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Selling an Apartment – Practical Advice

For many of us, the sale of an apartment or other real estate is something we normally do only once in a lifetime. A such, we definitely don’t want to risk the major inconveniences that could result from an incorrectly processed purchase contract, or the neglect of any additional legal requirements.

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In today’s article, we will focus on all common and some less common situations which you may encounter when selling an apartment, and which you always need to look out for.

Reservation and Purchase Contract for an Apartment

Contracts are the basis for all successful real estate sales, (and other businesses arrangements, of course). Never take someone’s “good word,” and always insist on the careful treatment of every detail in your contract. When it comes to contracts, every little thing has to be taken into account. So let’s start at the beginning.

When a seller finds a person seriously interested in the purchase of their apartment, the standard first step is to sign a reservation contract. Upon doing so, the seller can be assured that the buyer will not change their mind and, at the same time, the buyer can be certain that the seller will not sell their dream apartment to someone else. If one of the parties breaches the contract’s stipulations, the other one is entitled to claim a pre-agreed contractual penalty to compensate their lost time and potential financial costs.

The reservation contract should include full details on all parties, a detailed description of the property, and the amount and the method of payment of the reservation fee as well.

If there are no serious impediments to the sale, the reservation contract is followed by the purchase contract.

The purchase contract should also contain all information about the parties and the property. In addition, a clause on the transfer of real estate, the so-called “handover protocol,” must not be omitted.

Currently, one advantage for many sellers is the recent abolition of the pre-emption right, which used to have a negative effect, among other things, on the sale of apartments with a parking space or cellar space in common ownership.

Another potential complication might arise when selling real estate which is part of the joint property of spouses. We have already dealt with this topic in another article on the donation of real estate between spouses.

“I like handling real estate transfers, especially when a mutually advantageous contract can be negotiated. On the contrary, I don’t like the tricks of some real estate agents who try to take advantage of the fact that ordinary people usually do not have thorough knowledge of legal issues.”

Mgr. Marek Slobodný, attorney

Real Estate Purchase or Sale

We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.

Attorney escrow account and Entry in the Land Registry

When selling apartments or other real estate, we commonly encounter transfers of high amounts, so increased security is really essential, especially in high-value transactions. Therefore, a lawyer or another dependable type of escrow service should be the number one priority.

In a proper escrow contract the seller and the buyer are protected against fraud, or a common misunderstanding, either of which could cost them dearly if it is not properly resolved. All that is necessary to do is to set up a special bank account to which a reservation fee is sent, (when signing the reservation contract), and then the remaining part of the purchase price is sent (after signing the purchase contract, upon which the reservation fee is deducted).

Once all the funds are securely deposited in your escrow account, you can move on to the next step, which is a proper legal entry into the Land Registry. Here it does not pay to be incautious, as the Land Registry tends to be very careful when checking data and no mistakes are forgiven here. In case of errors, in most cases it means a rejection of the entry and the need to withdraw the entire application and then resubmit it. This is a waste of precious time, as it always takes a minimum of 20 days (an average of 25 days) to go through the process. It should be noted that an administration fee of CZK 2,000 must be paid for each submission.

When the entry is found to be without errors and in order, the petitioned changes will be made. At this time, the buyer becomes the new owner of the property and the transfer of the apartment is legally completed, and it is then safe to release the funds from attorney escrow and deposit them into the seller’s account.

Situations We Encounter during the Process of Selling an Apartment

During out years of experience with legal real estate issues, we have encountered many types of sales. We’ve dealt with complex financing, the sale of apartments abroad, foreclosed apartments, and real estate with easements. How are such sales completed?

Apartment Financing and Liens

The crucial part of every sale is to have the financing worked out. The method of financing should be decided while the reservation contract is being drafted. Rarely do we deal with buyers who pay the full purchase price from their own resources. Much more common is to pay through a mortgage loan. Although this method is a bit riskier for the seller, it usually cannot be avoided.

So what is this risk? For a successful loan it is necessary to establish a lien. A contract is created between the bank and the seller. The lien on the real estate is subsequently registered in the Land Registry. In practice, however, this means that before making a transfer or even depositing funds in the attorney’s escrow account, the seller encumbers their property in favour of the buyer’s bank.

Sale of an Apartment with a Mortgage

What if the seller decides to offer for sale a property which they have not paid off and upon which they still have a mortgage? Such sales are of course quite common today, and the market is full of real estate purchases with mortgages. However, even though this kind of sale is possible, it means some extra paperwork and more cooperation with the bank which is involved in the entire sale process.

The bank must always agree with the sale and allow early pay off of the loan, or remortgaging (which is less frequent). The remaining amount is then most often paid directly from the purchase price. However, all transfers need to be timed correctly. The remaining amount of the mortgage changes every month due to interest, and this needs to be kept in mind or the entire process may be derailed.

