The buying process in France
The purchasing process of property in France is very safe and secure. We will take you through the process, and explain your obligations and your safeguards.
As a buyer, the key point to any sale is the signature of the “Compromis de Vente”. Understanding this will lead to you being confident in the sales process. It is a standard sales contract between buyer and seller. In fact, you can buy it from many bookshops and stationers. It can be written by an estate agent or Notaire, on behalf of the buyer and seller, or it can be written directly between a buyer and a seller. Though an estate agent may put their logo at the top, the fact it is always the same is the reason this device makes the sales process so simple.
Assuming an agreement has been made in principle for the purchase of a property then both parties will immediately go to the stage of signing the Compromis. Usually the buyer will sign first and then the seller second. The moment the seller signs, he is immediately locked into the sale. He cannot change his mind and he cannot change the price. If he refuses to sell then he will have to pay you a penalty which is normally equivalent to the deposit, usually 10% of the purchase price. This debt will be logged in the central registry and no Notaire in France will be able to sell his property until you have been paid.
Once you sign, you will have one responsibility and two opt-out clauses.
The responsibility is to pay a deposit upon signing the Compromis. This is usually 10% but can be any mutually agreed sum. If putting down an immediate 10% deposit is a problem then you can ask for a 5% deposit, but remember the less you put down the less there is as a penalty clause for the seller. The figure will normally be rounded up or down to the nearest round number.
It used to be the case that you would have to turn up to sign the Compromis with a bankers cheque for the deposit, but things are more relaxed these days. A verbal promise to do a bank transfer or give the Notaire a cheque within a week of signing should suffice, as long as you then do as promised. The transfer is always made to the Notaire of the buyer, and is held in a special government escrow account. If you wish to make a bank transfer then ask the Notaire for his RIB (Releve d’Identite Banquare), or you can always pay by cheque.
As mentioned earlier, there are two get-out clauses for the buyer that are automatically given by law. The first is mandatory and the second optional. If either are used then the Compromis is null and void and any deposit paid back to you without penalty. The first is a 7-day “cooling off” period. This means you have a week to decide whether you wish to proceed with the sale. If you change your mind about the purchase then you do not need an excuse, simply send a registered delivery letter (and it is very important that it is sent registered delivery) to the agency informing them you no longer wish to go ahead with the purchase. If it is a private sale then send it registered delivery to the Notaire. The seven days are from being officially notified, an explanation of the opt-out clause being sent along with being sent a copy of the Compromis signed by both parties. This is usually done by a signed-for registered delivery letter to your home address, upon which the seven days start the day after you signed. Sometimes the agency will ask you to sign and date the notification paper and post it back to them, which has the same effect. On average this gives a week and a half to two weeks to decide. If signing the Compromis directly at the Notaire’s office then you can sign immediately recognition of your seven days meaning it starts the day after.
A scam sometimes pulled by local estate agents is to get the buyer to sign the Compromis and wait until the seven days are over before revealing a huge flaw in the purchase. They will then offer to annul the Compromis and long as they and the owner are compensated for their efforts and lost time. This is not legal and you should give them nothing. Go straight to your Notaire and have him annul it on the grounds of “vice cache”. A Notaire does not want to get involved in a court case if he can avoid it and so rather than doing his job will sometimes just suggest you pay them off for a quiet life. Ignore this advice and stay firm. If necessary, get a lawyer (‘avocat’) to send a letter. Remember, this only applies when the estate agency has deliberately hidden something. Apartments in France are “bought as seen” and it is the responsibility of the buyer to do any due diligence before their seven days are up.
The second opt-out clause is you have the right to get a mortgage. If you apply for the mortgage but fail to get it then your deposit is returned and the Compromis is voided. In the Compromis you will have to give the size of the loan, the number of years you intend to repay, and the interest rate you expect to secure. It will then be stated that you are expected to apply for the loan within two weeks, and to get a response in around a month. These can be adjusted if you have unavoidable business or travel plans. If you are offered the loan, you are obliged to accept or forfeit the deposit.
