Buying a flat in Italy - Considerations?

3 Replies

I'm an American living in SE Asia and considering buying a small one bedroom flat somewhere along the Italian riviera.  Why?  The dollar is strong, and long term, I'd love to have a place we can go to for months on end and explore Europe.  In the meantime, we'd airBnB it when not in use by us or friends or family.  

My experience: own 1 house in CA that I manage directly, and own a property complex in the midwest that is managed by a property manager.  So I have some RE experience - in the US. 

I'm feeling super naive, however, because by this time in my cursory investigation, I would have thought the obstacles would've dissuaded me.  So, I'd really appreciate you being a sounding board here.  I feel like I'm in fantasy land.  Don't get me wrong - I love dreaming about owning a flat on the Italian Riviera.  But I have a feeling there's some reality that should  be bringing me down, man.  Help me find that? 

Here's a sample listing (not an actual one I'm considering): http://www.casa.it/immobile-appartamento-im-ventim...

Some fun facts / considerations:

1. Sale Taxes / agency fees / transaction fees: Could be up to 20%
2. Currency risk
3. Gross yield looks like ~ 6-8% so real yield might be 3-4% - not great.
4. Inexperienced with international real estate .
5. Titling - will likely follow Italian inheritance law - could be 4-6% estate tax due
6. Unforeseen red-tape /expenses
7. If we fail to qualify for visa, can spend no more than 3 months at a time in our flat (but we have a good chance of qualifying)
8. Income taxes on property rental around 23-27%.
9. I don't believe our worldwide income could be taxed, but I'm reading conflicting info. Italy tax rates are 23% to 45%. Of course there is a dbl taxation agreement with the US - We wouldn't work there so should be non-issue. 

Anyone care to talk me out of / into this?

Contact FIABCI Italia (http://www.fiabci.it/) for international real estate professionals. Info on 1/ Buying a property and 2/Business practices:

Buying a Property

There are no restrictions to foreign ownership of property in Italy.

The first step towards buying a property in Italy is an initial sales agreement between the buyer and seller which stipulates the responsibilities of each leading up to the final contract stage. For example, the buyer must obtain financing for the property while the seller must ensure through a notary that the property is free and clear of all legal encumbrances so that it can be conveyed to the buyer at the time of closing. When the initial agreement is signed, the buyer will post a deposit in the amount of at least 10% of the total purchase price though it is not uncommon for the deposit to be much higher. The deposit is generally non refundable except for in specific circumstances such as if the seller backs out of the deal, if clear title cannot be obtained within the time frame set forth in the initial agreement or if the buyer cannot secure financing. The initial sales agreement is a legally binding document that commits the buyer to complete the purchase and to pay the balance of the agreed price on a specified future date.

The real estate purchase process is overseen by a notary (notario) who in Italy typically has more responsibilities in the process than in many other countries of the world (e.g. title search,). The notary is a public official who is responsible for ensuring that all the deeds are authentic and of incontestable value. The notary normally acts as a witness for both parties, drawing up the preliminary sales contract and, if applicable, dealing with the final mortgage deeds. Many real estate agents also recommend that buyers hire what in Italy is known as a “geometra” or surveyor. The geometra will survey the physical boundaries of the property to ensure that it accords with what is listed on the legal description subject to a contract for sale. A survey is also required if the buyer is seeking financing for the property. The geometra will also undertake local land registry and planning searches to ensure that the property conforms to local planning and building regulations.

The signing of the final contract or “rogito” takes place in the presence of the public notary who witnesses the transfer of titile and collects the taxes that are due on the transaction. Once the papers have been signed and the transaction is complete, the notary has 21 days to register the new title in the buyer’s name and the mortgage deed in case the purchase of the property has been financed.

The real estate agent’s commission is split between buyer and seller. The buyer usually pays 2% to 3% of the price of the property. In some cases it can be as high as 6%. Legal fees typically amount to 2% of the purchase price. Notary’s fees are approximately 2.5% to 4% of the declared value. The geometra’s fee will range depending on the property and whether the buyer intends to improve the property. One thing to note about transaction costs and taxes is that they are based on the declared value of a property.

Business Practices

Entrance/licensing requirements

Italian estate agents are regulated by law and must be professionally qualified and licensed, and hold indemnity insurance. The professional role of the estate agent is to take instructions, to sell properties and carry out the associated necessary operations in order to close a deal. The Act of 3 February 1989 specifies that in order to obtain registration as an estate agent, it is necessary to have obtained a high school diploma with a commercial specialization or a degree in a commercial or legal specialization. Alternatively, those wishing to register must pass an examination which assesses the candidate's aptitude and professional skill relating to the specialized area of agency within which they wish to work. Access to the examination is open to those who have worked for at least two years in firms carrying out agency activities, or who have attended special preparatory courses.

