consider the buyer’s profile. For those who own a car, a more remote area would be an option, whereas a family with school going children would need quick and easy access to public transport. Central locations would also be very suitable for elderly people because of the short walking distances to transport, shops, parks, etc.

• Types of construction

  In Bulgaria you can find mainly three kinds of construction, namely brick, large-area formwork and prefabricated units. Brick construction is the most preferred and respectively the most expensive kind. The construction of such buildings consists mainly of beams and concrete columns, and all partitions and exterior walls are brick. Real estate jargon divides brick construction into ‘new brick’ and ‘old brick’. ‘New brick’ usually refers to buildings completed after the introduction of the new construction standards in 2004, when placing insulation became mandatory. With new brick buildings it is very important to pay attention to the stated square footage. Very often what is stated is the common square footage, which includes the common areas, and gives the impression that the property is much bigger that its actual size. Here is what is important to know about new brick housing. What is stated in the deed of the property is the actual square footage, which includes rooms, balconies, exterior and interior walls. That is to say that if you were to measure the usable area of the property, it would definitely be smaller than the actual area. The so called “common areas” represent an ideal part of the building’s common areas, such as landings, corridors, entrances, etc. These common areas are allocated in proportion to each apartment in the building. This means that “common areas” are outside the apartment. With old brick buildings the stated square footage usually does not include common areas. This is important when calculating the price per square meter. On the other hand, when purchasing a new brick property, one should have in mind that common areas are incorporated into the total price. Therefore, to calculate the price per square meter, one needs to divide the price by the common square footage (actual square footage + common areas) whereas with old brick the price is divided only by the actual square footage. What is more, balconies are often not included in the actual square footage of old brick apartments. Due to these reasons, if you were to compare an 80 sq. m old brick apartment with a 110 sq. m new construction one, you would find that the usable area of the two are approximately the same. Thus, it turns out that old brick construction is actually much cheaper than new construction. With new brick construction, however, the building’s facilities are new and in good condition, whereas with old buildings repairs of common areas and facilities can be expected. Large-area formwork construction is usually encountered in tall apartment buildings. A part of their walls are brick, and the other part is made of concrete rings. The apartments in such buildings usually have big rooms. Here the price per square meter is also calculated from the actual square footage. In such buildings the number of residents is bigger, so attention must be paid to whether the common areas are well kept. Prefabricated buildings are made of separate factory-built components, which are assembled on-site. It is important to note that banks typically provide lower lending rates for properties in this type of building. The reason for this is their shorter life duration. This type of construction is faster and cheaper, and this is why such buildings are very common in big cities. Prefab housing prices are usually lower than brick construction.

• Facing direction

  Facing direction is another important criterion in choosing real estate. South and east-facing homes are definitely the most sunny and warm. West facing homes are also considerably warm. On the other hand, while considered the coldest, north-facing apartments are caller during the summer. Apartments usually face more than one direction.

• Storey

  Another factor in your decision is the storey. Different storey levels have their pros and cons. Usually medium storeys, like the forth or fifth floor, are most preferred. This is because the risk of burglary is higher on ground level floors, while the top floor is often associated with potential roof problems. However, if having a good view were important to you, you would choose the highest floor possible. Elderly people, on the other hand, prefer lower or ground level floors in order to avoid taking the stairs in case the elevator is out of order.

• Room disposition

  The internal disposition of a property is also important. For example, if you insist on having a separate kitchen, you should consider old construction properties, as in newer buildings kitchens are usually incorporated into the living room. Some clients have additional requirements such as a walk-in closet, an en-suite bathroom, or a bigger distance between bedrooms.

• Heating

  The heating system of the property may also play a role in your decision. The three most common types of heating are steam, gas and electric. While each has advantages and disadvantages, steam heating is the most common.

• Condition

  There are several options when it comes to the condition of a property. In the case of new buildings, the choice is between an unfinished and a fully finished apartment. When looking at old construction properties, you might purchase a remodeled apartment or an apartment, which needs improvement works. If your requirements are very specific, an unfinished property would be the best option.

• Price

  The price is a leading factor, as your search is often defined by your budget. If the price is within your budget, you might be willing to give up some of your other requirements. Once you have determind your price category, you have various options in terms of construction, location, size, etc. For instance, the same amount could buy you a two-bedroom new construction property or a three-bedroom prefab apartment.

Recomendations when choosing a property

The purchase of a property is a very responsible decision. Wheather you are investing or looking for a home there is no room for mistakes.

We are here to guide you through this process as a trusted partner.

