Selling an apartment – practical tips from practice

Selling a home is a once-in-a-lifetime transaction for many of us. We certainly don’t want to risk the inconvenience that could result from a poorly drafted purchase contract or neglect of other legalities. Check out our article for all the important steps in the process of selling an apartment.

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16 minutes of reading

Chapters of the article

How to sell an apartment – what not to forget?

  1. Check the documents – prepare the title deed, a picture from the cadastral map and the title deed (a document proving how the owner acquired the property)
  2. Make sure that the contractual security for the transfer of the apartment is flawless – we are talking about a reservation contract, a contract for the sale of the apartment, or a contract for the transfer of rights to a cooperative apartment, as well as an escrow agreement.
  3. Pay special attention to the payment terms and the security of the purchase price of the apartment.
  4. After signing the purchase contract, draw up and submit a proposal for entry into the Land Registry.
  5. Check that the registration at the land registry takes place without the need to add anything.
  6. Prepare for the protocol handover of the apartment.
  7. Pay the income tax.

Tip: Download a sample contract of sale for an apartment written by lawyers.

We will now discuss the individual points in how to sell an apartment and add tips from our practice.

Reservation and purchase contract for an apartment

Contracts are (not only) the basis for success when selling property. Never give “good word” and always insist on careful contractual treatment of every detail. In contracts, you need to think about everything. But first things first.

When a seller finds a serious buyer, the standard step is already to sign a reservation contract for the apartment. Thanks to this, the seller can be sure that the prospective buyer will not change his mind, and the prospective buyer can be sure that the seller will not sell his dream apartment to someone else. And if they do, the party who has not breached the contract is entitled to a pre-agreed contractual penalty to compensate them for their time and possibly financial costs.

What can’t a thorough apartment reservation contract do without?

Always check that the following points are clearly defined before signing:

  • the parties,
  • the object of the sale – not just the apartment itself, but also the share in the common parts of the building or land,
  • the purchase price of the property and its maturity,
  • the date of conclusion of the purchase contract for the apartment and the date of delivery of the property,
  • the method of financing the purchase of the apartment,
  • restrictions on ownership rights (easements, pledges) and, if applicable, the conditions for their transfer to the buyer,
  • the obligations of the seller and the buyer,
  • the contractual conditions in the event of a breach of the reservation agreement,
  • the amount of the reservation deposit,
  • the validity and effectiveness of the reservation contract.

If there are no serious events that would interrupt the sale of the apartment anyway, the reservation contract is followed by the actual purchase contract for the apartment.

This should again contain all information about the parties and the property. In addition, there should not be a clause on the handover of the property or a so-called handover protocol.

Anavailable attorney advises, “An advantage for many sellers is the recent abolition of the right of first refusal, which previously negatively affected the sale of apartments with parking spaces or basements in common ownership, among other things.”

Another possible complication, which has not yet been resolved, is of course the sale of the apartment from the community property. We have already dealt with this in more detail in another context. Specifically in the article on the gift of real estate between spouses.

We can also help you with complex apartment sales

Whether you are dealing with complex financing, selling an apartment in foreclosure, with an easement, or simply want to be sure that everything is perfect from a legal point of view, leave the complete contractual and legal service related to the sale or purchase of an apartment to us. We can prepare everything for you within 48 hours.

Retention of the purchase price when selling an apartment

This is one of the most important matters that should be resolved before the purchase contract for the apartment is concluded. The purchase price is put into escrow before the transfer of ownership of the apartment. This protects the seller from a situation where the land registry could be overwritten but the buyer refuses to pay. However, the buyer also benefits from the escrow of the purchase price. If, for example, there was a rejection by the Land Registry and he was not registered as the new owner of the apartment, the money would be returned to him from escrow.

What options do you have in terms of escrowing the purchase price?

1. Solicitor’s escrow – every solicitor is required by law to have professional indemnity insurance in the minimum amount of CZK 7,000,000. Should the amount to be held in escrow be higher, the solicitor must take out insurance for the total amount. The insurance covers cases where the solicitor pays out money wrongfully or late, thereby disrupting the process of selling the flat. The terms of the attorney’s escrow are then strictly determined by regulations, where a separate bank account is set up for each escrow, separate from the attorney’s assets, and everything is registered with the Czech Bar Association in the Electronic Escrow Book.

Dostupný advokát advises,At Dostupný advokát, we charge for custody regardless of the amount. Although professional indemnity insurance must be taken out for a minimum of CZK 7 million, as we state above, we are insured for CZK 50,000,000.”