This preparatory course must have a duration of at least 80 hours (this may be increased by the relevant Regions), and candidates must attend at least 70% of the required hours. There are additional requirements for registration. These include the requirement that those wishing to register must be of Italian citizenship or citizenship of one of the EU member countries, or be foreigners who are resident in the Italian Republic. They must also enjoy civil rights, and be resident in the district of the Chamber of Commerce, Industry, Trade and Agriculture in which they intend to register, and must not have been prohibited to apply for registration for any reason. Those wishing to register should seek further information from the relevant regional offices. Registration qualifies agents to carry out their activities anywhere in the Republic and to carry out any other complementary or necessary activity to close the business.

Those wishing to take the examinations will need to be proficient in different areas of agency, including legal aspects of estate agency and valuation. Preparatory courses leading to the examinations are organized through the Regions by authorized public or private training bodies who must be authorized to carry out the training. These are advertised in newspapers and through the Chamber of Commerce, and usually take place in the evenings to enable those who work to attend more easily. After passing the examination the candidate can make an application, on payment of stamp duty, to the Chamber of Commerce, Industry, Trade and Agriculture within the Province in which they reside (or in which they have elected residence if they are a citizen of the EU), indicating the section or sections of the Roll in which they wish to be registered.

To be able to operate autonomously as proprietor or partner etc. the registered estate agent must register their firm in the Company Register and must fulfill all the obligatory tax and welfare formalities. If a firm carries out the agency activities, it must be entered in the Roll of Business Agents. In this case, the requirements for registration must be held by lawyers or by the legal representative of the firm itself or by the person in charge of this branch of activity in the firm.

Foreign ownership

There are no restrictions to foreign ownership of property in Italy.

Land Registration System

It is the buyer's responsibility to ascertain the legitimacy of the property with regard to town planning, cadastre and mortgages. The town-planning aspect is particularly important; reference Law 47/85, which deals with illegal construction. The estate agent is entrusted with this responsibility, and must ascertain whether there are the necessary building licenses or permits etc.

The cadastral assessment concerns the revenue aspect, i.e. the regularity of the real-estate units with regard to census for fiscal purposes. It is necessary to check the Registrar of deeds in order to verify the actual ownership of the estate object of sale, to check the registrations (servitudes, burdens, etc.) and to assess the existence of mortgages or other encumbrances (cautionary attachments, etc.). The estate agent is also obliged to inform the parties about any circumstances concerning the security of the deal (art. 1759 Codice Civile).

Other industry professionals

The Italian estate agent will work closely with a local "Geometra", a draftsman, who generally does many jobs for them on the bureaucratic and administrative side of real estate, floor plans, measurements, surveys, "Condono" formalities, mortgage and titles searches etc.

In view of the many complexities of Italian bureaucracy, many small offices have arisen which are dedicated to collecting certificates, documents, making searches etc, so their use can also be of invaluable help to the agent.

The agent will have a favorite Public Notary to bring his clients for the signing of the deed, with whom a rapport of trust and understanding will be developed. This will ensure that the completion goes smoothly and without holdups.

Builders can be an invaluable source of exclusive listings, if the agent can show they are capable of handling the promotion of large properties. Architects and interior designers are also correlated to estate agency.

The professional estate agent will not usually need the services of a lawyer to draw up the preliminary sales contract, as their knowledge and experience will ensure they are proficient in this important task. A lawyers help may be sought for more complicated contracts.

The Role of Professional Bodies

There are three relevant professional bodies for estate agency in Italy, which are known as category organizations.

These are: F.I.A.I.P. (independent), F.I.M.A.A. (Confcommercio) and A.N.A.M.A. (Confesercenti) and membership is evenly distributed throughout the country. Their regulatory role is mainly one of representation in the Provincial Commission constituted in every Chamber of Commerce. This Commission is responsible for registration in the roll and for keeping the roll itself. It comprises a member of the chamber executive, and representatives from agriculture, industry and trade as well as five representatives from business intermediation agents who are nominated by the most representative organizations of the category at national level.

Amongst its other duties, this Commission is responsible for reporting those who carry out unauthorized activities to the judicial authorities. In particular, when someone has been fined three times for unauthorized activities, the Provincial Commission will make a criminal report.

Another feature of the legal role of the category organizations is the presence of two of its representatives in the Examination Commissions that assess the aptitude and professional capacity of applicants wishing to register.

The category organization will also provide tax, legal and organizational support services to its members. They are responsible for seeking to improve the regulations. which govern the estate agency profession, and for ensuring input where necessary to ensure that the interests of the profession are taken into account. In return, members comply with the relevant Code of Practice. The category organizations are committed to safeguarding the estate agency profession, and to increase the professional profile of estate agency.