As mentioned earlier, this clause is optional. You can waive this clause by copying out a rather extensive written waiver in the Compromis. The reason you may wish to do this is that it is quite a powerful bargaining tool, either to secure a lower price or to secure the property against a rival bidder. If the waiver is used, the seller knows that the property is definitely sold after the seven days cooling off period. Otherwise, with excuses from buyers and inadvertent delays from the bank, it could be up to two months before the buyer knows they will receive the money for the sale. Should a seller wish to sell their property to buy another, the loan clause poses a dilemma. If they sign for a property after the seven days are up, but you fail to get your loan, then they have bought a property but now have no way to pay for it. If they do not and you get your loan close to the signing date then they need to rent a property, which might mean signing a minimum 1-year contract, whilst they then search for their new property. If you can afford it, then it is a great bargaining chip to have.
When signing the Compromis, most of it applies to the seller. They need to conduct certain tests, such as for asbestos, lead, and termites, as well as provide an official size of the apartment called “loi carrez”.
The key facts you need to check are as follows:
- the address and description of the apartment, which will be at
- the bottom of the first page
- the total sale price
- the stated size in sqm
- the correct Notaire for the buyer
- the deposit is to be transferred to the Notaire of the buyer
- the amount of the deposit
If the above details are correct, as well as the mortgage application or waiver text, then you will not go far wrong. Of course, you should have a French-speaking person help you translate it before signing. There will be a final signing date, 2-3 months from the signing of the Compromis, but it is indicative and not set in stone. It is the buyer that decides the signing date, and it can be any time between when the Notaire has completed the paperwork up to the signing date. If there is a slight problem with the bank or with the availability of one of the parties, it can be set back as long as both parties are in agreement.
In theory, if you are French resident then you can get a 100% or more mortgage and if you are foreign resident then up to 85% mortgage. Due to the credit crisis, banks are asking for more of a down-payment (‘apport’) and are in general offering up to 80% mortgage.
There is a 1% tax on the value of a mortgage, and this is for setting up a ‘hypotheque‘ on the property. The value of the loan is held against the deeds of the property, and the property may not be sold until the value of this loan is paid back to the lender.
The one key difference in French mortgages is that the amount that can be lent is purely based on declared income, assets are not taken into account. If you own a dozen properties over the world, this will not affect the amount you can borrow.
The rule is that your repayments cannot exceed 1/3 of your net income, ie after tax and other mortgage or credit card payments.
As an example, if you earn €3,000 after tax then your repayment will be a maximum of €1,000 per month. If you were to take an 80% mortgage and repay over 25 years at 3.5% interest then you would be able to purchase a €250,000 property if you could afford the down-payment and Notaire fees of around €68,000.
The rule is a problem for the self-employed or those that run their own companies. However, a skilled mortgage broker can optimise the loan. It is not the same as a few years ago where five minutes with Photoshop would give you nearly any level of loan you needed, the banks internal controls are far more thorough these days, but if you can prove to the bank you can realistically keep up the repayments then the dossier will be sent up to central office for approval where they have more discretion in granting loans.
The additional costs of the transaction are what are termed “Notaire fees”. This is all-inclusive and there are no additional transaction costs on the purchase. It is roughly 7.1% of the purchase price, and includes all the taxes (stamp duty, land registry duty, etc) and well as solicitors fees. There will also be 1% on any mortgage, as mentioned above.
The enthusiasm for cash under the table is generally divided along nationality lines. It is quite normal for French, Italian and Eastern Europeans. It tends to be mistrusted or disapproved by Anglo-saxons and Scandinavians. It is absolutely illegal and the author does not condone it in any way.
