Buying an Apartment in Russia
I first bought an apartment in Moscow in 1995. The seller was a Russian who had emigrated to Canada. He had been dispatched to Moscow by his wife to sell their two-bedroom (three room in Russian parlance) apartment and come home with the money. Failure was not an option. The apartment was within walking distance of a metro station, close to central Moscow but not too close, overlooking a park and situated on the fourth floor of a building that was constructed in the 1940’s. The ceilings were high, important in Russia, and the windows were large. I still have it today and always will.
The seller and I were inexperienced but didn’t want to admit it. I had bought property in the US but used a real estate agent who arranged everything. My involvement was signing documents, making me an expert. In Russia, the seller and I were on relatively new ground. Apartments could be purchased in Russia as of 1992 and some of the rules about selling real estate were a work in progress in the mid-90’s. There were few licensed real estate agents at the time. The Canadian and I were figuring out what to do as we went along.
After agreeing on the price, the seller and I got into an argument. He wanted to be paid in advance, after which he would transfer title to myself. I argued in favour of the opposite approach. We bickered fiercely. Finally, it dawned on us that we could use Escrow, arranged by the seller’s lawyer in Canada. After that, the deal was done.
The second apartment I bought was a kommunalka. This is an apartment occupied permanently, often for several decades, by several people and their families dating back to Soviet times when such an arrangement was common. After the fall of the USSR, the apartment we wanted to buy was privatized, and ownership was split between three parties who despised one another and wanted desperately to move. To pass title on to us, the occupants wanted us to buy property for them. We agreed to buy three smaller apartments, simultaneously, at no more than a given total amount. One flat went to an elderly woman, the other to a single man and the third to a mother and her daughter. The single man and elderly lady quickly agreed to the apartments we found for them. After that, the mother wanted us to buy a much bigger flat than she deserved. Several heated discussions took place. We were finally able to close the deal when I threatened to pull the plug and walk away from the entire mess. Eventually, we signed an agreement saying that once the three apartments were purchased by ourselves, the titles would be transferred to the new owners at the same time as the ownership of the apartment we were buying was put in our name. All of these arrangements were laid out in several lengthy contracts. We used a verbose lawyer who was in contract heaven and managed to pull it off.
Each of the three apartments were purchased by paying in cash. By cash, I mean paper money, Roubles. After doing the title search and inspecting the apartment, it was time for the deal to go forward. The title search was not as formal as I wanted it to be. It was up to our lawyer to check the title history and occupancy status. In most cases, it is not extensive. Before 1992, apartments in Russia were owned by the state, thus the title history is normally short. There were other considerations, especially about who is registered in the flat as a resident. Likewise, inspecting a property is not done as extensively in Russia as in the US. I would always bring in someone to inspect any property we wanted to buy and was looked upon as a foreigner with a dim understanding of the way Russians do things.
After we had determined the titles were clean, it was time to pay for the flat using a safe deposit box, an accepted practice for buying property in Russia. A safe deposit box was set up with a key that was held by me, the buyer. Then, sitting in the basement of a bank, I counted out the cash. The sellers would insist that the cash be counted out by hand in addition to using a cash counting machine. The buyer does the counting. Once the Roubles were counted, the cash went into the safe deposit box and the key went to the seller. The lawyer would then transfer the title and after that, the seller would be allowed access to the safe deposit box by the bank within a certain number of days to retrieve payment. All these steps were laid out in the purchase agreement after care had been taken to make sure all the documents were in order for the title transfer.
In the mid-1990’s the banks in Russia were not as well organized and civilised as they are today. At the time, the real estate market was active, and few banks had reliable safe deposit box facilities. On the big day, I withdrew cash from my own account and took it to another bank in a briefcase. There were a number of scruffy people standing at the entrance. I was relieved when I got to the basement of the bank and could begin counting.
A safe deposit box remains the most widespread form of payment to purchase real estate to this day, although the Russian banks handle the entire process. No longer is it necessary to sit down and count out the cash by hand; these days the banks can do it. Another option is to open a letter of credit with a bank to arrange the sale. Since in 2012, escrow accounts are available at many Russian banks. Things are gradually changing, although buying with cash continues to prevail.
In 2019, a new law was passed requiring that escrow accounts be used for the purchase of flats in buildings that are under construction. This makes sense. I have purchased two apartments in buildings that were not finished when I made payment. At the time, Russia was in the middle of one of its periodic financial downturns and we paid in cash by bringing money to the office of the seller. These factors brought down the price. I swallowed hard and paid in advance for apartments that were constructed several months later. The apartments are now rented out. All is well than ends well.
I highly recommend counting out a large pile of cash by hand. It is erotic. Those who haven’t tried it should give it a go. It is good for married couples. Buying real estate gets the blood pumping and when paying cash, the excitement level goes up as fantasies come to mind about how the money could be used to buy all sorts of things. Afterwards, I couldn’t sleep. It was a lot more interesting than plain old Escrow.
Copyright 18 October 2020