Differences between Sale Deed and Agreement to Sell

Differences between Sale Deed and Agreement to Sell

The agreement to sell and the sale deed specify the terms and conditions in a property sale transaction.

Firstly, let’s find out the stages involved in the transfer of property from the seller to a buyer.

  • The buyer and seller negotiate and agree on the sale price of the property.
  • Then, the buyer must pay the advance/ earnest money.  Typically, the buyer pays 10% of the sale price in advance. At this stage, the ‘agreement to sell’ is executed.

So, what is an ‘agreement to sell’?

An agreement to sell has the terms and conditions that are agreed between the seller and the buyer. 

In this case, the seller/buyer agrees to sell/buy the property at a future date, if all the terms and conditions are given in the ‘agreement to sell’ are satisfied.

  • Next, they notarise the agreement to sell.
  • The buyer is given two to three months to pay the sale price to the seller.
  • Once he pays, the sale deed is executed.

So, what is the sale deed?

The sale deed conveys the ownership transfer from buyer to seller.

  • Register the sale deed at the Sub Registrar Office to make the ownership transfer legal. Click here to find out how to register the sale deed.

Now we know the process involved in selling/buying a property.

Next, let’s find out more about an ‘agreement for sale’.

The ‘agreement for sale’ has terms and conditions executed between the buyer and the seller.

What terms and conditions are listed on the ‘agreement for sale’?

  1. Execution date.
  2. The address, area, description of the property.
  3. The name, age, father’s name and permanent address of the buyer and the seller.
  4. The mutually agreed sale price.
  5. The payment schedule tells you when the buyer must pay the purchase price. Typically, the buyer has 2 - 3 months to make the final payment.
  6. How much earnest money/advance did the buyer pay? The buyer pays an advance equal to 10% of the sale price to the seller before executing the agreement to sell. The amount and the date of receipt are given.
  7. How much penalty is paid by the defaulter to the affected party if the buyer or seller defaults? If the buyer defaults, he forfeits the money he paid to seller as advance or earnest money. If the seller defaults, he has to return the advance and also incur a loss that is mutually agreed. For example, the seller must pay two times of the advance he received if he defaults. The penalties are dis-incentives for the buyer or seller to back out of the agreement.
  8. The seller must clear all dues and declare that the property is free from encumbrance.

Dues

The seller must clear all dues before the execution of the sale deed. The dues are water charges, electricity charges, property taxes, loans, resident welfare association dues, and so on.

Encumbrances

The seller ensures that there are no charges or liabilities on the property. The encumbrances are in the form of third-party claim, bank charges in case of default, taxes, contractor payment, no claim on the property.

The encumbrance certificate is available for a fee at the Sub Registrar Office. To know more about encumbrance, click here.

9. The seller can’t sell to anyone else after the agreement to sell is executed.

10. Signature of two witnesses, buyer, seller and the ‘agreement to sell’ is notorised and attested.

The ‘agreement to sell’ enables the sale to happen by describing all the steps involved in the sale process in detail. Therefore, both the parties in a transaction understand their role clearly.

Next, we’ll understand more about the ‘sale deed’.

A sale deed is a form of conveyance deed that conveys the ownership from the seller to buyer when he pays the agreed purchase price to the seller.

It establishes ownership. The rights transferred from the seller to the buyer are as follows:

  • Right to use
  • Right to lease
  • Right to mortgage
  • Right to sell

Essential elements of a sale deed are as follows:

  1. Give the details of the parties to the transaction.
  2. Schedule of the property such as location, address, description, the area of the plot, orientation, details of construction, and so on.
  3. Payment details give the sale price, advance received, due date and mode of payment including cheque number/online payment reference number, and so on.
  4. The date when the seller will hand over the documents to the buyer.
  5. The date when the seller will give possession of the property.
  6. The seller certifies that there are no encumbrances and liens on the property.
  7. The indemnity provisions of both the parties.

The sale deed contains terms and conditions about the transfer of property and rights whereas the agreement to sell contains all the terms and conditions that must be satisfies leading to the sale. Therefore, the sale deed is drafted briefly.

