Financial considerations when selling properties

Property holders sell properties regularly as evidenced by activity in the real estate sector. There are important financial considerations to take into account when deciding to sell a property.

Some of them are explained in this article.

Financial considerations

Some of the key financial considerations include the following:

Financial reasons for selling

Is the selling price likely to be realised?

Currency of selling

Payment terms

Selling costs

Taxes on the transaction

Whether there will be a gain or not

Net proceeds from selling versus financial pressure or investment opportunity

Financial reasons for selling

The seller has to be clear about why he or she is selling. There are many reasons for selling properties including the following:

A property developer who is in the business of developing and selling properties.

Re-arranging property portfolio by selling some properties.

Selling to use the proceeds to address a pressing financial situation or grab an opportunity.

Selling a property to finance recurrent expenditure or lifestyle is not advisable.

Selling price likely to be realised

It is important to consult on the selling price likely to be realised so that one does not sell a property for a song.

It might be important to correctly time when to sell. When the market is generally liquid one may get a good price for a property. This may happen when some institutions and banks are giving housing loans. Some properties might realise better prices than others depending on the situation.

For example, a comparison of residential properties versus industrial or commercial properties. Where a seller is likely to get a low price it might be better to consider another source of funding instead of disposing of the property at a sub-optimal price.

Currency of selling

It is not a secret that many sellers prefer to sell in stable currencies such as the United States dollar. The currency suitable to a seller depends on one’s financial situation.

Payment terms

Potential purchasers make offers with different terms and conditions. Assessing the proposed payment terms against one’s financial needs is important. Generally, purchasers prefer to be paid as soon as possible.

There are many reasons for that including reducing the risk of default by the purchaser or currency risk or effect on inflation of the value of money for transactions in local currency.

Selling costs

A seller must consider the selling costs such as agency fees. These are around 5 percent of the selling price.

Taxes on the transaction

The seller needs to consider taxes that may arise from the disposal of the property. These may include Value Added Tax (VAT) or Capital Gains Tax (CGT).

Whether there will be a gain or not

To assess whether the seller is making a gain or loss from a property is also important.

This is arrived at by considering the purchase price less the cost of acquisition of the property, costs of subsequent improvements, selling costs and any taxes payable by the seller on the transaction. Net proceeds from selling versus financial pressure or investment opportunity

It may also be important to compare the net proceeds from selling the property against the financial pressure being faced such as interest-bearing debt or available investment opportunity. At times a property’s price may be reduced for a quick sale to douse a flame or snatch a bargain.

Conclusion

A seller should consider the above key financial considerations before selling a property.

Disclaimer

This simplified article is for general information and does not constitute the writer’s professional advice.

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.-herald