4 Ways to Help Foreign Buyers Navigate the US Market

The amount of U.S. property purchased by foreign real estate buyers is staggering — and growing.

According to the National Association of Realtors® 2014 Profile of International Home Buying Activity for the period April 2013 through March 2014, the total sales volume of international clients has been estimated at approximately $92.2 billion, a 35 percent increase from the previous period’s level of $68.2 billion. The dollar level of international sales was roughly 7 percent of the total U.S. existing homes sales market of $1.2 trillion for the same period.

That is a whole lot of real estate.

Five countries (Canada, China, Mexico, India, and the United Kingdom) accounted for over half (54 percent) of the reported international transactions from 61 countries. And four states (Florida, California, Texas and Arizona) are where more than half (55 percent) of these transactions took place.

Odds are good that you have, or at some point will have, foreign real estate buyers as clients.

Essentials to keep in mind

How can you as an agent work effectively with foreign buyers? Regardless of nationality, a real estate buyer needs to understand many things. Foreign real estate buyers have even more needs. The real estate transaction process in their home country may be very different than it is in the U.S. There are language and cultural differences, tax implications and more.

Cultural sensitivities. You live in the United States, you read and speak English either as your native or second language, and you understand U.S. culture. Your foreign real estate buyers probably do not. Research cultural practices of the countries where your foreign clients are from. Pay attention to things like dietary norms, dress standards, and personal space (how close, or far away, to stand from someone when talking to them). Is the cultural norm to make or avoid direct eye contact?

Even small and seemingly unimportant things can make a big difference in your interactions. For example, in Japan it is common to present a business card with both hands and with some reverence. While a Japanese client is unlikely to be offended if you casually hand over a business card, they'll no doubt be impressed if you present your card with both hands and a slight bow of the head — not only does it convey your respect, but it shows you took the time and care to learn about their culture.

Financing U.S. property. When it comes to foreign real estate buyers, financing is probably the trickiest problem to resolve. While many transactions involving foreign real estate buyers are all cash, approximately 40 percent require financing. Mortgage financing can be a problem for international clients due to a lack of a U.S.–based credit history, lack of a Social Security number, difficulties in documenting mortgage requirements, and difficulty finding lenders with foreign national loan programs. Exchange rates may also present issues.

Finding a good lender who has worked with foreign buyers will help tremendously. Seek out referrals from your fellow agents for lenders with foreign national loan programs. Do your homework and understand documentation and down payment requirements (which are often significantly larger than what is required for U.S. residents) beforehand, and connect your foreign buyers to lenders very early in the process.

Understanding FIRPTA. The Foreign Investment Real Property Tax Act (FIRPTA) is a law enacted in 1980 that states if the seller of real estate located in the U.S. is a foreign person, the buyer must withhold a tax equal to 10 percent of the gross purchase price (unless an exemption applies). While FIRPTA doesn't come into play until a foreign national sells a U.S. property, it is important to educate your foreign real estate buyers about FIRPTA before they make a purchase. Like any tax code, there are exemptions and exceptions, and a seemingly simple thing can be made complex by our friends at the IRS. For more information, see the IRS webpage about FIRPTA and Understanding FIRPTA, a blog post penned by yours truly back in my broker days.

You, of course, are not a tax expert. So as always, exercise caution when discussing FIRPTA. Connecting your client to a CPA well versed in international real estate and FIRPTA is a good idea.

Educating foreign real estate buyers. We've all heard the term, 'real estate is local.' If you think real estate laws and practices vary by location within the United States, you haven't seen anything until you look into real estate laws and practices in other countries. Your foreign real estate buyer may have no idea how real estate is bought and sold in their own country, much less in the U.S. Worse, they may be well versed in real estate transactions where they're from and assume things are done the same way here.

Assuming anything in a high-dollar complex transaction like a real estate purchase is a bad idea. You educate your U.S. clients, so of course you'll educate your foreign buyers. Just pay special attention and assume they know nothing. You'll need to help them understand financing, contracts, costs, the home search process, how real estate agents and brokers work, how you get paid, your brokerage's role, the closing process, timelines and more.

A good resource to share with your foreign real estate buyers is Zillow's Foreign Buyer's Guide. The guide covers every aspect of the home buying process for internationals. Also, you might want to look into NAR's Certified International Property Specialist (CIPS) designation and training classes.

Enjoy the experience

Working with foreign buyers can be fun and rewarding for both you and your clients. Do your homework, learn the essentials and enjoy the experience. You can help foreign buyers through a difficult process and they can help you learn more about their country and culture.