In most standard cases, the buyer sends the purchase money to the attorney escrow acccount. After this is completed, it is necessary to submit a proposal to change the ownership rights in the Land Registry. Only after these steps are completed, then the relevant funds can be submitted to the seller’s bank, so that the buyer always remains protected. Upon completion of all transfers, the liens on the real estate are also canceled. The remaining part of the purchase price is then paid to the buyer in the standard way.

Foreclosed Apartment for Sale

Although the sale of an apartment burdened with a foreclosure is not impossible, it will not be an easy task. It is also necessary to be prepared for delays, especially a longer transfer process and more demanding paperwork.

However, the real risk comes when the debts are higher than the sale price of the property, or when new debts and new foreclosures appear and it is not an auction purchase. There are debts that may not allow the sale of real estate to proceed. It may also depend on whether the current debts are final or they continue to grow due to interest or other factors.

Another problem can be financing from the buyer. If it is necessary to apply for a mortgage loan, the bank will certainly not want a property that is encumbered by foreclosure. Therefore it is necessary to guarantee the financing with another property, or to legally adjust the entire sale and the time of the deletion of the loan on the apartment correctly.

Whether you are a foreclosure seller or a buyer, never transfer a property “on your own.” Always proceed with an experienced attorney to advise you on whether it is a good idea to make a purchase or sale at all. In any case, both parties must also communicate with the executor (and their office), preferably through an attorney who understands the process.

On one hand, it is inconvenient to purchase real estate encumbered by foreclosure. However, the compensation can be a lower price than there would be if the real estate had no such encumbrance. It’s just important to keep in mind that a discount is not always worth all the complications that can occur. Therefore, we once again recommend discussing your intentions with an attorney and executor and following their recommendations.

Sale of a Membership Share in a Housing Cooperative

Selling a cooperative apartment is in many ways easier than selling a privately owned apartment. There is no need to deal with changes in property rights in the Land Registry. Everything is entered only in the database of the housing cooperative which becomes one of the contracting parties in the case of a transfer of the cooperative flat.

However, even here some inconveniences may arise. It is necessary to make sure that the apartment and the share in the housing cooperative actually become the property of the buyer. At the same time it is appropriate to use attorney escrow and pay the purchase price to the seller only after registration in the database of the housing association. We deal with the specifics of the transfer of a cooperative apartment in another article.

Sale of an Apartment with Easements

Selling apartments or any real estate with an easement is not as frequent as their donation, but they still occur from time to time. However, the seller should keep in mind that the easement will certainly negatively affect the search for the buyer and, of course, the sale price.

Whether it is an easement in the sense of an equitable life estate use of the property, such as the benefit of a third party or where you also have a duty of care towards this person (potentially a huge additional burden), or any other type of easement the sale will certainly not be easy.

However, it is not entirely unrealistic, either. What if we solve everything by agreement? Could you not encumber an easement on your new property and allow for a life time state there?

Thankfully, there are several easements that do not affect the sale or purchase price of the property in any way. These are serviceability, such as allowing access to a common yard, or the serviceability of the utility network for a neighbouring apartment building.

Apartment for Sale by a Developer

In the case of the sale of an apartment by a developer, the subject of the sale is a property that has not yet been built. From a legal point of view, this can be quite risky for the buyer so it is necessary to consult on this issue with an attorney and set up all procedures correctly.

Developers often demand payment of a substantial part of the purchase price before they even start building. This puts increased pressure on the buyer’s financing and it is a riskier venture as well.

For development projects, there is a risk that the construction will be delayed or even cancelled entirely. If you are considering buying an apartment from a developer, it is always advisable to check everything properly. First off, make sure it is an experienced developer with completed projects. You should also be interested in the conditions of the purchase contract – will the apartment be sure to be unencumbered by liens and other rights, or perhaps easements? Also try to find out how the project is being financed, if possible.

Sale of an Apartment to Minors

The last point that cannot be left out is the sale of an apartment of a minor seller, as such cases we do encounter from time to time. The case is often that a child receives a gift or an inheritance property that parents would like to sell and use for amortization, for example in the case of a mortgage on an existing property.

This type of sale will be quite problematic because the child is not entitled to sign contracts on their own. However, his parents can act on their behalf if they have the consent of the court. However, even with the court’s consent, the money earned from the sale will again belong to the child, not to his parents. In any case, with an attorney it is possible to handle this type of sale easily and safely.

Note: the real estate acquisition tax has been abolished and the relevant date in this regard is 31 March 2020.

We have many years of experience with real estate

Are you planning to sell or buy an apartment? Do not risk unnecessary complications. Our attorneys have many years of experience in the field of real estate law and will guide you through all the legal requirements, as well as handle all necessary documents and administrative tasks.

Are you solving a similar problem?

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Real Estate Purchase or Sale

We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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