French Property the American Way: Why It’s Nothing Like You Think

Monday afternoon I met with a group of a dozen real estate professionals from Houston and Fort Worth, Texas, led byJane Byrd of Properties International. They’re here discovering Paris and real estate in France.

Jane interviewed me for her podcast a couple months ago (which hasn’t posted yet, but stay tuned for that), then asked me to speak to her visiting agents…to which was easy to say “sure.” We met upstairs at the Café de la Mairie where we hold our monthly Après-Midi.

The goal was to get them up to speed on the differences between real estate in France and the U.S. so that they could advise their own international clients more effectively. There is way too much to learn in an afternoon. Even after almost 25 years in the industry in France, we’re still learning new things every day—but the basics can still be addressed as a starting point.

Our session together lasted two hours. We rec0rded it so that you could enjoy the discussion as much as they did. They asked really intelligent questions and we had a lot of fun answering them and comparing our different country’s property systems.

Note: You can watch it in its entirety (1 hour 40 minutes) on our YouTube Channel.

After the session, we visited my daughter’s new apartment, currently under complete renovation, just past the demolition stage. They loved that more than seeing something just “out of the box” ready for occupancy. This was the inner workings of the apartment, just like the discussion was the inner workings of French real estate.

Here’s what every U.S. real estate professional needs to understand before advising clients in France, and what every client needs to understand before setting out to find and buy property in France:

SETTING THE STAGE

My property career in France started when I was working for International Living and our readers wanted assistance purchasing a property in France. That was 2002. As far as I know, we were the first in Paris to offer the service. I didn’t know squat about property in France, but I knew how to find the professionals who did, and that’s how I pulled together a team to find the property, secure and manage the transaction (the notary’s work), and then later to renovate and rent it as a revenue-generating property.

Three years later, I left International Living to start my own firm and that’s when it all really took off…for our clients and for myself, personally. At one time, we were not only providing the service to find and purchase property, but we also managed and booked about 35 short-term rental apartments on behalf of our clients—who were mostly buying property for investment purposes at that time.

We gave up that business with the advent of strict new rental laws and began to concentrate on search and sales, adding search for rental property to our roster of services. The kinds of clientele we attracted changed, too—much more serious about living full-time in France and seeking much more than just a pied-à-terre used from time to time.

Over the years, we’ve done it all and we’ve seen it all. So, advising comes naturally at this stage. We know that if one tries to apply the American system to France, the challenges can be insurmountable and failure is likely. Our biggest job in the whole process is bridging American expectations with French reality.

We are not traditional real estate agents. We’re buyer-side advisors because France is not “just another market.” It’s a different legal, cultural, and operational universe with an awful lot of pitfalls along the way. You don’t want to fall into them.

Number One: there’s no Multiple Listing Service (MLS). There’s no centralized database. The system is fragmented and relationship-driven. In France, information is not organized, it’s scattered. Someone has to pull it all together and make sense of it for the buyer. That’s what we do.

STRUCTURAL DIFFERENCES: U.S. VS. FRANCE

With no MLS, there is no transparency, either. In the U.S., the listings are centralized, the pricing is data-driven and the agents co-operate with one another.

Not in France. Each agency holds its own listings. Even with franchised chains such as Century 21, each agency operates independently. The same property may appear at different prices on different agencies’ listings, yet there is no obligation to share commissions. In fact, in Paris, sharing is almost never on the table. In Nice, it’s about half the time. So, buyers don’t see the full market like in the U.S….but neither do the agents.

This is a big reason we exist. We do the leg work to ferret out the best properties. And we’ve created the relationships with the listing agencies to have access to properties not even yet on the market.

But, there’s another big reason we exist…

THE AGENTS WORK FOR THE SELLER (NOT THE BUYER)

In the U.S., the buyer’s agent has a fiduciary duty, and the representation is clear. You can contact one agent and have access to all properties on the MLS, as they assume the commissions will be split. In essence, the agent works for the buyer as a result.

France is another story. The agent represents the seller (even if showing the property to the buyer). They don’t care what you buy, as long as you buy something from them. They could lie. Or, they will not tell the whole story. They aren’t going to tell you something that would deter you from buying that property!