Firstly you need to have a clear vision of what you are looking for in order to find the best property for you. You should be ready to compromise, as it is often the case that there is no property which can meet all of your requirements, or alternatively, that you would have to pay a much higher price. This is why you should prioritize your requirements. In other words, you need to decide what is most important for you. For instance, would you like a higher storey with a nice view or a ground level property with its own backyard; have you set your mind on new or old construction buildings; do you prefer a well-connected area to a quieter neighborhood? Your broker will help you by pointing out the pros and cons of the properties you view, in accordance with your requirements and priorities, stressing the important details that you could otherwise neglect. You should take your time during viewings and not worry about asking too many questions. For more information please see – Key criteria in choosing real estate.

The next step after having decided on a property would be to negotiate the price. At this point your broker will advise you on wheather the asking price meets the market price, the current market trends, how long the property has been on the market, have other offers been made to the owners, etc. Keep in mind that offering a very low price could have a detrimental effect on a likelihood of a deal.

The next step after negotiating the price is signing the preliminary sale contract. At this point your broker should have checked the property for any encumbrances. Keep in mind that these checks will be carried out once more before the signing of the final contract before a notary, which transfers the ownership. The preliminary contract serves to set the parameters of the deal, namely the final price, payment terms and all remaining conditions. At this point, it is crucial that you have made a firm decision, as the preliminary contract requires a 10% deposit. For more information on encumbrance checks please see – Encumbrance and risk checks.

The preliminary sale contract is not a mandatory part of the deal. One could proceed directly to the notary transfer of ownership of the property. The notary transfer, however, requires a number of documents (see – Documents for notary transfer of property), most of which have an expiration date (such as the cadastral plan, the cadastral survey, the tax valuation, etc.), after which the owner needs to acquire them anew. For this reason owners usually only assemble those documents when they have a buyer who has announced their firm decision to purchase the property, which is guaranteed by a preliminary sale contract. The latter is obligatory if you plan on using a mortgage for the purchase or take out one later on, as this is one of the documents you need for the approval of the mortgage, serving as proof of your deductibles (see – Mortgage loan purchase specifics).

After the owner has assembled all necessary documents, the deal can proceed to the signing of the final contract before a notary, who is usually the picked by the buyer. This is because the buyer carries more risk and is therefore entitled to choose a notary they trust. The signing of the final contract and the transfer of the remainder of the price are usually done in the same day. What follows is the transfer of possession, which is a separate act from the transfer of ownership. In the occasion that the possession is transferred after the ownership, the deadline for the transfer of possession must be indicated explicitly in the deed.

It is helpful to know that you will not receive the deed in the day of its signing. The notary is obliged to take it to the Registry Office of the associated city, to be registered in the property register. The notary will deliver the deed to you only after is has been signed and sealed by the Registry Office.

Another thing to keep in mind is that within two months of the signing of the deed you need to declare your property in the associated subdivision of the Department of Revenue and Local Tax Administration of the municipality in which the property is located.

Recommendations for selling property

When you decide to sell property it is important to have someone to guide you through the selling process, giving you valuable advice regarding market prices and trends, associated taxes and any risks related to the deal. You need to construct and execute a selling strategy. The latter also depends on how quickly you intend to sell.

How is market price determined? Your real estate agent should give you examples with other properties in the same area to give you an idea of the price other sellers are looking to achieve. More importantly, your broker should take you through similar deals that have been recently finalized in the area. This is the best indicator for prices in a given market. When you know the approximate market price of the property, you need to work out an initial price. You will probably need to discount a little from it during negotiations. However, you initial price should not exceed the market price too much, as this would rather put off potential buyers.

Your broker should stay in constant touch with you after the advertisement of the property has begun, updating you on the interest towards it, conducted viewings, customer enquiries and market trends. Keep in mind that the market is usually cyclic; it is strongly influenced by the current time of the year, making for slower or alternatively, for more favorable market periods. This should be taken into account when formulating the selling strategy, in the sense that you would not benefit from announcing a slightly higher price if the period is slow, and vice versa.

Furthermore, you should know that it is not good for your property to remain on the market for too long. Once the buyers looking for this kind of property get acquainted with it, they will lose interest. In other words, they don not keep track of “eternal sales”. If a property remains on the market for too long it is usually because the announced price is way above the market price.

Your broker should monitor the market and advise you on making adjustments to the price, if necessary. If it turns out that there has been no interest towards your ad for a long time, a good idea would be to take the price down a bit and see if this leads to increased interest.

