Published on Saturday, November 04, 2017 by Land Century
If you try buying foreign real estate on your own, it may work out, or you may enter a deal that isn't in your favor.
When sellers deal with foreign buyers, there is a saying in the industry: "prepare for the unexpected."
Cultural and Traditional Differences Impact Deals
International real estate deals involve different cultures and traditions. In some cases, this is not an issue at all. But in other cases, it can mean an entirely different experience for the buyer or seller.
A few key points of complication, include:
» Negotiations. Some cultures are groomed to negotiate a lot. This negotiation goes beyond the initial negotiation. Oftentimes, the negotiation will continue right to the time of closing, making any contact with the individual a hassle.
» Quick Acceptance. There are some cultures and traditions that will come in, offer a price that is aligned with what the seller is asking, and go through the deal without much negotiation at all.
» Emotional and Personal. You might insult a seller by offering a lower price than they're asking. Depending on the country and location, the property may have a significant emotional and personal aspect. These aspects can result in sellers becoming insulted by offers that are too low and ending a potential deal in some cases.
Tradition and culture will play a role in international real estate deals.
Borrower Requirements Differ
Foreign buyers have different borrower requirements. Foreigners have different rules when they need to apply for a mortgage. An all-cash deal is obviously the best option, but when this isn't possible, buyers will often need to:
» Provide a larger down payment
» Deposit a guaranteed amount in a local bank
International credit and assets are harder for lenders to verify. Since this is the case, the buyer must provide some proof that they're able to repay the loan.
There are also complications due to residency status. International buyers often fall into the following categories:
» Foreign nationals
» Non-permanent residents
» Permanent residents
When foreign buyers need to file for taxes, they will need to obtain a taxpayer identification number, depending on where they're buying real estate. A foreigner buying U.S. real estate that doesn't have a social security number will need to apply for an individual taxpayer identification number.
Realtor or Broker Experience is Key
Realtor.org recommends that any foreign transaction be conducted through a realtor that knows the differences in international transactions. The National Association of Realtors (NAR) found that between an 11-month period between 2014 and 2015, 209,000 homes were sold to foreigners in the United States.
Transactions totaled over $100 billion during this time span.
International sales increased by 7% during that one-year span, and this figure is expected to continue for the foreseeable future.
Now, considering that these deals only account for United States transactions, it's safe to say that there are exponentially more foreign sales across the world.
The key most important thing is working with someone that has experience with international sales. You need to pick a team that will allow you to navigate the most important aspects of being a foreign buyer:
» Cultural traditions
Legalities are the most important consideration because they can mean the difference between a costly transaction, a smooth transaction and a potential scam.
If you don't have someone with experience helping you, you're at risk of being involved in a scam every investor's worst nightmare.
Unusual Factors Complicate Deals
Foreign transactions, at least when foreigners buy US real estate, are often made in cash. The cash deal is ideal, but 40% of sales aren't in cash. Even when the deal is conducted in cash, this doesn't mean that there aren't unusual factors that get thrown into the mix.
In fact, there are factors that need to be carefully considered before moving forward with a deal:
» Currency transfers
» Identity verification
» Credit verification
» Purchase agreements
You'll often come across purchase agreements that are nonstandard, so you'll need to have a lawyer look over the agreement to ensure it has a solid legal basis.
International fund clearance into the United States is a major issue when deals have sums over $10,000. There are also times when the buyer will ask to have additional time to take advantage of higher currency rates that work in their favor.
Now, while we mention the United States, these issues can and do occur all across the world.
If the buyer falls through, it may be more difficult to secure monetary compensation. Some real estate deals lock the buyer into a contract wherein they're required to pay the seller compensation if the deal doesn't materialize. For example, the seller may take the property off of the market, while the buyer has a one-month period wherein they are required to secure financing.
In the event that this period passes and no financing is secured, the buyer may agree to pay $2,000 for the seller having taken the property off the market. Pursuing these funds from a foreigner is much more difficult.
Litigation against a buyer is also much more difficult when they're foreigners.
Legal Ability to Own Real Estate
If you're a foreign national, you may not be able to legally own real estate in your desired country. This is a very complicated matter because you can satisfy everything needed to purchase the property, even the monetary compensation.
But if the law doesn't allow foreign nationals to own land, it's a fruitless endeavor.
Dubai, for example, didn't allow foreign nationals to purchase property for many years. You must ensure that you're able to purchase property. Some countries may even require you to purchase through a trust, which adds another layer of complexity to the transaction.
Don't expect the seller to know all of this information.
You can waste time and money by trying to purchase international real estate in locations where you can't own the real estate legally.
So, before you get your hopes up and start searching for properties internationally, you must know if you can own the real estate. And even in cases where you're legally allowed to own real estate, you need to know if there are any legal hoops you'll need to jump through, such as creating a trust.
If you choose the wrong location, you may cause yourself more hassle than the deal is worth.
How to Make International Real Estate Deals Smoother
You can make international real estate deals smoother. The key most important things you can do to make these sales smoother are:
» Work with a team of experienced professionals that can help you work through the negotiations and conflicts of dealing with international buyers or sellers.
» Keep cultural and traditional norms in perspective. You may make one wrong move that makes a transaction impossible because you insulted the buyer or seller.
» Set closing dates a little further in the future so that you can allow more time for money transfers, contract verification and financing.
Working with someone that has experience dealing with international real estate deals is the best thing you can do at this point. People are purchasing real estate internationally on a daily basis.