2. Notarial custody – as in the case of lawyers, notaries are obliged to have professional insurance. The conditions are almost identical to the previous case, however, notarial escrow tends to be on average more expensive and less flexible. The custody fee is usually based on a rate set by law and in most cases notaries add 21% VAT to the final price.

3.Bank escrow – you will need to take into account that the bank does not allow escrow of the purchase contract and the proposal for entry into the land register, so you will need to arrange it separately with a lawyer or notary if it is needed in the transaction. At the same time, it uses standardised contract templates which often do not correspond to the specific situation. In practice, we also see that banks do not allow escrow of the purchase price without a loan agreement.

An available attorney advises:

“A big advantage of an attorney’s escrow is the fact that an attorney can assist you throughout the entire process of selling your home. They can draw up all the necessary contracts, check the loan agreement, check the legal status of the apartment and take care of the escrow of the purchase price. “

The next step in the sale of a freehold flat – registration in the Land Registry

Once all the funds are safely deposited in the account, the next step can proceed. This is the registration in the Land Registry. It does not pay to underestimate this step either, because the cadastral office is usually very careful when checking applications and no mistakes are forgiven here.

If the application for entry into the Land Register contains errors, in most cases this means that it will be rejected and the entire application will have to be withdrawn and then resubmitted. This wastes valuable time, as it always takes at least 20 days to process the registration and on average around 25 days. It should also be noted that an administrative fee of CZK 2 000 must be paid for each submission.

If everything is in order in the proposal, the registration in the Land Registry is changed. Only then does the buyer actually become the new owner of the property and the transfer of the apartment is legally complete. It is therefore perfectly safe at this point to release the funds from the solicitor’s escrow and send them to the seller’s account.

Tip: We have discussed the entry into the Land Registry in detail in a separate article.

Moving after the sale of the apartment

“Specialties” we encounter when selling an apartment

In our many years of experience, we have encountered many types of sales. We have dealt with complex financing, sales of apartments abroad or in foreclosure, or even encumbering properties with easements. How do such sales proceed and what else can we encounter?

Apartment financing and contractual liens

In any sale, it is crucial to sort out the financing. Its method should already be mentioned in the reservation contract. It is rather rare to see a sale where the buyer pays for everything out of their own funds. Financing through a mortgage loan is much more common. Although this method is paradoxically slightly riskier for the seller, it cannot be avoided.

So what is the risk involved? A lien must be established in order for the loan to be successful. The contract is between the bank and the seller. The pledge of the property is then also registered in the Land Registry. In practice, however, this means that even before the transfer takes place or even before the funds are deposited in escrow, the seller encumbers his property in favour of the buyer’s bank.

Tip: Wondering how to buy a mortgage-financed home? Then you must not miss our next article, in which you will learn the conditions for obtaining a mortgage. We will also advise you on how to make the right choice and what to prepare for.

Selling an apartment with a mortgage

What if the seller decides to offer for sale a property on which he himself is still paying the mortgage loan? Even such sales are nowadays quite common and real estate portals are full of apartments with mortgage loans. The good news is that it is feasible for the buyer, however, there is some extra paperwork involved.

The bank itself needs to be more involved in the whole selling process. The latter must always agree to the sale and allow early repayment of the loan or assumption of the mortgage (less common). The remaining amount is then most often paid directly from the purchase price. Here too, however, all transfers must be timed correctly. This is because the remaining mortgage amount changes every month and you need to keep this in mind, otherwise it can spoil the whole transaction.

The buyer normally sends his money to the solicitor’s office. They then need to apply for a change of ownership at the Land Registry before sending the appropriate amount to the bank so that the buyer is still protected. However, it is common for banks to insist on direct payment. The completion of the transfers also leads to the cancellation of the lien on the property. The remainder of the purchase price is then paid to the buyer in the standard way.

Sale of an apartment in foreclosure

Selling an apartment in foreclosure is not impossible, but it is not an easy task. In particular, it is necessary to take into account longer 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. In fact, there are debts that may not allow the sale of the property. It also depends on whether the current debts are final or continue to grow with time.

Another issue may be financing from the buyer. If it is necessary to apply for a mortgage loan, a property encumbered by foreclosure will certainly not be wanted by the bank as collateral. It is therefore necessary to guarantee another property or to legally regulate the entire sale so that the correct timing of the deletion of the encumbrance from the land register is achieved.