The ad, which your broker will prepare for the sale of your property, is of great importance. You need to give your broker an opportunity to take enough pictures of the property at a suitable time during the day (before noon if the property faces east, for example), to videotape it, so it needs to be clean and agreeable. Nobody would call to inquire after an ad showing pictures of a disorganized home. It is best if the advertised property is not inhabited. This is not always possible, but it certainly helps the selling process, as does being able to arrange requested viewings quickly.

In the beginning it is best to place your trust with one mediator, or two at the most. The reason for this is that if a potential buyer browses through a giver real estate portal and sees that your property is being advertised by many brokers, he or she will presume that the property has been on the market for quite a while and there are no buyers. This would lead to offers below the asking price and a general lack of interest from buyers. When choosing a mediator you should ensure he is able to advertise your property in a manner that is both proper and professional.

In regard to the documents necessary for the transfer of the property, please see the Documents for notary transfer of property article.

Mortgage Loan Considerations

The choice of funding your home purchase with a mortgage loan brings a third party to the transaction, namely – the bank. This means that you need to allow for enough time before the signing of the title title deed, during which the buyer and the seller are to assemble all documents required by the bank (and place them at the bank’s lawyers’ disposal for review).

The process of purchasing by means of a mortgage begins with a pre-approval of the client, which is based on income documents (supplied by the client), usually for a period of six months. At this time, the bank will indicate the maximum amount that you would be eligible to take out. After this, the property you have chosen is appraised by the bank’s appraiser or by an outside firm (with which the bank has an agreement). Banks usually lend a certain percentage of the property’s appraised value (e.g. 80% for brick or 70% for prefab housing). You should keep in mind, that the bank is not interested in the market price of the property, what matters is the appraised value. For instance, you might have negotiated a price of 110 000 euro, but the bank’s appraiser appraised the property at 100 000 euro; and if it in a brick building, the bank will lend you 80 000 euro. Using the same example, if based on income you were pre-approved for 100 000 euro, but 80% of the appraisal value is 80 000 euro, that is the maximum amount the bank will lend you. This it is crucial that before anything else is undertaken, the property in question is appraised and the bank confirm the amount it would lend for it. If the appraised value is low and the funds are insufficient, you may choose to take out an additional mortgage loan on another property of yours.

The procedures that follow include the signing of a preliminary sales (real estate) contract and payment of the earnest money (usually 10% of the negotiated price of the property). The preliminary sales contract is obligatory if you are taking out a mortgage, as it is one of the bank’s requirements for approving your loan; the bank sees this contract as your deductibles from the deal. The preliminary contract determines a time limit for the preparation of documents for the title title deed. The bank requires all the documents the notary does, plus additional ones such as an encumbrance certificate for both the property and the land the property was built on. After the bank has assembled all necessary documentation, the deal proceeds to the signing of the loan agreement. The next step consists of the signing of the title title deed in the presence of a notary and the establishment of the mortgage. The bank does not give the loan the day the title title deed is signed, but waits for it to be entered into the Registry Agency so that a new encumbrance certificate is issued, whereby at the time of the transferring of ownership the buyer is the owner and the property is not encumbered. As a guarantee to the seller, the bank issues a commitment letter, presented at the conclusion of the title title deed, thereby declaring its intention of transferring the amount of the loan after the passing of the events, described in the previous sentence.

Required documents for notary transfer

For the ownership of the property to be transferred, the sales-purchase contract needs to be concluded in the presence of a notary. A notary is an experienced lawyer who will objectively clarify the consequences of signing the title title deed to both parties. In addition, he or she needs to be convinced by the documents supplied of the identity of the actual owner and of the absence of any hindrances to the transfer of ownership. For this purpose, there is a normative collection of documents in the absence of which such a deal could not be executed. The most important of these documents is the property ownership document (this is most often the title title deed). Another important piece of documentation is the tax evaluation certificate of the property, issued by the associated subdivision of the Department of Revenue and Local Tax Administration of the municipality in which the property is located. You should keep in mind that tax evaluation certificates are issued for a period of time, for which the property’s taxes have been paid. This period could be for the first six months of the calendar year or for the whole year.

For areas with a cadaster in force, one should submit a cadastral survey plan of the property, by the Geodesy, Cartography and Cadaster Agency; if an ideal part of the land (onto which the property is built) adjacent to the property, one should submit a cadastral survey plan this ideal part as well (the latter is always required when purchasing land). For regions without an enforced cadaster, instead of a cadastral survey plan, one presents a sketch, issued by the municipality, in which the property is located. Cadastral survey plans and sketches are valid for six months.

