Overcome Global Barriers

Overcome the Barriers that Stand between You, Your Client, and the Closing Table


Real Estate professionals know that every real estate transaction is unique, each with its own complexity. However, professionals that work with global clients know that international transactions can be some of the most challenging- but also the most rewarding– to facilitate. Knowledge and preparation are essential to completing a successful transaction. The onus is on you to help your clients steer clear of potential obstacles.

According to NAR’s 2013 Profile of International Home Buying Activity almost a quarter of all U.S. REALTORS® who reported having international clients said that they never made it to the closing table. The inability to overcome language and cultural barriers could account for some of these unsuccessful transactions, but other obstacles can also derail a transaction, including lack of understanding of how real estate is practiced, currency fluctuations, taxes, visas and financing arrangements. If you want to become a successful global agent, you need to learn about these differences and help your buyers work through them before unexpected problems become insurmountable. Is the extra time and energy worth it? Absolutely! When you consider that last year the sale price of U.S. homes purchased by international buyers was $95k more than the median price of all transactions- and that more than 60% paid cash, there are legitimate reasons to work harder for these buyers.

No Two Countries are Alike

How real estate is bought and sold around the world differs drastically from country to country. The system in place in the U.S. is quite unique. Educating international clients can be pivotal in determining whether the time spent with these buyers result in a completed transaction.

When you work with a global client, assess their understanding of how real estate is practiced.   U.S. agents working with international clients should address the concepts listed below. It is more than likely that many aspects of the U.S. system will seem foreign.

  • The Multiple Listing Service
  • Listing Agreement
  • Agency
  • Agent & Broker Cooperation
  • Agent Compensation
  • Agent Referrals
  • Comparable Sales Data
  • Disclosure
  • Elements of an Offer and Negotiations
  • Steps and Parties at Closing

Currency Issues

Currency concerns should be top of mind when working with international clients. Buyers from abroad can spend significantly less- or more- on a property due to nothing more than the ebb and flow of exchange rate movements. If your buyer’s funds are located in another country, the price of a property could shift tens of thousands of dollars in the time it takes to close due solely to currency fluctuations. You should monitor exchange rate trends and educate your buyers. Work out scenarios that show what funds will be needed at closing using today’s exchange rate, a higher rate and a lower rate.

Financing Hurdles

Even if your foreign client is credit-worthy, obtaining a mortgage may be a lengthy and complicated process. It may be difficult for an international buyer purchasing U.S. property to provide the necessary financial information and credit history associated with U.S. underwriting requirements. This likely explains why the majority of foreign buyers purchasing in the U.S. pay with cash. It is important to address the question of financing with your client prior to looking at properties. Educate your buyers on the process and encourage them to start assembling required financial information as soon as possible. Additionally, if you are working with Muslim buyers, be sure you are acquainted with banks offering Sharia financing. The Koran forbids interest-bearing loans. However, there are financial institutions that offer financing options through which the lender sells property to the buyer on a cost-plus basis.

U.S. Visa Challenges

While the U.S. places few restrictions on foreign ownership of real estate, foreign buyers do face restrictions on their use of and access to property. Foreign visitors to the U.S. from countries participating in the Visa Waiver Program (VWP), including most European and many Asian nations, can stay in the U.S. for 90 days, during which they can purchase residential and business property. However, to conduct business, they must apply for a visa. There are many different types of visas, each presenting different restrictions. Before you show your clients properties, be sure you know your buyer’s visa status. Encourage your buyer to speak with an immigration attorney who can guide them through the process.

U.S. Tax Concerns

All U.S. property transactions made by a foreign entity require a Tax Identification Number (TIN) or an Employer Identification Number (EIN). Ask your clients upfront if they have one. U.S. laws surrounding income, capital gains and state taxes on foreign nationals are very complex. It is important to encourage your global clients to seek expert advice from a tax professional. The tax status of a foreign buyer can significantly affect the realized gain on a residential property and the net income on a rental or commercial property. At the time of sale, it can necessitate withholding of sales proceeds prior to tax determination, and it may dictate how funds are repatriated to the seller’s native country. Anyone, whether native-born or foreign, should examine tax considerations before initiating a real estate transaction.

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Knowing the hurdles associated with international transactions can prevent you from becoming blind sighted in the midst of closing a deal. Education and preparation is central to your success.  The Certified International Property Specialist designation (CIPS) can help.  Each CIPS course offers in-depth study, as well as practical resources, to help you serve international buyers and sellers. The coursework will teach you what you need to know to confidentially clear these hurdles.

For more information visit www.realtor.org/earncips.

Katie Stouffs

Katie Stouffs (CIPS, GREEN) is the Director of Communications, Marketing and Business Development for the National Association of REALTORS® Commercial & Global Services division. She can be reached at kstouffs@realtors.org.

New Changes to FHA Mortgages

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Will FHA Changes Affect You?

FHA loans are one of the most popular loans home buyers obtain.  They are mortgage home loans insured by the Federal Housing Association that are popular with first-time homebuyers because they make buying a home easier, or possible, thanks to less rigid borrower requirements.

Two Changes For Buyers

  1. The first change takes place on April 1st.  It may not seem like that big of deal for most homebuyers, but the FHA will increase its mortgage insurance premiums by 0.1 percentage points, for all new loans.  While that doesn’t seem to make a huge difference for your payment, the 2nd change that takes place June1st will.
  2. One June 1, 2013, the FHA will no longer cancel FHA Mortgage Insurance Premium (MIP) once an insured mortgage reaches 78% loan-to-value (LTV). Instead, FHA mortgage insurance will last for the loan’s full lifetime (which can be up to 30 years). The agency is making this change because roughly 12 percent of all FHA default claims occur on loans for which homeowners no longer pay MIP; and because home values are known to rise and fall. By collecting FHA MIP for the full 30 years of a loan, the agency can minimize future loss and more quickly recapitalize its reserve fund.

Below is an example with a purchase price of $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term.

(Currently, when the unpaid balance reaches 78% LTV of original purchase, the MIP on FHA loans can be released after five years.)

The FHA’s mortgage insurance changes don’t apply to mortgages closed prior to the April 1st and June 1st deadlines.

Therefore, if you’ve been considering an FHA mortgage for your next home purchase, or a refinance via the FHA Streamline Refinance program, don’t delay. The longer you wait, the more you will pay in mortgage insurance.

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