And as a buyer, you’re on your own to do the due diligence…that’s where we come in. We read all the documentation and share it with you so that you are fully aware of the risks. We represent and protect the buyer in a system that doesn’t.

PRICING IS SUBJECTIVE

In the U.S, you have comps, analytics, and adjustments. In France, the pricing is more emotional, particularly on property outside of the cities. There is little standardization and sellers often set aspirational prices. It’s not at all unusual for a seller to choose an agency that quotes the highest price, even when both parties know it’s not true market value and unachievable.

Negotiation is expected, but it’s limited. Properties rarely sell for much less than 5% below asking price. (Sellers can get insulted if you offer too little and walk away!) And if asking price is offered, the seller is morally expected to accept it. That eliminates bidding wars, while in the U.S. property is often priced low in order to create a bidding war!

THE LEGAL PROCESS IS THE BACKBONE

This is where France shines. The “notaire” is a government-appointed legal authority who processes the transaction, replacing a title company in the U.S. Diagnostics are mandatory. Contracts are legally binding early (Compromis de vente/Promesse de vente pre-sale agreements) and consumer oriented. And, there is a 10-day cooling off period to ensure the buyer is fully aware of this big new responsibility. There are contingencies addressed (such as “Clause suspensive”—financing contingency), all duly outlined in the pre-sale agreement.

TIMELINE: SLOWER, BUT MORE SECURE

In the U.S., the transaction can happen very quickly—typically 30–45 days to close on a property. In France, 2–3 months is standard from the point of signing the pre-sale agreement. That means allowing another month! The paperwork is overwhelming. The dossier can fill quickly with important documents, designed to protect the buyer. There is full legal verification. You have title certainty and complete oversight of all of it by the government representatives.

FEES AND COSTS ARE STRUCTURED DIFFERENTLY

Closing costs are high in France: “frais de notaire” is 7–8% for existing property—including taxes and legal fees, imposed on top of the price of the property that must be paid in cash. Note that agency fees are included in the price; normally 5% to 6%, but there’s no rule.

In the U.S., costs are split between agencies, and it’s more negotiable. Two parties can agree to just about anything, but not in France! One must follow French rules (the basis of Napoleonic Code).

FINANCING IS CONSERVATIVE

Getting financing in France is difficult, especially for American clients, thanks to FATCA—The Foreign Account Tax Compliant Act. Many foreign banks simply refuse U.S. clients because they face heavy penalties if they don’t comply with the IRS, and have decided “It’s not worth the hassle.”

In addition, French banks are risk-averse. Their debt-to-income ratio is strictly capped and they can impose long approval timelines. They prefer lending to people who are under the age of 60 and who are salaried, not self-employed. This eliminates a lot of our retirees.

But the good news is that interest rates in France are considerably lower than in the U.S.—almost half (!)—and there are strong consumer protections in place.

NEGOTIATION CULTURE IS DIFFERENT

Americans are negotiators and it can happen quickly, be strategic (sometimes a property is priced low with the intent of creating a bidding war), and very competitive. France is another story. The French are not hagglers. They only allow about a 5% margin in pricing and are morally obligated to accept asking price, so bidding wars simply don’t happen. If you offer too low a price, the seller could easily be insulted and walk away entirely.

WHY AMERICANS STRUGGLE IN THE FRENCH SYSTEM

Americans expect transparency, and don’t get it. Americans expect representation, and it doesn’t exist. Americans expect speed, and they encounter delays. Americans expect logic, but encounter emotion. So, you see, managing expectations is our toughest job.

WHERE WE FIT IN

We don’t replace the system—we translate it. We provide full market visibility (manually assembled), buyer advocacy, cultural interpretation, risk reduction and end-to-end guidance.

THE OPPORTUNITY FOR U.S. AGENTS

If your clients are buying in France, they need trusted referral partners, an education before they arrive and realistic expectations. If the clients aren’t guided correctly, or if they try this on their own, they’ll make costly mistakes.

France offers extraordinary opportunities—but only if you understand the rules of the game. And those rules are completely different.

Let us guide you to a successful investment in France. Contact us today to learn more.

A la prochaine…