With the United States (especially California) becoming a more and more expensive place to live (not to mention, dangerous), international investing has become a hot topic over the last few years. Markets like Portugal, Mexico and Italy have gained in popularity for Expats and retirees.
But isn’t it hard to buy property in another country?? Well, I guess that depends on the country...
When I made my purchase in France, I knew one thing.. that I knew nothing. Even though I’m a real estate agent in California, I had no clue how real estate worked overseas. But I didn't let that stop me from buying.
Throughout my 7-month buying experience in the Cote D'Azur, I noticed at least six key differences between buying real estate there compared to Silicon Valley...
1. Negotiations
In France, the negotiations start off verbally before any kind of written agreement is made. After the price is verbally agreed upon by the buyer and seller, the notary (aka Notaire) creates a contract called a "Promesse de Vente."
In California, when our clients submit an offer on a property, they do it in writing. We have had some occasions where we send verbal offers to the sellers, but those usually don’t go anywhere. A written offer shows the seller that the buyer is serious about buying their house. A verbal offer is usually a less serious buyer who is probably looking for a deal.
2. Financing
When we write offers in California, the buyer submits their offer with a pre-approval letter to show that they are qualified for a loan of the amount needed for the home, along with proof of funds to show that they have the money for the down payment and closing costs.
In France, there is no pre-approval letter and there is not even any kind of credit rating system. So the rate you get is simply based on your income and expenses for the last 3 years. And what is also interesting is that each bank individually approves and denies a buyer’s ability to obtain a loan. Even if there is a large bank with offices in different cities, then each branch will decide whether or not they want to offer a loan to a buyer.
That being said, it can be difficult for international buyers to get financing in France. If that’s the case for you, then be sure to talk to multiple banks in the region where you want to buy.
3. Loan Terms
The loan terms are also different in France. The loan that my bank offered me was at a fixed rate mortgage for 20 years. I was fortunate to have optimal timing when I made my purchase, and I was able to obtain an interest rate of 1.45%! At that same time in the US, rates were in the low 3% range.
During the loan approval process in France, the bank had me complete a health questionnaire. I had to attest that I had not been hospitalized within the last 10 years and that I did not have any terminal illnesses. I’m guessing that they don’t want to issue loans to sick people in France.
Even though France has extremely high closing costs (mostly due to the notary fees), the additional amount needed for the down payment is worth it when you calculate the savings over the life of the loan. For example: a loan amount of $175,000 at 1.45% for a 20 year fixed loan equates to about $26,000 in interest over the 20-year span. Compared to the same loan amount in California at a 3% interest rate for a standard 30-year fixed-rate loan, the interest would have been over $90,000. In the US, there are 15-year mortgage options, but most people tend to go the 30-year fixed route.
What I love about the loan in France (apart from the ridiculously low interest rate) is that I’ll have the property fully paid off 10 years earlier than I would if it was in the US.
4. Closing Costs
I mentioned the high closing costs above, but I didn't mention how much higher the closing costs were... In California, the closing costs are fairly low and can be around 1% of the purchase price. The closing costs fluctuate based on various factors, like if the buyer is paying points to buy down the rate or if they are setting up an impound account to automatically pay property taxes.
In France, the closing costs and notary fees can equate to about 5-9% of the purchase price. For lower-priced properties, the closing cost percentages are higher, whereas the percentage decreases when the purchase price increases. See the picture below for an example of how the closing costs are calculated based on the price of the property...
5. Escrow Period
The life of the loan may be shorter in France, but the escrow period is much longer than in the US. From the time I submitted my verbal offer to the time that I got the keys in my hand, it was about 7 months. Part of the delay was on my part since I had dragged my feet on providing the necessary documentation for the loan. But if I hadn’t taken my sweet time, it still would have taken about 6 months to close on the property.
In California, the standard close of escrow timeframe is around 30 days… however, some transactions can close sooner than that, while others can take longer. Either way, the close of escrow date is indicated on the contract when the buyer submits their offer on the property. When the contract is signed by all parties, the close of escrow date (COE) is a contractual date that the buyers are committing to. If a buyer fails to perform on time per their California contract, then the buyer has to request an extension, and the seller could charge them a per diem for each day they are late. In France, they do not indicate a COE date on their contract, and it just happens when it happens.
6. Furnishings
It’s rare that a property will come fully furnished in California. Sometimes the sellers’ furniture can be negotiated into the contract as part of the sale for an additional fee, but that is not usually the case. Most homes for sale in Silicon Valley are professionally staged, so the furniture is only there for show.
In France, it’s common for the buyer to take possession of the property with the sellers’ furnishings. When I closed on my property in Villefranche-Sur-Mer, the sellers left behind almost everything - some of the items were helpful and useful (like the dresser and kitchen table & chairs), while other things were not as much.
Now that you've read about these differences between buying in California and France, where would you rather buy? Leave a comment and share your thoughts! And if you have experience buying real estate in any other country, how did it differ from here in the US??
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