Monday, August 17, 2009

Buying French property - transaction costs



There are certain fixed and unavoidable costs that have to be paid when you buy a typical French property. The main one - described somewhat inaccurately as the 'notaire's costs' - concerns a percentage of the property's sale price which is levied by the French government in land registration charges and taxes. The notaire's actual fees for completing the transaction are in reality quite low and controlled by the state. They are typically around 1% (plus VAT/TVA) of the purchase price, compared with the 6% - 7% government regisration charges and taxes.

These amounts are reduced in the case of new-build properties (on which VAT/TVA of 19.6% is included in the sale price). The property description will normally include the words 'frais notaire r├ęduits'.

The total cost of buying a French property - notaire's fees plus government charges - can be estimated quite simply using standard tables, at the time of purchase and are clearly set out in the 'compromis de vente' or pre-contract.

Some notaires are licensed to act as property negotiators, in addition to their princiapl role as legal experts and tax collectors, and again their charges are quite modest at an average 2.5% (plus VAT) of the property sale price, probably less than a typical estate agent. They must hold a valid 'mandat de vente' for any property they are trying to sell.

French estate agents are licensed by the Prefecture and are free to set their own rates of commission (average 5% to 10% plus VAT of the sale price of the property), the amount generally reducing in proportion to the value of the sale. The agency's commission rates must be publicly displayed at the agent's offices and are clearly set out in the 'mandat de vente' which must be signed by the property's owner (the vendor) and the agent. The 'mandat' is a formal agreement between the owner and the agent allowing the latter to market the property in return for a percentage commission in the event of a sale.

Estate agents' commissions are normally paid by the vendor and are taken from the sale price of the property, which will be advertised as 'F A I', meaning inclusive of agency commission. The sum received by the vendor, after deduction of the commission payable to the agent, is known as the nett vendor price.

The other transaction costs - notaire's fees plus French government taxes - are paid by the buyer. Notaires will also charge a small extra fee for advising the buyer and drawing up the necessary documentation in connextion with matters such as a change of marriage regime, civil partnership (PACS), a power of attorney, or a French will, all matters which you may wish to organise at the same time as you buy your French property.