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How to Calculate Realistic Property Closing Costs

Calculating exit costs realistically is a need of any Czech investor who is weighing the options of selling or keeping their property.

 

 

Czech Republic real estate sale costs are typically 7 to 10% of the selling price

 

Let’s look at the typical (and most probable) selling costs and also itemize additional costs when you own your property through an SRO.

1.      Real estate fees or commission

Real estate fees or commission typically are from 3 to 5% (plus VAT) of the real estate sale price.

The fees are handled differently depending on where your property is located. In Brno the commission is typically added to the listed price and paid by the buyer. In almost all other locations including Prague, the real estate commission is within the listed price.


2.     Real estate transfer tax

Currently at 3% of the sale price or valuation price, whichever is higher. Beginning in 2013 this is scheduled to increase to 4%. The valuation must be done by a State approved valuer.


3.     Valuation by State approved valuer

This depends on the size and location of your property but the typical costs for an apartment under 100 m2 range from 3,500 CZK to 7,500 CZK (plus VAT).


4.     Redemption cost of the mortgage

If you pay the mortgage out on any other day than the exact date that your fixation comes up you will need to pay a penalty for early repayment. This ranges from 10% to 25% of the unpaid amount of the mortgage.

These penalties are normally decided branch by branch so it is prudent to negotiate this before starting the sale process.


5.     Final accounting and tax filing costs

The seller will need to file a real estate transfer tax form to the relevant Financial Office with both the sale contract and the valuation attached.

As well, if the property was owned by an SRO or an individual they will need to file a tax return for the year in which they sold the property.


6.     Income or Corporate tax

If the property was owned by an individual and it was not held for 5 years there will need to be income tax paid on net profit from any capital gains. This is currently (2012) roughly 15%.

An SRO will always need to pay corporate tax on the net profit from any capital gains. The SRO tax rate on net profit is 19% (2012).

If there is a net profit on the company and all shareholder loans have been repaid then there is also a 15% dividend withholding tax (2012) that will need to be paid.


7.     Possible additional costs

a. Escrow fees
A seller could also possibly have escrow costs from a notary, bank or attorney. Often this is paid entirely by the buyer but sometimes the agreement is made to split this cost.

b. Legal
You may choose to have an attorney check the escrow or contracts independent of the real estate agency. This is highly recommended as real estate agencies in Czech Republic are notorious for protecting only their own interests (i.e. their commission) and not the client’s interests.

There is a recent horror story regarding Century 21 and an attorney they referred clients to (article in Czech only) which shows the dangers even in dealing with internationally recognized firms.

c. Power of Attorney representation
If you cannot physically be present to sign the purchase contract and turn-over the apartment or utilities to the buyer, you will need to appoint someone with a power of attorney in order to represent you in these items.

d. Liquidation or sale of your SRO
Those who purchased the SRO only for the purpose of holding the one property which is now sold, finally have the painful cost of liquidating the company. The costs of liquidation are typically 50,000 to 75,000 CZK (+ VAT)

A preferable alternative is if you are able to find someone interested in a used company and you can give the company away for free.

Here is a typical calculation on a flat sold for 3,000,000 including the real estate commission which was owned by an individual for more than 5 years (so no income tax payable). We are also assuming that the sale was timed to pay out the mortgage on the fixation date.
 

Description

Amount (in CZK)

Sale price

3,000,000

5% real estate fee (including VAT)

-180,000

3% real estate transfer tax

-90,000

Cost of State approved valuer (including VAT)

-7,200

Concluding accounting and tax filing (including VAT)

-9,000

Power of attorney representation for turn-over (including VAT)

-4,800

Miscellaneous items

-3,000

Net amount for seller:

2,706,000

Closing costs as a percentage of the sale price

9.8%

 

by Nathan Brown - nathan@czechpoint101.com - owner and managing director of Czech Point 101  - "You’re in good hands whether buying, selling or managing property in the Czech Republic."   

 
 
 
 
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