In a real estate deal, the notary also certifies declarations of marital status and of absence of tax liabilities.

Depending on the nature of the particular sales transaction, the notary could also request additional documents such as a Certificate of Address Identity of the property, Proof of Personal Identity, Certificate of Marital Status of the owner, Certificate of Inheritance, Power of Attorney, etc. It is important to know that a proxy cannot sign declarations of marital status and of absence of tax liabilities in the buyer or seller’s stead. Therefore, if you are giving power of attorney to a relative so that he or she can sell a property of yours (e.g. because you are going abroad), you need to notarize the above declarations in addition to the power of attorney. The latter can be termless, but the declarations are only valid until the end of the current calendar year.

Encumbrance and risk checks in the purchase of real estate

What are the mandatory checks when purchasing real estate? At which point in time are they carried out and for what period? How could we be certain that a property is not encumbered? The present article will give an answer to these and other questions related to property encumbrance. Let us first specify the most common property encumbrances.

• Mortgage

  A mortgage is a property encumbrance, which gives the creditor the right to secure their claims before other supposed creditors (except for the state) in the occasion of a sale. There are two main types of mortgages, namely legal and contractual. The legal mortgage is established by means of a request for the establishment of a legal mortgage by the creditor and is used when the loan, taken out by the borrower, goes only one direction, namely to the purchase of real estate. It is important to know that the establishment of a legal mortgage is less expensive than that of a contractual mortgage. However, when you plan on using the mortgage loan not only for the purchase of real estate, but also for repair or finishing works for example, the mortgage is established as contractual and takes the form of notary deed.

• Foreclosure

  A property is most often forclosed by a creditor claiming certain amount from the owner. A foreclosure could be imposed for a number of debts on part of the owner (loans, amounts due under contracts, unpaid taxes, etc.)

• Real action claim

  When there is a dispute regarding the ownership of a property, this is resolved by means of lawsuit, for which a claim is filed.

• Right of use

  When the owner of a real estate reserves his/ her right to use the property even after he/ she has transferred the ownership, this is written into the title deed. Consequently, this circumstance does not need to be entered into the Registry Agency separately.

• Registered lease contract

  When the owner wants to lease out a property he/ she and the tenant can agree to enter the lease contract into the Registry Agency. In this the lease contract remains valid even if the owner decide to sell the property to a third party.

As all encumbrances are to be entered into the Registry Agency, the associated encumbrance checks are made through the register of the Agency. 1. Computer checks- it can be ordered either in person at the Registry Agency, or online by an authorized party. For this you will need either by the property identification number or by the owner’s. When checking by the owner’s ID you will see the history of any real estate transactions the owner has made for a certain period of time. When checking by the property’s ID you will see the property’s history in terms any of sales, mortgages, foreclosures encumbrances and others, for a given time period. Keep in mind that the computer check is not signed or sealed by an authorized registry official.

Encumbrance certificate- this is much like the computer check using the property’s ID, with one key difference- it is signed and sealed by Registry Judge. In both cases the information reflects the status of the property from several days before the checks have been ordered.

Common practice

As computer checks are not official documents (they are not signed and sealed) they can be run at an earlier stage of the property transaction, in order to get some initial information about the property. The encumbrance certificate is issued at the of signing the title deed, as it is an official document, signed and sealed by Registry Judge.

What are the risks?

The main risk lies in the fact that the title deed is not entered in Registry Agency at the day of its signing. In other words you sign the title deed and the notary passes it onto the Registry Agency by the end of the same day, but the actual entry can take up to several days. For example in Sofia this takes about 5 business days (depending on the work load at the Agency). This means that even if the encumbrance certificate is issued at the day of signing the title deed, the former may not reflect the current status of the property. This problem can be solved if the sales price is kept in the notary’s custody for a time, who then transfers it onto the seller after the new deed is entered into the Agency and an Encumbrance Certificate which reflects the current status of the property is issued. The latter should show that the property was free of encumbrances and the seller was the actual owner at the time of signing the title deed. For this purpose a three party contract is signed between the seller, the buyer and the notary. Naturally, this safety measure generates additional expenses for the notary’s services.

It is important to know that the presence of encumbrance on the property does not preclude its transfer. For instance, if there is a mortgage on the property the creditor (usually a bank) should also participate in the transaction. The creditor issues a letter witch describes the owner’s liabilities at the time of signing the final sales contract and commits to declare the mortgage paid if the said liabilities are settled. This way, part of the sales price, which represents the creditor’s claims, is transferred directly to the creditor and serves to settle the seller’s debts, and the remaining amount is wired to the seller.