By Sam Campbell Jr
Buying a property, especially if it is your first time, can sometimes be a bit nerve-wracking. As an attorney speaking to friends and clients alike, I’ve realized that there is a lack of understanding of some of the ins and outs of the legal process to buying a home, well, until you have actually done it.
You have finally saved enough money, found that dream home or investment property you can afford, offer letter signed and are ready to dive into homeownership! Here is the five-step process on what you need to know, from the legal perspective.
Step 1: The agreement for sale and deposit
As the buyer, your attorney should receive from the seller’s attorney a draft Agreement for Sale (the “agreement”) for approval. This is the contract binding both parties, the buyer and seller, to the terms for the completion of the transaction contained therein. These terms are usually agreed to in an “offer letter”. There are typically two types of agreements: a “net” agreement and a “gross” agreement, which are determined by negotiation between the parties.
Other important details of an agreement that a buyer should be aware of are the inclusion of a financing clause (if necessary); the amount of deposit required; who is responsible for fees and taxes; and the timeline for completion.
Upon execution of the agreement, the deposit will be sent to the seller’s attorney to be held in escrow pending completion of the transaction.
Step 2: Financing (if applicable)
Once the agreement is signed by both parties, a copy of that agreement must be sent to the lender of your choice. In today’s climate, getting financing approval can take anywhere from two weeks to five months. In this respect, it is important to speak to your lender about getting pre-qualified or pre-approved, if possible. This will help to speed along the financing process and ensure completion of the transaction as expeditiously as possible.
Step 3: Title search
Upon receiving financing approval, your attorney will conduct a title search to give an opinion on title. This important step ensures that the documentary title to the property being purchased is good and marketable (i.e. that there will be proper legal and beneficial transfer of title to you as owner of the property free from any encumbrances). Your attorney will likely raise “requisitions” that need to be satisfied by the seller or their attorney to address any concerns about the title before title can be cleared.
Step 4: Execution of legal deeds
You’ve received financing approval, and your attorney has cleared title; most of the hard work is done! The seller’s attorney is responsible for drafting the legal deed(s) applicable to the transaction (i.e. a conveyance, lease or assignment) for your attorney’s approval. Once approved, the seller or both parties will sign the deed(s), as directed. If applicable, you will also sign the mortgage deed and affidavit of citizenship drafted by your attorney. For mortgage purposes, a copy of the deeds must be sent to your lender once signed.
Step 5: Closing!
Almost there! There are still a few things that need to be done before you can close on your property. Confirmation should be made that all real property taxes, HOA/condominium fees and utility bills have been or will be paid by the seller as to the date of closing. You will need a letter transferring the relevant services from the seller’s name to yours. A completion statement detailing what is owed by you at closing should also be sent to your attorney.
Your attorney can then pay the balance of the purchase price to the seller’s attorney and request any keys. There may be escrow conditions attached to the payment pending the settlement of any unaddressed matters.
If you are Bahamian and a first-time homeowner buying a property valued under B$500,000, your attorney should apply for a first-time homeowner’s exemption (the “exemption”) on value-added tax (VAT) (previously referred to as stamp duty) on your behalf to the Department of Inland Revenue.
If you are not a Bahamian citizen, your attorney will have to apply for Investments Board approval for a certificate of registration (the “approval”) or an International Persons Landholding Permit (the “permit”) under the International Persons Landholding Act on your behalf. Your attorney may also have to apply for Central Bank approvals.
Every deed in the transaction must be stamped by the Department of Inland Revenue after any applicable taxes are paid and then recorded at the Registry of Records to complete the transaction. If applying for an exemption or approval, the deeds will not be stamped and recorded until you have written confirmation that the same has been approved.
How much does this all cost?
Legal fees:
The standard legal fee for a property transaction across the legal profession is 2.5 percent of the purchase price for a conveyance and 2.5 percent of the amount borrowed for a mortgage. It is worth noting that legal fees may vary depending on different factors, like the value of the property.
Additional costs may include (but are not limited to) professional services and government fees for:
- Drafting of any additional documents necessary (i.e. affidavit of citizenship, lease and/or assignment);
- Applying for the exemption on your behalf;
- Applying for and obtaining necessary permits and approvals;
- Registering a property with the Investments Board or obtaining a permit, if you are non-Bahamian; and
- Disbursements, which can include things like the title search, photocopies, obtaining certified copies from the Registrar General’s Department or otherwise and other miscellaneous expenses.
Every legal deed prepared for the purposes of the transaction will have to be stamped and recorded at a fee.
Twelve percent VAT will be applied to professional services rendered (legal fees, title searches, appraisals, etc.) VAT is not applicable to disbursements and recording/stamping fees.
It is important to mention that without the exemption, there is 10 percent VAT applied based on the consideration or the market value of the property for anything over B$100,000 and 2.5 percent for anything under B$100,000. This is usually split 50-50 between the buyer and seller unless otherwise agreed. There is one percent VAT applied on the amount borrowed for the mortgage.
Real estate fees (if applicable):
Real estate agents have a standard maximum fee of 6 percent of the purchase price for developed land and 10 percent for vacant land (plus VAT). Be sure to confirm your fee obligations with your agent.
The legal process of buying a property does not always unfold neatly into the five steps outlined above. However, I hope that after reading this, especially as a first-time homeowner, you will be armed with a sufficient understanding of the legal process to buying a home and the role your attorney plays throughout.
The above is meant to be a useful guide to the legal process of buying a property. This summary is by no means exhaustive and does not purport to be formal legal advice or a complete review of issues pertaining to buying or selling a property and any related transactions thereto.
If you have any questions or want to find out more about the legal process and cost for buying or selling a property in The Bahamas, please contact Samuel Campbell Jr, BA, LLB (Hons), LLM, at Samuel Campbell & Co, 2nd Floor Columbus House, East and Shirley Streets; P O Box N-1649, Nassau, Bahamas; (242) 326-5300/1; or samcampbell.co@gmail.com/scampbell@secampbell.com.
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