Credit notes, their credibility and are they worth it?

If you have ever been to a real estate broker, you would probably know about the “Credit Notes”. You are not alone, experts say most home buyers focus on freebies and discounts while not giving a thought about the basics of home buying. Here are few a tips for safe buying: Don’t fall for these tricks by builder and agents and Useful real estate terminologies for home buyers. Credits notes are often used by brokers to lure home buyers in this competitive market space.

Credit Notes

Credit Note is a non-certified letter from the real estate broker who commits to payback certain amount to the property buyer, usually at a deferred date. This may not be on the letterhead of the broker company. Often Credit Note is 2% to 6% cash back of the agreed BSP(Basic Sale Price). Sometimes it can also be a fixed amount. Keep in mind that this is not the Fixed Discount offered by developer and not adjusted at the time of booking. Developers do not have any affiliation to such credit notes and they are not responsible for the fulfillment of such commitments.

Amount agreed to in credit note is not an immediate discount but a promise of returns on reaching a certain payment milestone. In construction linked plans, the amount is paid only after 30-50% of the payment to developer. In down payment plans, such discounts are offered after signing the agreements with developers. Attached is a sample Credit Note;-

Credit Note - Real Estate

In above example, the BSP was 3125. Fixed discount by developer was 4%. This makes the effective price on booking form as 3000. The broker agreed to pay additional 2% on 3125 and same was paid as per the payment plan.

Why do brokers offer Credit Notes?

Brokers get handsome commission from developers for every successful sale of property. On successful transaction, the agent receives commission ranging from 4% to 8% of BSP or even higher in some cases. To ensure that buyer does not go to competitors, property agent shall offer part of this commission to buyer. Developers pay this commission to agents only after receiving 30-50% of the payments as per agreed payment plan. In turn, these agents promise to pay a part of this commission to their customers.

Credit Notes are TRAP

The bitter truth is, in 80% of the cases, Credit Notes are not honored. This is just a trap to fool property buyers at the time of booking. Property agents are mostly unorganized and are often very hard to chase after a few weeks of booking. It has been observed that even big and well known firms indulge in such practices and  cheat home buyers.

When should you accept Credit Notes

Although we advise you against credit notes, if handled carefully, it can be an added bonus. Here is what you need to do before accepting credit notes:

  • Finalize your property after thorough research.
  • Check with multiple brokers ask for BSP + Fixed Discount percentage + Credit Note percentage.
  • Check with developer’s office on the BSP + Fixed Discount percentage. Bargain with developer to adjust the credit note amount to be adjusted on booking form only. Even if they agree to adjust half of credit note in booking form, go for it. For example, fixed discount by developer is 4% and the broker offered additional 2%, making total discount to 6% of BSP. If developer agrees for 5% fixed discount, go for it.
  • In case developer does not agree for further fixed discount, go back to broker and take the credit note. However, take this only by keeping in mind that there are only 10% chances of getting it back. Do not lose your peace of mind over it.

Quick Tips

  • Always check the price and fixed discount with builder and do not trust the broker alone.
  • Ensure that Credit Note is on letter head of company and signed and sealed by authorized person.
  • Do not ever go for verbal commitment.
  • Avoid credit note of the discount is not significant. Creating third party interest like buying from broker and not from builder directly comes with it’s own set of problems.

Up next: In case your credit note is not honored by brokers, we are working with our legal team to prepare guidelines on “What to do when your broker doesn’t honor the Credit Note”.

2 thoughts on “Credit notes, their credibility and are they worth it?

  • November 27, 2015 at 8:53 pm
    Permalink

    Is there any update regarding the legal terms for honoring the credit note?

  • November 28, 2015 at 2:28 pm
    Permalink

    Prince,

    None in our knowledge.

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