This article was recently published on Edgar Wong's blog, http://investingwithedgar.blogspot.com, and is reproduced with permission.
MY BROTHER AND I recently walked into a property showroom in Geylang. He got interested in a unit and I thought the arrangement should be - I like what I see at the price that I like, I sign the option to purchase and pay the 5% down payment.
But it turned out that the property agency and its agents have a very different way of selling properties for the developer, their client.
Here is the process as I understand it. If any property agent is reading this, please feel free to correct me if I am wrong.
1. The agent stressed that the project has not been officially launched and the price list is as SUGGESTED (only tentative/indicative) by the agency.
2. If we are interested in a particular unit, we should write a cheque for 5% of the SUGGESTED price to the developer's account to demonstrate our interest in that unit. (The developer/agency was asking prospective buyers to "shown hand" first in a poker game!)
3. After we wrote the cheque, the agency put a small orange sticker on the unit on model of the project. For some units, there were 3 or 4 stickers. Agents will use that "stickered" presentation to indicate to the other prospective buyers how "hot" the project is. (I asked the agent - who verifies whether the stickers represent real interest?)
3. There will be a specific launch date, launch time and balloting time as determined by the developer/agency. (I am not sure when they decide on this. But if I were the developer, I would only launch when my agents have secured 3 or 4 cheques for each unit on offer.)
4. Half an hour before 11.15am on launch day, the developer releases its FINAL price list. (If I were the developer, I would launch at a higher price if there are many cheques/stickers collected.)
5. The agent will then attempt to call those who have shown their interest with their cheques. The agent's would seek confirmation of the buyers' interest and put their cheques into a "lucky draw" box to determine who would be the lucky purchaser of the unit. ie. assuming more than one party has shown a willingness to proceed at the higher developer's price.
However, if anyone decides not to proceed at the developer's price, he has the right to withdraw and the agent will return the cheque.
6. But should anyone decide to withdraw after being successful in the ballot, a penalty is payable.
7. My brother decides to proceed with the process. The agent sent him a SMS asking him to confirm our intention. He affirmed with a return SMS.
I was curious about one thing: What if the prospective buyer did not receive the phone call/SMS? The agent said the cheque would be withdrawn from the balloting process. (True enough... after the balloting, we witnessed a family disputing vehemently with the agent/agency about their lost chance of getting a unit. For some reason, the family did not receive the agent's phone call.)
8. Balloting exercise subsequently ensues in the presence of anyone who managed to squeeze into the showroom.
9. For my brother's unit, he was duly informed that he was the successful purchaser -- without any competing interest.
10. The usual signing of sales & purchase arrangement follows.
I have other concerns, which you can help by providing information if you have :
Does any authority need to approve the process of sale?
Can the developer/agency vary the details of the process during the "soft" launch? What is a "soft" launch?
Should the sales process be explicitly presented somewhere in the showroom?
Our agent did a good job explaining the process to us. But it was not in black and white.
I was very uncomfortable having to write a cheque to show our interest. I thought a cheque is a promise to pay. You can be sued if that instrument is dishonoured by the bank.
Aren't the developer and agency the same party?
Edgar Wong, CPA, has held various positions in banking, insurance and property sectors; and managed projects and business units over several legal jurisdictions for more than 20 years. Through his accounting practice, he is providing consultancy services to small and medium enterprises. He was an elected member of the Local Executive Council of ACCA Singapore to support initiatives in the interest of fellow ACCA members, affiliates and students.
Previous story by Edgar Wong: GENERAL MAGNETICS: A lesson yet to be learned by investors?