INFLUENCE OF BUYER’S REMORSE ON VALUATION STANDARDS (PART-II)

INFLUENCE OF BUYER’S REMORSE ON VALUATION STANDARDS (PART-II)

I am providing following examples to enlighten the influence of Buyer's Remorse. I have avoided to note the names, the city and specific information for the purpose of maintaining confidentiality.

1. After following SARFAESI and DRT rout the lender NBFC obtained physical possession of a mechanical workshop. Land & Building was duly auctioned on as is where is and as is how it is basis. A Buyer obtained the asset in auction. NBFC had auctioned Plant & Machinery independently. The Buyer received a notice from the Buyer of Plant & Machinery demanding permission to remove some parts of the plant which were attached to trays running the cables at gantry level. After a small bout of heated arguments, both agreed and the Buyer of Plant & Machinery literally torn the trays, snatched the cables and accessories and left the workshop building in tattered condition.

The Buyer of L & B was happy when he got the bid for the low costs and he had dreamt of selling the asset at a market value which was showing substantial profits as per his (private) Valuer. However after removal of P & M, which left the building in practically dilapidated condition his dreams shattered! The Buyer went into remorse and permanently decided not to venture in such purchases, which he wanted to make a regular practice, and had quarreled with his (private) Valuer and charge him for insufficient services.

Conclusion:- Buyer's Remorse ended in strained relations with NBFC, Valuer and lost faith in the entire legal procedure.

1. The Improvement Trust, an approved Planning & Development Authority, auctioned a few plots, in a newly developed locality. The auction took place in the office of the trust. One Buyer quoted the highest bid for one residential plot admeasuring about 40 ft. x 100 ft., which was only one left over in aseries of several plots with buildings. After paying 50% up front, he was permitted to pay rest of the amount with installments carrying 10% rate of interest for a span of 5 years. After four years and making 90% of payments and interest component besides Stamp Duty & Registration charges etc., he decided to obtain services of an Architect, a Contractor & proceed with building activities. When the Architect measured the plot, he found that the measurement was about 25 ft. wide because of all plot owners in the block had encroached upon adjoining plots by constructing compound walls with the result plot shrunk. The Improvement Trust had Building Bylaws permitting the actual area of the plot for FSI calculations besides minimum side margins each 10 ft. reduced the final width of building a long road to 5 ft. The Buyer blamed the Improvement Trust for not action against the adjoining plot owners, whereas the Improvement Trust blamed the Buyer for not reading the conditions of auction properly which stated “as is where is”. Both fought legal battles in Court of law and finally the Buyer lost the case at huge cost and expenses besides the payments made to Improvement Trust.

Conclusion:- Buyer went into remorse. He quarreled with the Architect blaming him for not obtaining the proper building permit, the Advocate for losing the battle and lost faith in the judiciary and the system.

1. A Buyer purchased a good located plot in a layout of a Co-Operative Society. The Public Utility plot was surrendered at Rs.1/- to Planning Authority. After the layout was fully developed with all amenities and buildings, the Planning Authority reserved the Public Utility plot for crematorium. The Buyer's plot and the PU plot were having common plot boundary at the rear margin. After the reservation and finally construction of crematorium, the Buyer not only lost interest in residing in the building but could not sale off the asset since there were no takers. The property values had escalated in the layout but all the plots within close proximity to crematorium lost substantial values and practically all of them abandon their asset including the Buyer.

Conclusion:- Buyer went into remorse and fought a legal battle with Managing Committee of the Co-Operative Society & lost. He blamed everyone including his Architect for not checking with the Planning Authority for reservation, his Broker for deceiving him.

1. A Buyer bought about 6000 sft. plot in a layout approved by Planning Authority. The layout was on a private property and the open space was claimed as ownership & possession of family members. They made a ploy of dividing between two groups and clamming the four divisions of the open space as independent parcel of lands named like 10 A, 10 B, 10 C & 10 D, each one being corner divisions because of central position of open space having road all around as per rules. The battle was fought amongst the two groups in the District Court and obtained the verdict on allotment to each one. Thus “the issue” was resolved and these so called “plots” were duly recorded into City Survey. The Buyer mortgaged the “plot” with a Nationalized Bank as a surety / Partner of a company. The Panel Advocate provided the title clearance certificate on the basis of the City Survey Record and further valued by Panel Valuer.

After three years, as a routine, the Bank obtained revaluation from second Panel Valuer, who issued almost 1.5 times valuation on the basis of time lag from first valuation certificate. The Buyer applied for higher loan limit and got it. After six years the same procedure was repeated and this time the Buyer applied for still higher loan and Banker “insisted” upon the third Panel Valuer. However the third Valuer demanded all documents, made a site visit alongwith the Buyer and Bank Manager, went through all the plans, the Court order, City Survey Record & enquired with the Planning Authority and found out the entire transaction was “bogus”. The Bank Manager insisted upon just a certificate of two times a value and the Buyer argued that third Valuer “demanded extra fees”. However the third Valuer did not oblige. The result was he was side tracked and Bank never gave him any assessments.

