FOR REAL ESTATE PURCHASE AND SALE AT AN ACTUAL PRICE

September 16, 2019

In the recent two years, real estate purchases and sales have been picking up again, mostly driven by the increasing construction of residential real estate and low mortgage interest rates offered by banks, which interest rates have been continuing to fall so far.

Rising housing rental prices in big cities also encourage people to place their savings in real estate for investment purposes.

In addition to the usual title examinations, one of the main issues we face in our legal practice is the one related to the price that the parties have agreed and which should be specified in the title deed of real estate purchase and sale.

The real estate purchase and sale may be notarized at a price, which the parties have agreed upon, even if it is below the tax assessment of the real estate. However, the market conditions in Bulgaria are such that the actual purchase and selling price is always higher than the tax assessment of the real estate.

The question that arises for the parties before signing a title deed of real estate purchase and sale is whether to include in such deed the actual price agreed between the parties for the real estate or to indicate a much lower price equal to its tax assessment or a price slightly higher than the tax assessment of the real estate.

On the buyer’s side, the main reason for discussing that issue is related to saving local taxes and notary fees. Notarization of the purchase and sale transaction at a price lower than the agreed one means paying lower notary fees and a lower local tax (this tax is between 2.5% and 3% on the price specified in the title deed, depending on the the location of the real estate).

On the other hand, the seller may be tempted not to indicate the actual price of the real estate in the title deed in order to reduce the tax payable (also VAT and corporate tax when the seller is a legal entity).

Sellers also quite often set that informal condition (in addition to their requirement for paying them a part of the selling price in cash and without providing a document/receipt substantiating the payment made) to the buyer. Thus, the latter, being involved in an illegal scheme, becomes a hostage to the seller’s net profit.

As a law firm that specializes in legal representation in real estate purchases and sales (apartments, houses, villas, plots, etc.), we always advise our clients to save future headaches and indicate the actual selling price agreed upon between the parties.

The arguments in favor of our position mentioned above are solid:

1) By signing a title deed of real estate purchase and sale, the seller and the buyer declare in writing by a targeted review clause that the purchase and selling price stated in the title deed is the one actually agreed upon between the parties.

If you have agreed a price and you have stated a different one in the title deed, it means that you declare an incorrect circumstance for which you bear criminal responsibility. Indicating an incorrect circumstance in a title deed, such as a lower price, is a crime.

2) Indicating the real estate purchase price actually agreed in the text of the title deed would protect your rights as a buyer if, subsequently, partial or complete eviction takes place (judicial removal of the buyer from the real estate due to claims by third parties).

If a title deed contains a full and actual price, you will be able, in the event of an eviction, to claim from your seller all amounts that you have paid to them. However, if you specify a lower price than the one that have been actually paid to them and you have respectively stated in the title deed that such amount is the actual price of the transaction, then your claim will be limited to the amount specified in the title deed, i.e. you will lose the opportunity to claim back from your unconscientious seller the rest of the whole price paid by you. And often it is a substantial amount.

3) If you are a buyer and you participate in real estate purchase using a mortgage loan (which is quite common in practice), then indicating a price in the title deed other than the one actually agreed (for example, different from the one already stated in the preliminary contract) will result to problems and obstacles to loan utilization.

It is very likely that the bank, to which a copy of the registered title deed is presented, will only pay an amount up to the price indicated therein. As a result, this will put you in a disadvantageous position of not being able to pay the rest of the seller’s price, and there is a risk of cancelling the transaction on those grounds on part of the seller.

When we talk about purchase and selling price when buying real estate, another important question very often arises – how to pay the seller’s price. As we stated above, in order to avoid declaring money (or paying taxes), it is not uncommon for sellers to ask their buyers to pay a part or the whole selling price in cash, not by bank transfer.

By the adoption of the Limitation of Cash Payments Act, maximum thresholds were set to which a payment can be made in cash, including with respect to real estate transactions as well. At present, this threshold is BGN 10,000, and any amount exceeding this threshold should be paid by bank transfer. Failure to comply with this limitation entails imposing fines of considerable amount.

Paying an amount in cash may entail saving amounts representing fees or taxes, but again it may put you in a disadvantageous position in respect of assuming criminal responsibility and proving the payment made.

If problems with the real estate that you are buying ariseand you have to claim for recovery the price paid, the existence of proof of payment by bank transfer will always be in your favor in order to facilitate proving the payment. In this sense, always make a payment of the whole price by bank transfer, no matter how low the amount is, in order not to worry about your purchase.

In case you are going to effect a real restate purchase and sale transaction and you need assistance in various aspects during the procedure (examinations of the real estate and the transaction, negotiations with sellers or buyers, preparation of a preliminary contract or draft of a title deed, etc.), you can contact us through the „Contacts” section.

More detailed information about the procedures of selling a real estate in Bulgaria, you can find in the following related articles:

Real estate sale in Bulgaria

The role of the preliminary contract in the property transactions in Bulgaria

Notarized POA for real estate sale, signed abroad

Escrow account on real estate transactions in Bulgaria