Whether you are the seller or the buyer in the case of the sale of a property encumbered by a foreclosure, never go into a property transfer “onyour own”. Always consult an experienced attorney who can advise you on whether to go ahead with the sale or purchase at all. In any event, both parties must also communicate with the executor (and his office), preferably through an attorney who knows how to handle these matters.

All the inconveniences associated with the purchase of a foreclosed property may be at least partially compensated by a lower price, which is more often encountered in similar properties. However, the discount is not always worth all the complications that may arise. Therefore, once again, we recommend that you discuss your intentions with your attorney and the foreclosing agent and follow their recommendations.

Selling a condominium

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

However, some pitfalls may arise here as well. It must be ensured that the flat and the share in the housing association actually pass into the ownership of the buyer. At the same time, it is advisable to use the attorney’s custody of the money here as well and to pay the purchase price to the seller only after the registration in the database of the housing cooperative. The specifics of the transfer of a cooperative apartment are dealt with in another article.

What about the property tax on a cooperative apartment?

A significant number of people think that property tax does not apply to a cooperative apartment. This is not a completely true interpretation. In this case, the annual tax is paid by the owner, i.e. the cooperative, and is budgeted into your monthly fee.

Tip: Don’t forget that the sale of a flat also involves the obligation to get energy labels. Who exactly is obliged to do this and how to get an energy label can be found in our next article on selling a flat and energy labels.

Sale of apartment with easement

Although easements are not as common in the case of a sale as in the case of a gift of real estate, they can still be encountered. However, the seller should keep in mind that the easement will certainly negatively affect the search for a buyer and the selling price.

Whether it is an easement in the sense of allowing a lifetime use of the property for the benefit of a third party, or even a real easement where you have an extra duty of care to that person, selling a flat with an easement will certainly not be easy.

However, it is not completely unrealistic. How about trying to resolve everything by agreement? Could you encumber your new property with an easement and allow lifetime use there?

There are, of course, several encumbrances that do not affect the sale or the sale price of the property. These are easements that include, for example, allowing access to a common yard or a utility easement for a neighboring apartment building.

Sale of the apartment by the developer

In the case of a sale of an apartment by a developer, the subject of the sale is a property that has not yet been built. This can be quite risky from a legal point of view for the buyer, so again, everything should be consulted with an attorney and all other procedures should be set up properly. It is not uncommon for developers to require payment of a substantial part of the purchase price before they even begin construction. This puts increased pressure on the financing of such a procedure and also increases the risks for buyers.

Development projects risk delaying construction or cancelling it altogether. If you are considering buying a home from a developer, it is always advisable to do your due diligence. Check if it is an experienced developer who has completed projects to their credit. You should also be interested in the terms of the purchase agreement – will the apartment be encumbered by liens and other rights or perhaps easements? Also try to find out how the project is financed.

Selling an apartment to minors

The last point we have to mention is the sale of an apartment to minors by the seller, because we also encounter such cases in practice from time to time. These are often cases where a child receives a property as a gift or as part of an inheritance which the parents would like to sell in order, for example, to redeem the mortgage on the existing property.

However, such a sale will be quite problematic because the child is not entitled to sign contracts on his or her own behalf. However, in order for the parents to act for the child in this case, court approval will be required. However, even if the court approves such a procedure, the money raised by the sale will again belong to the child and not to his parents. However, with an attorney, even this type of sale can be handled just fine.

Tip: Thousands of pages and many articles and books have been written about buying, selling, renting or donating real estate. However, there are also many other ways to dispose of real estate that are less written about. You may have come across property leasing, but such land swaps have become rather rare. We discuss both transactions in more detail in our next article – Less common real estate contracts.

What are the tax obligations when selling a freehold flat?

In 2020, an amendment abolished the tax on the acquisition of immovable property, so filing the relevant tax return and paying the tax in this case will be avoided. However, remember that if you sell the flat, you may be liable for income tax.

An available attorney advises:

“The amount of income tax depends on how much you originally bought the flat for and how much you are selling it for. So only your profit is taxed. This means that you only pay tax if the income from the sale of the flat exceeds the cost of buying it.”

The buyer, as the new owner of the property, is then required to file a property tax return.

We have many years of experience in selling an apartment

Are you planning to sell or buy a flat? Don’t risk unnecessary complications. Our attorneys with many years of experience in selling real estate will guide you through all the legalities and take care of all the necessary documents and administrative tasks.

Are you solving a similar problem?

Dostupný advokát team of online lawyers will solve it for you.

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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.

Education
  • 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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