Conclusion:- The Buyer went into remorse. However his frustration was that he failed in obtaining higher loan. The Banker did not sanction. However no action was taken against the Buyer, the first and second panel Valuers as well as Panel Advocate. In this case the Buyer arranged all false documents and availed loans for first and second time but failed to repay the installments and the account become NPA. All the persons involved excluding third Valuer, “Helped each other”.

1. The Buyer adopted the same procedure with another Bank, the history repeated one once and finally he landed in prison. This Buyer's remorse because of ethical practice of third Panel Valuer, who lost his assessments for his honesty.

Conclusion:- The Buyer's remorse out of the above four instances shows the tricks & manipulations played by the other stake holders. Except the Buyer in the fourth instance, all were partially or fully ignorant about the whole episode resulting into remorse because of (1) Belief against Belief, (2) Non belief against belief converted into disbelief, (3) Disbelief against non belief and (4) Conversion into diehard criminal after “managing” the system.

1. The four categories of remorse are happening around us. As Valuers, we also fall pray if we “just believe” and side track our responsibility and methodical follow up of each and every assignment with due diligence and ethics. It is many important that Valuers must study all material and submissions produced by all Buyers or Purchasers without exception. Usually if we try to “find out” any lacuna, we don't “see it”. However if we make a diehard habit then we can reverse the process. If we “see”, then only we “find out” and not otherwise. A skillful Buyer, with remorse, can very easily use it either as revenge or misrepresentation. The study of documents of past and present will surely save the Valuer from the curse of the Buyer's remorse.

Conclusion :- The Buyer always feels that his spent more for buying an asset. When he becomes Seller he always feels that he receive less value. As a Buyer he is require to pay for Stamp Duty, Registration charges etc. over and above the transaction value. Therefore he tries to reduce the Stamp Duty by providing incomplete and shoddy description of asset. The Seller, being oblivious to such extra payments, over look such action. However when the Buyer becomes Seller and expects higher value, he comes under the trap of Capital Gain Tax if the cost of acquisition at an earlier date was less because of the description. If the transaction value is more than the Sale value for Stamp Duty purpose, both are grilled on account of income head “income from other sources”. Both become disillusioned and blame the Brokers, the Tax Man & also the Lawyers. A tendency of avoiding taxes is the outcome and if both continue with similar transactions of buying and selling, they try to devise various nefarious means and forget that the digitization and rapidinvestigations are good enough to catch them in tax nets and penalties at any time.

There are a few examples as under:

1. Mr. A purchased house property for Rs.1.5/-Cr. by cheques and Rs.1/-Cr. by cash from Mr. B. The ITR were filled at even the Seller Mr. B obtained refund. However after 2 years Mr. B got a notice from ITO for Rs.1/-Cr. undisclosed income and ordered to pay the Income Tax with penal interest and fine. Mr. A also got the same kind of notice and both were sailing in the same boat. The ITO obtained information of undisclosed transactions from spending patter Mr. B and faulty ITR filled by Mr. A previously.

2. Mr. A sold asset to Mr. B by way of Rs.2/- Cr. received in account and Rs.2.5/- Cr. by cash. In next 2 years, he spent on marriage of his daughter, bought motorcycle for his son and the family enjoyed a foreign trip. The transaction shown were meager but the recipients like owner of marriage lawns, the purchase of costly accessories for motorcycle, the executive class air travel and 5 star hotel stays were linked and
   

he was summoned, charged and prosecuted by IT Department. Mr. B was also linked in the same manner for fraudulent transactions.

1. A family of four brothers sold their agricultural land and retained four plots for the future layout at very high value than agricultural land. The plan was devised with the help of a Developer known for such transactions who assured them that they will not be required to pay any Capital Gain Tax. The Sellers did not file ITR since they were fully convinced. They spent the cash received in installments less than Rs.20,000/- each, equally paid in monthly installments total amounting to Rs.4/-Cr. Each one spent the amount lavishly and nothing left to pay taxes in the end. However the Developer did not obtain layout approval and development for next 3 years. All these transactions were investigated from the digital accounting linked to several other persons with whom they lavishly spent. Result was disastrous.

These are some of the examples and all of us have come across several such examples while assessing for taxation. The Buyers & the Sellers were trying to avoid taxation. Concealment of income was probably out of remorse from previous experiences. They might have been advised in a wrong manner but a peculiar tendency reveals that taxation and the aftermath of avoidance have resulted in antisocial tendencies. Everyone was against paying taxes, duties and lived into a fool's paradise. Probably their near and dear friends and relativeswere responsible in passing the unlawful tactics as a result of their own Buyer's Remorse.

Conclusion:- There are continuous changes, up-gradations, checks and controls to curb the remorseful activities. It's a cat and mouse game. More the stringent ways, more will be slips from the clutches. The rapid digitization and Artificial Intelligent are able to notice the methods adopted by the culprits i.e. the Buyer's with Remorse. The rapid availability of data may be handy for Valuers provided they take the help of AI. The check and cross check of documentation, the purposely avoided transactions, insufficient data for providing weights in valuation etc. can be identified. Such Buyers will be classified as habitual defaulters. Even their stake holders, advisors etc. will be linked into a neural net and permanently recorded for cross verification for any such transactions in future. The speech recognition, the language, the translation etc. will provide vital information.