There are two reasons why a seller may want undeclared cash. If it is a private buyer then it is to avoid capital gains tax. They probably paid cash under the table themselves, and are now being hit doubly with their own capital gains along with the gains that were avoided the previous time. By asking for cash, they are passing along the undeclared capital gains hot potato. If it is a developer then not only are they saving capital gains but it gives them undeclared cash to pay their illegal workers cash in hand.
The reason it is so popular is that the risk of getting caught is practically zero. There are various methods of doing it, but they all hinge on the fact that the seller is committed to the sale at the lower price minus the cash the moment they sign the Compromis. This is the point at which the transaction takes place. Often the seller asks for the cash immediately, but the buyer rarely agrees. In the end a compromise is usually agreed, where the agency holds a cheque in the name of the seller in their safe but on the day of the signing cash is handed over and the cheque torn up. Please bear in mind that in France you cannot post-date a cheque, the moment you sign it then it is valid no matter what the date you fill in. There is a generally agreed code with Notaires, which will not be published here but your estate agent can tell you, that allows the exchange to take place during the signing.
So what do you do if the seller insists you pay cash but you do not want to? A successful technique used on numerous occasions is to pretend you are prepared to pay cash and squeeze the seller down to the lowest possible price. You then contact their Notaire and ask how much extra capital gains they will be liable for if the full asking price is paid legally. If an EU seller, this is normally 16% of the value of the cash (it can be lower, for example if they can write off the cost of any renovations). You then counter offer raising by this amount but fully declared. For instance if they want €20,000 cash then you raise your offer up to €3,200 more. Initially they will refuse as they are so used to an envelope full of used notes. Insist they speak with their Notaire and assure them they will not lose a single penny by not getting cash. They usually come around after a full consultation with their Notaire.
One point that is common sense, but many seem to miss, is that if you decide to take this illegal course of action never agree a cash sum more than the 10% deposit. Otherwise the seller can simply break the Compromis and walk away with the difference.
It is important you have paid the balance before this date, any outstanding amount after the mortgage plus Notaire fees minus the 10% you have already paid, otherwise your deposit is at risk. Please ensure this is done before the day of the signing. If getting a mortgage, then the onus is on you to make sure you apply in good time, ensure you get paperwork to them promptly, and accept the offer without undue delay.
The final signing is around an hour long. Despite the pomp and ceremony, there is very little to do. The Notaire will carefully go through the deeds, explaining each section, and check with both parties that the details are correct. He will ensure that the tests are done, including the legally required tests for lead, termites, and asbestos. He will explain that he has checked at least 40 years worth of deeds, and with the act he guarantees nobody can legally contest your ownership of the property.
At some point will come the issue for reimbursing the seller for their unused portion of property tax and property management charges. For instance, if the taxe fonciere is €600/year and you sign the final act end of April, you will be expected to pay the owner €400 for the two thirds of the year you will own the property. Similar but for a much smaller amount for the quarterly syndic charges they have paid. It is best if you bring cash and settle directly with the owner during the signing, ensuring that this is noted within the deed itself. Insist it is noted in the deed as previous owners can be notoriously forgetful.
At the end, you will be asked to initial all the pages and annexes and then sign on the final page. Then the owner will hand you the keys. The actually deeds will not arrive for another six months or so, but you will be given an ‘attestation’, or proof of ownership certificate, which can be used until then. There will be two copies, one with the price on and one without, and in practice you will only ever use the latter.
If you have decided to change marriage regime from the default French “Separation de Biens”, where upon death the estate is settled immediately, to the UK style marriage “Communite Universelle”, where upon the death of one spouse the property will automatically pass to the surviving partner, then the seller will leave and you will sign this annex now. You must notify your Notaire in advance so that he can have the papers ready and factor in the cost, usually approximately €450.
All that rests is to transfer the utility bills into your name and get household insurance. The latter is a legal requirement and you are advised to do it directly after the signing. You do not need to contact the syndic, the Notaire will pass them your details and they will get in contact with you.
After that, enjoy your new home!