Some people consider an individual-to-individual sale (kojin-kan baibai), in which the seller and buyer sign a contract directly without going through a real estate company. While this can save on brokerage fees, it also increases the practical risks, so here we look at the basic considerations.
- An individual-to-individual sale isn't prohibited by law.
- Without a broker, gaps in the contract paperwork can more easily lead to disputes.
- It's harder to gauge market value objectively, which risks setting the wrong price.
- If you're using a mortgage, the lender may require a broker to be involved.
- Even in a sale between relatives, putting the contract terms in writing is essential.
The Starting Point: It Isn't Illegal
Signing a real estate purchase contract directly between individuals, without going through a licensed real estate broker (takken gyōsha), is not itself prohibited by law. However, the Building Lots and Buildings Transaction Business Act governs cases where a real estate company handles brokerage or sales as a business, so protections such as the mandatory explanation of important matters (jūyō jikō setsumei) don't apply to a transaction between individuals.
The Risk of Gaps in the Contract Paperwork
Without a broker, the parties alone need to work out, without gaps, provisions such as the scope of liability for nonconformity with the contract, exemption clauses, and the deadline for canceling via forfeiture of the deposit. Even using a template, if it doesn't reflect the property's specific circumstances, that can more easily lead to disputes later on. Matters that a broker would normally coordinate — such as confirming the condition of fixtures and the property's boundaries — also need to be checked thoroughly by the parties alone.
The Risk of Mispricing
Without going through an agent, it's harder to objectively gauge market information such as comparable closed sales and appraisal approaches, which carries the risk of contracting at a price far from actual market value. We cover how to research the market rate for a sale in sell-02.html — worth referring to even if you're considering an individual-to-individual sale.
Risks in Settlement and Registration Procedures
You can ask a judicial scrivener (shihō shoshi) to handle the ownership transfer registration, but in transactions using a mortgage, the lender may require a broker or judicial scrivener to be involved so they can confirm the contract terms. Since this can affect whether the loan is approved at all, it's necessary to check with the lender in advance.
Considerations in Limited Cases, Such as Sales Between Relatives
It's tempting to assume that a sale between relatives is less likely to lead to trouble because of the trust involved, but even so, it's considered advisable to draw up a contract and confirm both the reasonableness of the price and the tax treatment. In particular, care is needed to transact at an appropriate price so the sale isn't treated as a gift. If the property is sold at a price significantly below market value, gift tax may be levied on the difference, so caution is needed. Getting a third-party appraisal in advance, as evidence that the transaction price is reasonable, is also an effective safeguard.
The Benefits of Using a Broker
Using a real estate company gets you consistent support, from the explanation of important matters through drafting the contract to checking the necessary documents. We cover the list of documents you need for a sale in sell-19.html — even if you're considering an individual-to-individual sale, we recommend comparing it against using a broker first. While it comes with a brokerage fee, having somewhere to turn if trouble arises is one point of comparison worth weighing, for the reassurance it provides. The benefit of using a broker is even greater for transactions involving a mortgage or an inherited property in particular. It's worth judging based on the complexity of the transaction, weighing the balance between cost and peace of mind.
FAQ
Is an individual-to-individual sale illegal?
It isn't illegal. Buying and selling real estate directly between individuals, without a licensed real estate broker, is legally possible. That said, the practical risks are greater.
Can I do an individual-to-individual sale if I'm using a mortgage?
Depending on the lender, you may be required to involve a broker or judicial scrivener so they can confirm the contract terms. It's necessary to check with your intended lender in advance.
If it's between relatives, is a broker unnecessary?
Even between relatives, it's considered advisable to put the contract in writing and complete the necessary procedures, to avoid disputes over liability for nonconformity with the contract or tax treatment.
Summary
An individual-to-individual sale isn't prohibited by law, but it carries greater practical risks around gaps in the contract paperwork, mispricing, and settlement procedures. Even between relatives, don't neglect putting things in writing, and consider using a broker or judicial scrivener where necessary.