Buying guide

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Procedures to purchase real estate in Japan

(Updated on December 26, 2014)

Steps for buying Japanese real estate

Depending upon the type of sale, real estate properties are roughly divided into (i) properties sold in lots and (ii) properties sold through brokerages, which have different purchase flows. The differences in sales type and the flows for purchasing properties are indicated below.
Properties sold in lots 
Properties sold in lots are directly purchased from a real estate company that is selling the property. Typical cases are newly built condominiums and detached houses that are simultaneously sold in large numbers in the same location.
<Processes for purchasing properties sold in lots>
(1) Property search
(2) Visiting property of interest (a model home and property site)
(3) Creating a financial plan
(4) Offering to purchase the property
The purchaser makes an offer to the real estate company to purchase the property. An advance on application of around 50,000 to 100,000 yen may be required for this offer. When the sales contract is entered into, the advance can be applied to the application deposit. If the offer is cancelled before the sales contract is entered into, the amount is returned. 

 

(4) Explanation of important matters
The purchaser receives explanations of important matters regarding the property from a licensed real-estate transaction manager of the real estate company before entering into the sales contract.
(5) Entering into the sales contract
Upon an official decision to purchase the property, the purchaser enters into a sales contract with the vendor. An application deposit (contract deposit) of 10 to 20 percent of the property price, in general, will be required for this.
(6) Mortgage contract (if used)
The purchaser must be screened by the financial institution and guarantee company for approval for the mortgage.
(7) Delivery of the real estate property
After completion of the property’s construction, the property is handed over by the vendor on payment of the remaining amount of the purchase price. The real estate registration procedures are then carried out. 
Properties sold through a brokerage
Properties sold through brokerages are properties purchased through real estate companies (real estate brokers) that have been requested to mediate by the vendor. Most of the properties sold through brokerages are pre-owned housing. Newly built detached houses sold in small numbers are generally included as well. The real estate companies charge brokerage commissions for properties sold through brokerages.
<Processes for purchasing properties sold through brokerages>
(1) Real estate broker search
(2) Property search
(3) Visiting property of interest (a model home and property site)
(4) Requesting assistance from a real estate broker (entering into a mediation contract)
The purchaser enters into a mediation contract that indicates the property to be purchased, the content of brokerage service, the amount of brokerage commission, etc.
(5) Creating a financial plan
(6) Offering to purchase the property
The purchaser makes an offer to purchase the property through a real estate broker. The offer is generally made in writing.
(7) Explanation of important matters
The purchaser receives explanations of important matters regarding the property from a licensed real-estate transaction manager of the real estate company before entering into the sales contract. 
(8) Entering into the sales contract
 Upon an official decision to purchase the property, the purchaser enters into a sales contract with the vendor. An application deposit (contract deposit) of 10 to 20 percent of the property price, in general, will be required for this.
(9) Mortgage contract (if used)
 The purchaser must be screened by the financial institution and guarantee company for the mortgage’s approval.
(10) Delivery of the real estate property
After the property is prepared for delivery, it is handed over by the vendor on payment of the remaining amount of the purchase price. Real estate registration procedures are then carried out. 

How to find a property

Japanese real estate properties can be searched on the internet, in newspapers or their advertising inserts, or by referral by a real estate company.

The advantage of internet searches is that we can easily collect information regardless of time and place. Information on properties whose purchasers are broadly solicited can also be accessed from abroad. However, caution is required since some information may not be provided in English. In addition, as Japan’s newspapers tend to be reputable and reliable, some of the information on important or valuable properties are provided in the newspapers. This form of information is difficult to access outside Japan. The efficient way of finding the most suitable property is to ask a real estate broker with a strong information networking capability. 

 

 

Real estate broker commissions

When a real estate transaction is concluded, a brokerage commission is required to be paid to the broker. The amount of this commission, whose upper limit is regulated by the Building Lots and Buildings Transaction Business Act, can be decided by the real estate company on its own as long as it does not exceed the limit.

 The upper limit of commissions for sales contracts is as follows:

 

  Sales price (excluding consumption tax)  Commission’s upper limit
a Not more than 2 million yen 5.4% (5% + consumption tax)
b Over 2 million yen and not more than 4 million yen 4.32% (4% + consumption tax)
c Over 4 million yen 3.24% (3% + consumption tax)

 

In the case of a, 5.4% is applied to the total amount.
In the case of b, 5.4% is applied to the amount of 2 million yen and 4.32% to the amount exceeding 2 million yen up to 4 million yen.
In the case of c, 3.24% is applied to the amount exceeding 4 million yen and the amount of commission can be calculated by the simplified calculation system of sales price ×3.24% + 64,800 yen.

Half of the brokerage commission for a sales contract is generally paid when the contract is entered into. The other half is paid when the payment is settled and the property delivered.

 

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