If you are buying a property from a broker and asking for a discount, he might give you a credit note through which you can get the discount money after some months of property purchase.
What is a broker’s credit note?
Widely used and accepted trend in the property market, brokers often write credit notes to pass on some amount of discount to their clients/homebuyers. These are written on brokerage firm’s/broker’s letterhead and often signed by the broker or one of his employees. Such notes are written mainly when the broker is dealing in a high-value property and do not have enough cash to give at the time of property purchase.
How does it work?
Say a homebuyer goes to a broker for a property that is priced at Rs5,000 per sq. ft. The buyer while negotiating asks for a discount of Rs250 per sq. ft on the basic rate. Since the broker must have got the property from the builder at Rs4,500 per sq. ft, he readily agrees to give a discount of Rs250 per sq. ft from his share of profit of Rs500 per sq. ft. He still manages to earn a profit of Rs250 per sq. ft. Initially, however, the apartment is booked at Rs5,000 per sq. ft.
Now if the apartment size is 1,200 sq. ft, the total discount is Rs3 lakh (1,200 sq. ft x Rs250 per sq. ft) for an apartment that will cost the buyer Rs60 lakh (1,200 sq. ft x Rs5,000 per sq. ft). The broker will pass on this discount money only when the company will disburse his commission.
Credit notes written on letterheads of a brokerage firm or by the broker have no legal standing unless the same is framed in the form of an agreement and stamped. Thus avoid taking such credit notes while transacting through a property dealer.
While writing the credit note, brokers usually mention a period of 6-18 months time to pay the discount amount agreed upon during the transaction. You may not be able to wait for that long.
What can you do?
It is in your interest not to transact through a broker who is offering discount through a credit note.
If you have already dealt with a broker, who has given you a credit note, ensure that he is not a fly-by-night operator. Also check whether an employee of the broker or the broker himself has signed the credit note. Verify his background with the developer firm where you have booked your property. A simple way to find out is to approach the real estate firm. Real estate companies prepare a database of brokers who work with them. Companies having good governance practices have all coordinates and addresses of the empanelled broker.