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A Horse of A Different Color

February 1, 2013

Global agents are aware of the ways in which differences in culture and business practices can complicate transactions. Yet the U.S., Canada and the U.K. share a cultural heritage, a common language, and their governmental and legal systems share roots. How different can real estate practices in the U.K. be?

Astoundingly different, say buyers who have bought property on both sides of the pond. Since buyers’ expectations can create stumbling blocks to international transactions, here’s a primer on the players and the process for buying real estate in the U.K., and the implications for dealing with British buyers in the U.S.

Agent qualifications and compensation

U.K.: There are no licensing or educational requirements for estate agents (real estate agents). Most estate agents work for an agency as salaried employees.

Implications: A brief explanation of licensing requirements and professional designations will bolster credibility with U.K. buyers. By discussing how commissions work in the U.S. they’ll also understand an agent’s financial interest in helping them purchase the right property.

Do offer to introduce clients to a U.S. accountant to help them structure their purchase with appropriate tax considerations, and/or to a U.S. property attorney who is versed in international property law. Also have a good relationship with a U.S. immigration attorney who can advise them on their ability to use their own property, should that be their intention.

Buyer representation

U.K.: Estate agents only represent sellers. Buyers must look out for their own interests.

Implications: Since the concept of buyer representation doesn’t exist in the British real estate market, U.K. buyers may not be familiar with it. For buyers expecting to navigate a foreign market on their own, it will be a welcome surprise. Explain that a buyer’s representative owes duties of confidentiality, accounting for the buyer’s funds entrusted to the agent, and full disclosure of materially relevant information during the buying process. Though only a minority of states require a written agency/representative agreement, all agents have an obligation to disclose material facts – even those who represent sellers.

MLS and market transparency

U.K.: There is no shared listing information among estate agents. Sellers often list their property with multiple agencies and agents sell only their own company listings. Buyers may narrow their search by visiting public real estate portals and then contacting listing agents, or by viewing agency websites in their locations of interest.

Implications: The MLS and concept of market transparency may be new to U.K. buyers. Explain that most agents are members of an MLS and therefore have access to information for ALL listings, comps (comparables) on similar properties and can show all properties meeting a buyer’s criteria.

Property viewing

U.K.: Sellers are often present and a sense of privacy may discourage buyers from examining properties in detail.

Implications: British buyers may not realize it’s acceptable and expected for them to look in closets, attics, and cabinets when viewing a property. Advise them prior to a showing that they have tremendous leeway in exploring the property, both outside and in.

Making an offer and negotiating

U.K.: Buyers make verbal offers to sellers through the seller’s agent. There may be verbal counteroffers. If a price is agreed upon, the buyer contacts a conveyance solicitor (real estate attorney) who will draw up a contract and work with the seller’s solicitor. At this point the estate agent pulls the listing and exits the process. The accepted offer is not binding until the actual signing of contracts and full payment by buyer in exchange for transfer deed. No firm date is set for closing. The buyer will show commitment by making a small deposit, perhaps £500 to £1000, into the solicitor’s account.

“Gazumping” (in which a buyer is informed late into the purchase agreement, often on the very eve of contract completion, that someone has come along and offered the seller a better price) and “gazundering” (in which a buyer informs a seller late in the purchase period that they are no longer willing to pay the agreed price, but will purchase the property at a new and lower price) are bewildering and not uncommon practices which may arise in a purchase.

Implications: U.K. buyers may not realize that in the U.S., written contracts are exchanged throughout the negotiation process, and that the terms and timing specified in them are fixed and binding. They also may not be aware that an earnest money deposit of one to three percent of the offer price is required of them for escrow, which may be forfeitable if they do not complete the sale. Advise them on using contingencies to protect their position during the transaction, and let them know that their agent will assist them through closing. Let them know that gazumping and gazundering are not allowed. Also, explain the Foreign Investment in Real Property Tax Act (FIRPTA) requirements and assist them in obtaining a U.S. International Taxpayer Identification Number (ITIN) from the IRS.

Closing

U.K.: The buyer’s solicitor will check the property title, encumbrances, and history of the property, and then finalize the contract’s details with the seller’s solicitor. A day is set to exchange signed contracts and turn over the deposit. The sale is not closed until the completion date, which may not immediately follow the contract exchange. On that date the key is handed over and remaining funds are delivered in return for the transfer deed.

Implications: In the U.K. the process of drawing up final contracts and setting the date of completion are fluid. At any time during the process a sale can and often does fall through. U.K. buyers will no doubt appreciate that U.S. transactions adhere to a firm time schedule and that their agent will help coordinate the players for a timely and smooth closing.

In short, the process of buying property in the U.S. is usually more predictable and reliable than in the U.K. and requires less work on the part of buyers. Educate British buyers on what to expect during a purchase and emphasize the binding nature of timing and terms with written contracts. They will be glad to have solid representation guiding them through the completion of their transaction.

While this example focused on the U.S. and the U.K., other nuances exist from country to country. It is important to educate your clients and make sure each party has a clear understanding of the transaction process no matter where you live.


Speaking the Same Language

Americans and Brits may both speak English, but they don’t always use the same words. Here is a comparison of some terms frequently used in real estate:

AMERICAN ENGLISH

BRITISH ENGLISH

REAL ESTATE

PROPERTY

APARTMENT

FLAT

CONDO

FLAT

INCOME PROPERTY

BUY-TO-LET

SINGLE-FAMILY HOME

HOUSE

TOWNHOUSE

TERRACE HOME

AGENT (or REALTOR® if a member of NAR)

ESTATE AGENT

YARD

GARDEN

STOVE

COOKER or HOB

TOILET

LOO

BATHROOM

TOILET

TRACK LIGHTING

SPOT LIGHTS