It’s no secret that foreign investors are changing the real estate landscape in the U.S. right now, especially with respect to the luxury market. According to the National Association of Realtors, more than $82 billion worth of homes were sold to international buyers in the 12-month period ending in March 2012. Buyers from China and Hong Kong alone accounted for $9 billion in U.S. home sales during that same time period, and that doesn’t even consider the large number of private sales transactions not officially reported.
My own experience supports what the numbers are showing. Over my career, I have sold many homes to buyers from all four corners of the world, but the pace at which I’m seeing transactions involving foreign buyers now is faster than ever; and it is only going to continue. So if you’re a broker, it’s imperative that you’re prepared for this ongoing shift, whereas The Agency’s CEO Mauricio Umansky says, “global is the new local.”
Here are five essentials to keep in mind when dealing with foreign buyers:
Foreign buyers are purchasing a home/investment in unknown territory and need to feel they can trust you, their agent, to guide them through the process. They want to know they are making a good investment and buying in a location that fits their needs and desires. They want to know that you are an expert in the area and that you understand how to work with international buyers.
Make sure the buyer understands the escrow process
Purchasing a home in other countries is not the same as it is in the U.S. Most foreign buyers are not accustomed to buyer’s agents, and think they must work with the listing agent of each property. The process of an offer in some countries can be as simple as handing the owner or listing agent a deposit check. If the buyer is not fluent in English, it is recommended that a translator be available. It is also essential that the buyer fully understands the escrow process. I have my title and escrow officer meet with the buyer to explain their part of the process.
Many foreign buyers prefer cash over loans
Many foreign buyers and investors pay cash, but financing is readily available. Most of my clients go through HSBC, as they can obtain a 40 percent down loan, with a $100,000 deposit with the bank and a one-year reserve. There is, typically, a $1.5 million loan limit. If the buyer is paying cash, be sure to consider the amount of time needed to transfer funds from other countries. At times it is seamless, but often there can be complications.
Be aware of different tax laws
Foreign buyers have different tax laws, and I highly recommend a U.S. tax adviser/CPA who is familiar with the laws in the country in which the buyers are residents. When foreign buyers get ready to sell, they can sometimes defer capital gains taxes with the 1031 Exchange program, but there are many rules that have to be strictly followed. It is best for the foreign buyer to consult a tax attorney, real estate attorney, CPA and/or a trust attorney to understand the long-term implications.
Respect cultural differences
Doing your homework is key, and that includes understanding the basics of the buyer’s culture. They will, in turn, appreciate your willingness to learn. As an example, I had one client whose culture would not allow him to shake hands with a woman who was not family. I have clients from other countries who only bow when an introduction is made. Being aware and respectful of their culture will aid in your long-term relationship with your new client.