Houston is not only the fourth largest city in the United States but is also the most culturally diverse. You as a real estate professional will likely represent a foreign buyer in a real estate transaction. It is essential that you obtain the proper skills to best prepare and explain the process.
Set Out Your Role and Expectations as the Real Estate Professional
First, you must access the sophistication of your foreign buyer. If this is the first transaction, you may need to spend extra time in covering nuances of the purchasing process that we take for granted. You need to establish clear communication about your responsibilities and limitations. Explain your role and your fiduciary duty to convey all parts of the transaction in a transparent manner. You also need to emphasize the expectation of open communication from your foreign buyer.
Explain the Contract and have a Checklist Prepared
Be mindful that your foreign buyer fully understands the Sales Contract and that it becomes a legal binding document upon execution. It may be necessary to have a translator present. It is helpful to have a prepared list of each step of a typical residential and commercial transaction so that the prospective foreign buyer is fully apprised of the obligations, deadlines, and costs in advance. Property inspection and insurance policies may need explanation. Some cultures may not be accustomed to our practices.
Explain the Function of the Lender, Title Company and Title Insurance
Many foreign buyers purchase with cash and are not familiar with the mortgage process, closing costs and escrow accounts. In many foreign countries the closing is handled by a law firm or bank. You have the task of explaining the functions of these entities.
Find Out the U.S. Immigration Status of Your Foreign Buyer
There are many immigrant and non-immigrant visas available, with categories based on family and business relationships, as well visas procured through real estate investment. You should be familiar with these terms. The U. S. does not restrict real property ownership to U.S. citizens or permanent residents, however, to ensure the success of your real estate transaction it may be beneficial to know that your foreign buyer has permission to enter the U.S. You do not want to find out that there is an immigration issue at closing.
Put together a List of Professionals
Do not give legal or tax advice, you can provide referrals of professionals, including tax, probate and immigration lawyers, that can assist in clarification of issues for your foreign buyer. It is best to give three names or more of each.
Prohibition to Deal with Certain Countries and Individuals
Under the U.S. Patriot Act, the Office of Foreign Assets Control (OFAC), of the Department of Treasury, can enforce sanctions against a person that deals with certain countries, individuals, or organizations that may be involved in terrorism. The list of Specially Designated Nationals (SDN) is published at www.treas.gov/offices/enforcement/ofac.
U.S. Tax Implications to Consider
It is necessary to that you make your foreign buyer aware that the purchase of property in the U.S. may have tax implications under both federal and local law. Be familiar with the Foreign Investment in Real Property Tax Act, (FIRPTA), under the Internal Revenue Service (IRS). The foreign buyer may be subject to gift taxes or estate taxes, which may be taxed at higher tax rates than those of U.S. citizens.
Transfer of Property Upon Death
The foreign buyer should understand that upon death the transfer of property will be subject to the laws of the Texas Estates Code. If the foreign buyer dies without an executed Last Will and Testament or Trust Instrument in place to designate the beneficiary, the property will not transfer. Failure to adequately plan could result in cumbersome probate litigation.
Setting up Title as an Individual or Business Entity
The decisions on how the foreign buyer takes title to the property could have ultimate financial implications. The foreign buyer may need to decide if title will be held individually or as a business entity. If the foreign buyer is married, mention that there are community property laws in Texas.
Certain Reporting Regulations for Foreign Owners
Be aware that the U.S. Government does impose some reporting regulations for foreign owners of certain properties. The Agricultural Foreign Investment Disclosure Act (AFIDA), regarding property used for agriculture, forestry, timber, farming, and ranching. The Department of Commerce has a Bureau of Economic Analysis, (BEA), which oversees the Foreign Investment Survey Act (IISA), which may impose some reporting requirements.
Educating yourself about your Foreign Buyer
There are several avenues for learning more about our foreign buyers. A wealth of information can be found online. There are educational classes offered at HAR each year pertaining to international transactions, as well as the opportunity to obtain the designation of Certified International Property Specialist, (CIPS). You may also apply to become a member of the HAR International Advisory Group. Houston is also fortunate to have over 90 foreign consulates. You will build a better relationship with your client if you are prepared.
Judith A. Snively is the Owner, Broker of International Home Brokerage and a Texas licensed attorney, she holds a CIPS Designation and is a past chair of the HAR International Advisory Group.