Below is a full transcription of the video on the use of escrow accounts including a Czech notary.

Let’s look briefly at an escrow account and how it functions in the purchase and sale of real estate in Czech Republic.

The reason it exists is because of the needs of both the buyer and the seller. The seller wants to be sure that he will get the purchase price for his property when he transfers ownership to the buyer. The buyer, on the other hand, wants to be sure that the property will really be transferred to him when he pays the purchase money.

Watch the video explaining the use of a Czech escrow

Because of this it is common to use and it’s recommended to use an escrow account which is administered by an independent party. A three-part agreement is concluded between the buyer, the seller, and the independent third party.

Let’s look at an example of how this works. The buyer and the seller agree on a purchase price for the property. They conclude a three-part agreement with the trustee regarding the escrow account. The buyer sends the purchase price for the property to the escrow account. The escrow account administrator then informs both parties that the agreed amount of money is on his account. They, at this point, conclude a purchase contract and register it to the land registry. After it’s evident that the buyer is the new owner of the property, the trustee releases the purchase price to the seller.

This can be done a little bit different order but this is the basics of it.

It’s very important in Czech Republic to make sure that the seller pays the 3% transfer tax so this is often withheld by the trustee until there’s evidence that the seller pays it because otherwise it becomes the obligation of the buyer to pay this.

Who can work as a trustee?

First of all it can be a Czech public notary, it can be a bank, it can be a solicitor, or really it can be any one who works as an independent third party.

Generally speaking, a Czech notary charges the most but his exact fees are determined by Czech law.

Banks charge less than the notary, their fees are typically around 0.2% of the deposited amount with a minimum fee of $4000 to $9000.

With a solicitor you can usually negotiate the price of the escrow. Sometimes real estate companies offer to act as escrow agent; you’d have to be really careful in this case because they’re not governed by law and it would be very hard to recover your money in case it was taken.

So I hope this explains the basic use of an escrow in Czech Republic.

Nathan Brown www.czechpoint101.com

You can ask any questions about this video or the Czech property purchase process in general, by contacting us: info@czechpoint101.com.

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Watch the first part of Nathan Brown's three part video on how to sell your property in the Czech Republic for maximum value.

 Part Two will follow tomorrow!

We have now assisted, and continue to assist, hundreds of investors with their property investments in Czech Republic and there are some recurring mistakes that we have seen them make.

Those who have done the worst in their investments usually made one or all of the following mistakes:

1. Not performing their own due diligence on the numbers given.

This continues to blow my mind when investors trust the word of marketing agents and put in substantial capital of their own without sitting down for a few hours to work through the numbers themselves.

Is positive cash flow being claimed? An investor should work out through the numbers and ask some questions. At what level LTV is a positive cash flow claimed? What are additional costs each month which would erode cash flow?

By doing some basic due diligence on real estate websites an investor can also check whether the claimed rents are realistic and whether their purchase price is in line with the market average.

I can assure you that lots of investors would have wished they would have traded a few hours of due diligence for the massive amounts of money (and most likely money earned through much effort) they lost in blindly believing a marketing agent.

This is not to say that marketing agents are deliberately trying to mislead people but sometimes even their sources of information could be wrong. Good agents will encourage you to do your own research on the numbers.

2. Not visiting the development or investment before purchase.

Although a saavy investor can find out a lot about the development through pictures and floor plans, a visit before choosing your flat can often pay off hugely in the long run.

Does one side of the building face a noisy intersection or directly into another building? These things will limit the ability to resell the property and achieve maximum rents.

As well, in some areas (and especially in Czech Republic) locals will shy away from any flat which could somehow be reached from the ground, because of security reasons. The height off the ground can sometimes be hard to determine only from pictures and floor plans.

Another major factor is the area that the development finds itself in. The marketing material may hide the ugly industrial factory which is just around the corner but a visit onsite will give an investor the complete picture.

It is vital to approach a deal with eyes wide open.

3. Selling out of the investment too early.

How many who bailed from the stock market in the doldrums of 2008 to 2009 now wish they would have held on for a couple years? (As a reference please see the article: 3 Lessons Learned From A Stock Market Crash Applied to Property Investing)

A good thing (and also be a bad thing) about property investment is that it is not extremely liquid. The barrier to retrieving your money from the investment is quite high. This is actually a good thing because it forces investors to spend some time thinking about whether they should really sell or not.

However, too often we see investors bail on their investments because of a short-term downturn or problem. Did a vacant period extend longer than you’d expected or rents have not increased over a couple year period? A problem tenant cause some headaches? Don’t throw out the baby with the bath water!

4. Not viewing the investment as it currently is.

Many property investors are in the unfortunate circumstance that the property has gone down in value since it was purchased.

When comparing purchase price to current value many owners determine that the investment is not performing as they had hoped and decide to move their money elsewhere.

However, what they fail to do is reassess the investment at the current value. If they were to sell and get their capital out, where would they move their money? At the current value is the rental yield good? What is the prospect going forward on this investment?

Nathan Brown www.czechpoint101.com