The process of selling/ purchasing a property is complicated, and generally speaking, there are 5 main steps associated with the process. However, this is a very broad overview of the sale/ purchase process of a property, and each transaction will be different, so you should consult your estate agent or lawyer if you are unsure of the process.
- Find an agent
Both the seller and purchaser would find an estate agent to help with the sale and purchase of a property.
If you would like to sell your property, your estate agent may:
- Get information about the property from you;
- Market your property to potential purchasers;
- Arrange for potential purchasers to inspect your property;
- Tell you about all offers in relation to your property;
- Help you negotiate and sign the provisional agreement with the purchaser.
If you would like to buy a property, your estate agent may:
- Provide you with the necessary information about the property;
- Arrange for you to inspect the property;
- Pass on all your offers to the seller
- Help you negotiate and sign the provisional agreement with the seller.
Do you need to sign the estate agency agreement? Will the agent provide property information?
No, as per the Estate Agents Practice (General Duties and Hong Kong Residential Properties), the requirement of signing an estate agency agreement applies only to residential properties. In a commercial property transaction, the agent can provide general property information or information related to the transaction. As per the Code of Ethics issued by the EAA, estate agents must exercise due care and due diligence during a transaction i.e. they must protect the client’s interests and act in a fair and impartial manner.
- Sign the Provisional agreement
The purchaser and the seller sign a Provisional Sale and Purchase Agreement of the selected property, which is usually prepared by the broker/estate agent in a prescribed standard form. The purchaser pays the seller an initial deposit (which is usually 3-5% of the purchase price).
- Conduct property due diligence
The seller and purchaser may negotiate for a due diligence period, which permits the purchaser to conduct legal due diligence on the property before the sale is finalised.
During this period the purchaser and their appointed lawyer have an opportunity to review and evaluate property documents to ensure there are no legal or financial concerns relating to the property. This will generally include searching the Land Registry for any encumbrances registered against the property such as legal charges, checking the title deed and raising written requisitions on the title. If the requisitions are answered unsatisfactorily or the defects on title are not remedied by the seller’s lawyers then the purchaser usually reserves a right to annul the transaction in the sale and purchase agreement.
The purchaser’s lawyers also inquire about outstanding management fees, pending lawsuits, and outstanding government rent, and inspect the physical condition of the property.
- Sign the formal agreement
The seller and purchaser each appoints their own lawyers. Based on the Provisional Agreement, the parties’ lawyers will negotiate the terms of the Formal Sale and Purchase Agreement. This is usually entered within 14 days of the signing of the Provisional Agreement. Once the negotiations are complete, the formal agreement is signed by the parties. Amongst the other terms, the formal agreement will specify the completion date i.e. the date on which the seller disposes of the property to the purchaser.
In addition to the initial deposit, the purchaser will pay the remaining amount of the deposit at the time of signing of the formal agreement (industry practice being 10% of the purchase price inclusive of the initial deposit). However, the purchaser may be required to release the deposit to the seller after the seller proves the property is free from the mortgage (if any).
- Handover of Property and Transfer of Title
On the completion date, the purchaser will pay the balance of the purchase price and the seller will provide the keys, duly executed deed of Assignment and other relevant documents to the purchaser to complete the transaction. On receiving the purchase price, the seller/seller’s lawyer will hand over the keys and title deeds to the purchaser/purchaser’s lawyers.
The assignment is a deed that transfers the legal interest in the land. It needs to be stamped and registered with the Land Registry within 30 days after the date of execution to protect the purchaser’s interest under the priority rules of registration. Stamp duty will need to be paid, usually by the purchaser.