October 30, 2020
② Real Estate Types and Purchase Flows – second hand property

<Procedures to Purchase Real Estate in Japan>

Real Estate Types and Purchase Flows

Are you aware that real estate properties in Japan can be roughly categorized into “newly built properties” and “second-hand properties” and purchase flows differ for each category? Many might think that investors usually choose to invest in second-hand properties. However, if you can only have a thorough inspection of the condition and structure of a second-hand property, we highly recommend you to buy such property not only for the purpose of investment but also for residence.
Below we would like to explain the flow for purchasing second-hand condominiums and detached houses.

■ Second-hand properties

① Second-hand condominiums and detached houses

Second-hand condominiums and detached houses are properties in which their current/former owners or lessees have already resided. Newly-built properties that have remained unsold for a certain period of time (usually for one or more years) are sometimes referred to as “new second-hand.” In either case, unlike newly-built properties, the ownership of second-hand properties is transferred to the next buyer through the intermediation of real estate brokers, instead of sellers at the time when the construction is completed. As some property listings are not disclosed to general customers, only if you contact brokers who willingly provide vast amount of property information available on their property websites that are only accessible to brokers like us, you will be able to choose from a wider range of options.

② Renovated properties

As mentioned above, second-hand properties are usually sold in as-is condition through the intermediation of brokers to the next buyer. Among them, renovated properties are considerably aged properties that real estate companies had once bought to improve their interiors and also fix kitchen appliances and bathroom fixtures etc. so as to return them to their newly-built condition, using large-scale renovation work, and later are, added with additional value, sold by those companies acting as the seller. This kind of process is mostly adopted to “unfortunate” properties that were built a long time ago ago, whose room layouts have become not suitable for the modern lifestyle and exterior walls have decayed, but still are located in areas that meet buyers' needs well. In some cases, not only brokers, but even private individual sellers, renovate or reform their properties at their own expense and then put them up for sale.
“Reform,” compared with “renovation,” has the impression of having a long history of being used in Japan. The meaning of “reform” is limited to repair the damages made to the convenience and charm of the room and bring its condition back to “zero.” So, we can say that “just replacing the current kitchen system with a brand new one” is an example of a reform. Meanwhile, the word “renovation” is frequently used when the room as a whole is changed to become like a newly-built one, applying a specific theme. Its advantages for the buyer include being able to quickly move into a new space added with additional value and to save the trouble of repairing the damaged places, which would be required sooner or later. Even properties for investment purposes, if they have new interior and a specific theme, will be easy to lease. Some people think that you have to bet on renovation rather than just waiting for a tenant to rent your old “high-yield property”. In Japan, more and more discussions are made regarding how to make the most of existing properties before increasing the number of new ones. Therefore, the past few years have seen an increase in transactions involving second-hand properties.

■ The flow of purchasing second-hand properties (including newly-built detached houses offered on a small scale)

Find potential properties to purchase (or select a broker for intermediation)
  • You can choose to first find properties to purchase or to first select a real estate broker. It doesn’t matter which step comes first.
  • When you choose to find a property, if the broker who is entitled to handle the property can only speak Japanese, transactions are difficult to carry out and the arrangement of interpreters becomes necessary. Therefore, we advise you to consult with a broker like us from the first place.

Visit properties and check their local surroundings
  • Don’t forget to prepare a checklist for not only property details but also the surrounding environment and distance from the building next door before you visit properties.

Fill out an application to purchase
  • In general, a written offer is to be sent to the seller through a broker.
  • Although it is possible to make an offer lower than the listing price of the property, we, however, recommend that you offer a realistic amount that would make the seller more likely to accept or negotiate.
  • This step is not governed by law, but in principle, when the buyer and seller reach an agreement, the buyer makes an offer to the seller only when he/she has the intention of purchasing the property.

Set up a financial plan
  • If you intend to use a loan for the purchase, since a preliminary screening takes a considerable amount of time, you should make preparations in good time taking into consideration the possibility of being overtaken by a cash buyer.
  • If you intend to make a purchase with cash, you should check the total amount of charges, and in order to earn the seller’s trust, should quickly respond to their request for proof of your identification and financial resources.

Make a formal request to a real estate broker (enter into an intermediation agreement)
  • The buyer enters into an intermediation agreement identifying the subject property, contents of the brokerage services, brokerage fees, and other details.

Explanation of important points
  • Before entering into a sales and purchase agreement, the buyer will receive an explanation of important matters concerning the property to purchase from a real estate transaction specialist who belongs to the broker. As is the case with newly-built properties, you should expect it to take 60 to 90 minutes. For seals to be affixed to documents, you are advised to prepare a personal seal stamp (inkan) in advance.

Pay earnest money (tetsukekin) and enter into a sales and purchase agreement
  • Once reaching an agreement with the seller, the buyer enters into a sales and purchase agreement with the seller.
  • In general, the buyer pays 5-10% of the property price as the earnest money before entering into the agreement. As is the case with newly-built properties, the earnest money can be applied to the property price.

Official housing loan agreement (when loans are used)
  • The buyer enters into an official loan agreement with the financial institution from which the buyer received a pre-approval before entering into the agreement.
  • The loan execution (commencement) date will be set on the date of delivery of the property.
  • Charges related to the loan differ depending on the loan types and structures and each financial institution, so don’t forget to check these details.

Delivery of property to the buyer
  • When preparations are completed for the delivery, the buyer pays the remaining amount of the purchase price (in the case of using a loan, the loan is executed).
  • When the buyer receives the transfer of the property from the seller, formal procedures for real estate registration are conducted. The real estate broker conducts the registration procedures.