Day 34: Step #10, Finding New Digs Overseas
The Process Of Purchasing Property In A Foreign Country
Dear Student,
Today, one more topic I want to address for you related to finding new digs overseas: the process of purchasing a piece of property in a foreign country.
If and when you decide to invest in a home of your own in your overseas haven of choice, it will help to have some idea in advance what the process of acquiring it will involve.
The real estate purchase process varies by country, but, generally speaking, there are three steps:
Step #1: Make the offer…
Step #2: Sign a sale agreement…
Step #3: Sign the sales contract.
To you and me it may seem that the sale agreement and the sales contract should be the same thing, but, in most countries, they aren’t. In most of the world, the first one is not a purchase agreement but a “promise” to sell; the second one is the closing document that results in the property being titled in the new owner’s name.
Specifically, here’s how this typically works:
- You make an offer. Most offers are made in person or by telephone, either directly from the buyer to the seller or through a real estate agent. Offers are not typically conveyed in writing. Depending on the market, your offer can be a starting point for a price negotiation. You should seek some advice in advance from others with experience in the market as to what’s culturally acceptable on this front. Should you make a low-ball offer with the intention of meeting the seller midway between that number and the asking price? Should you offer 10% less than is being asked? Should you expect a counter-offer? Etc.
- You execute a sales agreement (promesa de compraventa in Spanish or compromise de vente in French). This can be an optional step depending on the country and whether you’re ready to move to the closing right away. The promesa is a binding contract that outlines the terms of the sale to come. It’s similar in function to a real estate sales contract in the United States and includes terms regarding the down payment (including under what conditions it is refundable), spells out terms for full payment, sets a closing date, and specifies penalties for default. If you’re buying in a country where it’s possible and where you’re planning to obtain local bank financing for the purchase (in many European countries, for example), your sales agreement should also contain a condition stating that, if your application for a mortgage is not successful, your deposit will be refunded.
Note that, in France, you have a seven-day “cooling off” period from the date you sign the compromise de vente, during which time you can withdraw from the sale without penalty but the seller cannot. A word of caution: I read about a couple who bought a home and then decided, during the cooling-off period, that they had made a mistake. They tried to contact the notaire and then the agent on the seventh day only to find that it was a national holiday in France and both offices were closed. The sale went through. Moral of the story: Make sure your notaire will be available during your cooling-off period.
- You complete the closing documents (escritura de compraventa in Spanish or acte authentique in French). The escritura (or acte authentique, etc.) is the final document and serves as the deed to the property once it’s been recorded in the local property registry. Until this document is registered, the title is still in the name of the previous owner. Your notary generally should record the new escritura the day you sign it, though, sometimes, depending on the country, this document might not be recorded until a few days later.
In some extreme cases—when buying in Italy or Croatia, for example—it can be that the sales agreement is recorded (blocking any other sale of the property by the previous owner) while the government processes their paperwork to approve you as a foreign buyer. When we bought our farmhouse in Croatia, the actual title wasn’t registered until more than a year after we’d paid for the property. Meantime, again, the executed sales agreement was recorded to protect us against the previous owner selling the place we’d already bought out from under us.
Your attorney or notaire will manage the purchase process for you, but you want to understand at least big picture what’s going on and what you should expect. If you don’t speak the local language, your attorney should provide a translation of all the documents you’ll need to sign. Note, though, that, everywhere in the world, a contract must be signed and registered in the local language to be legally valid.
The timing of each step becomes important if you’re not living in the country. You don’t want to book a flight to the country for the closing of your purchase only to have the closing delayed.
If you don’t plan to return to the country for the closing, then you should obtain a power of attorney in that country before you leave, as it is definitely easier to do this locally than long distance. Depending on the country, you may need to have the power of attorney notarized (by the embassy of the country where you’re buying) or apostilled. Obtaining an apostille requires a trip to your state’s Secretary of State’s office (or other similar national government office if you’re not in the United States).
A typical down payment in most of the world is 10%, though depending what you’re buying where, you may have to put down as much as 40%. In the case of the apartment we bought in Medellin, for example, the seller wanted 30% down because we’re foreign buyers.
The down payment is typically made at the time you sign the sale agreement.
The period between the signing of the promesa and the signing of the escritura (that is, between the sale agreement and the closing) is your chance to carry out your final due diligence. You’ll want to have vetted the purchase for the most part in advance of signing the sale agreement, first, because this is a binding document and, second, because the length of time and/or the limits on the conditions you can include in the sale agreement typically do not allow for complete due diligence.
Some countries (Panama, for example) have computerized central property registries making it easy for any attorney to check on the history of ownership for any property in the country. All that’s needed is the property’s registry number. Other places, where there is no such centralized property registry (in Nicaragua, for example), your attorney will have to go to the local mayor’s office to check the title registry locally.
This is a general overview of the property purchase process anywhere in the world. This is how it works in most of Europe and in most of Latin America. However, if and when you eventually decide to purchase a home in another country, ask the real estate agent or the real estate attorney you’re working with for a complete outline of the local purchase process. He should have this in writing in English. If he doesn’t you should think about finding another agent or attorney (one who is more experienced working with foreign buyers).