Precautions you must take while buying the property:

  1. Ensure a clear title.
  2. No encumbrances and liens.
  3. Check the sale deed for any ambiguity.

Execution of the sale deed:

The steps involved in the execution of the sale deed are as follows:

  1. The lawyer prepares a draft sale deed that is verified and approved by both the buyer and seller.
  2. Stamp duty. He will print the sale deed on the stamp paper. To know more about stamp duty, click here.
  3. Signature. The buyer and the seller will sign on every page of the sale deed. Also, two witnesses (one from the buyer and one from the seller) also sign the sale deed. In the sale deed, the witness name, the address is written, and he/she signs it.
  4. For registration at the Sub Registrar’s office. The buyer, seller and the two witnesses must be present at the Sub Registrar’s office at the time of registration.
  5. The sale deed must be registered within four months of the date of execution.
  6. The buyer pays stamp duty and registration charges.

The differences between an agreement to sell and sale deed are as follows:

  • The sale deed is used for an immediate transfer of property. It includes the ownership and rights to use the property.

An agreement to sell is used for the transfer of property at a future date.

  • You must register a sale deed at the Sub Registrar’s office.

An agreement to sell is notorised and attested.

  • A sale deed is executed only after the buyer makes payment. In case of breach of sale by the seller, the buyer can file a suit for the price he paid and also claim damages.

An agreement to sell specifies the penalties the buyer needs to pay the seller if he defaults and vice versa.

  • A sale deed is a contract that is executed, while the agreement to sell will be executed in future.
  • The risks relating to the property is transferred to the buyer as soon as the sale deed is executed, whereas the risks remain with the seller in case of an agreement to sell.

Both buying and selling a house are processes that include a multitude of steps, taxes and legal documents. The sale deed is a document that grants legal security to the buyer and the seller when a real estate is transferred and registers it in the property registry. Also, it is the last necessary procedure that you must perform when you are going to buy or sell a house.

Its main features are:

It is a Free Document: It is not mandatory to sign the sale deed to buy a house. However, it is highly recommended for the legal security it grants. In addition, it is the only document that will allow you to register the sale in the Land Registry.

It is Reliable: the public deed of purchase and sale proves and attests that both parties agree on the sale of the home and that they express their willingness to comply with what they sign.

Is it mandatory to register the house in the registry?

 It is mandatory to register a home in the property registry. However, it is highly advisable to sign the public deed of sale and register the house as it has many advantages:

  • It guarantees that you are the sole owner of the house, which allows you to be the only one who can acquire rights over it.
  • Confirm that the seller is who he claims to be, so he protects against possible scams.
  • The authorities will protect you if a third party claims ownership.
  • It protects you against creditors (debts before the purchase) and lets you know if the house has any outstanding payments.
  • It allows you to access a mortgage, something that without the registration of the housing is not possible.

The offer of purchase and the commitment of sale are two means to conclude the first agreement for a real estate transaction. All have a duration at the end of which, the agreement is outdated if one of both parties did not sign the document or, on the contrary, a public deed of sale concludes it. The amount of the fees allocated to the intermediaries must appear in this document.  These contracts are "private", that is, written agreements signed by the parties. It is often referred to as a "private contract" to designate a sales contract.  These agreements reach the beginning of the legal process of the sale. Their differences lie in the obligations of the parties and the conditions for breaking the defined commitments.

The purchase offer

This promise essentially involves the buyer, and we also call the price offer. It is usually done orally for old houses but for a buyer who really wants to buy, it is better to propose a written purchase offer (via your real estate agent) because as soon as the seller accepted and signed the purchase offer, the latter is committed and the conditions will be transcribed directly in the sales commitment. 

  • Purchase offers may include the condition that the urban planning certificate does not reveal serious easements which would depreciate the property value.
  • obtaining a building permit (purchase of a plot of land)
  • In the new construction, we find a variant called reservation contract. The developer of the new construction program commits to reserve a lot with a fixed price in writing the document and takes a security deposit in exchange.

The Sale Commitment

When the seller and the buyer agree to the transaction, they sign a sale commitment that will define the conditions of the sale. It is the most used agreement in real estate transactions as a commitment in a sale. Contrary to the promise of sale, the commitment does not need to be registered by the fiscal services. You find there the elements present in the promise of sale as well as the commitments of the buyer. The date of the signature of the definitive notarial deed is fixed in the commitment. The average term is generally three months between both firms. 

Log in to www.propertyadviser.in to know more about the important documents required while buying a house.

By: Lotus Tech