F.I.A.I.P. is sensitive to the growth of the previously mentioned 'new' professions and includes property consultants in its membership. This is a professional aspect which is encouraged, particularly through university courses.

The professional bodies have a crucial role in safeguarding professions within the property sector and for the ethical and professional growth of those who carry out these activities.

Practitioner Services

The role of the estate agent in Italy has evolved from the mediator in commerce and has ever since been considered to be the person who brings together two or more parties for the conclusion of a transaction. In Italy the estate agent is truly 'the middle man', acting for both parties. For this reason he is required to be impartial and consequently receives a commission from both parties, both buyer and seller. This is regulated by the Italian Civil Code, art. 1754.

With the law that was passed on the 3rd February 1989, number 39, agents are further entrusted to carry out all the related activities, either complementary or necessary to the conclusion of the transaction. They are obliged to be registered with the local Chamber of Commerce. This law also provided sections for the registration of property valuers and for technical consultants for the Tribunals, giving them recognition work for the Public Administration.

This law finally considered the mediator as a person providing a professional service, who now acquired a major and respectable role in Italian society. With the publication of the Ministerial Decree of February 12th 1994, number 589/93, law 39 finally became definitive. Furthermore, through the educational efforts of the associations for the professional advancement of their members and a sensitizing towards the observation of a code of ethics, the consumer public was offered even more guarantees on real estate matters.

These educational initiatives of the associations are not only aimed at new estate agents, but also at further educating the established members, for a more coherent understanding of the exercise of their profession. The consumer public experts from estate agents certainty in the transaction, brevity of its duration, quality of the information provided and suggestions of financial solutions to their needs.

The estate agent must therefore know the civil law regarding real estate, the relative fiscal dispositions, the urbanization laws and regulations, valuations, understand the Cadastre and all those norms directly or indirectly concerning real property. The estate agent must keep up with the times and be continuously adjourned of new laws and regulations to fulfill his role as a professional. He is now no longer the "mediatore" but in fact is regarded by Italian Law as professional and officially referred to as "agente immobiliare", an estate agent and no longer as "mediatore".

The modem estate agent must be aware of current marketing methods for promoting the properties entrusted to him and will find indispensable the use of computers and Internet. Accordingly, they will have appropriate office assistant programs and be able to access the data banks for inserting the properties listed with them, in order to reach the greatest number of potential consumers. We shall now examine the rights and duties of the estate agent.

Revealing the facts The Civil Code requires the mediator to communicate to the parties all those circumstances of which they are aware that relate to the valuation, to the certainty of the transaction or that which can influence its conclusion. However the professional will not limit himself to those facts, but will make searches and investigations that will give a very clear and thorough picture of the situation.

Even if it is the norm for notaries to make a title and mortgage search before the signature of the notary deed, it is advisable for the estate agent to make their own searches soon after having paid off, that has not however been cancelled from Registry. He should therefore proceed to its definitive cancellation, in order to avoid complications at the signature of the notary deed and so ensure that the purchaser is provided with a completely clean title.

There are many facets to estate agents work, based on examination of all the documentation, certificates, licenses, floor plans, mortgages and servitudes. Peculiar to Italy is the "Condono" legislation, whereby the State "condonos" the urban sins of its citizens, who have constructed, enlarged or modified buildings, without having obtained the necessary approvals from the local Council. By admitting one's guilt and paying a fine, all is forgiven. Properties that do not conform to the original building license, having been subsequently modified without permission, cannot be sold by the notary, as such deeds would be null and void. Hence the necessity to properly control the "Condono" documents.

For agricultural land, one must know that neighboring farmers have a first option to buy and for building land the agent must ascertain the actual construction capacity of that parcel of land, by checking the urbanization laws regulations and verifying the existence of construction plans and their approval by the relevant authorities. These last examples demonstrate the need for specialization in the different fields of real estate, but for the purpose of this study, we will concentrate only on the residential housing market.

Covered square meters It is customary to insert in the preliminary contract the "metri quadri coperti" of the home being sold and these must be carefully measured. If an error in excess occurs, exceeding 20%, then the purchaser must be reimbursed of the corresponding price overpaid. In Italy the covered square meters include the thickness of the walls, whereas common walls with the neighbors are calculated 50%. (The square meters of an apartment in France on the contrary, are always quoted as net of all walls.) When a reference is made to "metri quadri commerciali" (commercial square meters), this is the total of the surface area of the apartment, plus one third of the area of the balconies and open terraces, plus half of covered terraces and verandas, plus half of cellar areas and garages. In different areas of Italy there are some minor variations on these calculations, depending on local usages, but the association FIAIP has advocated the use of a universal system for all of its members. Knowledge of the property It is essential that the estate agent gets to know the property very well, even before signing up the listing agreement, as it is this knowledge that permits him to calculate its value. The agent must request a copy of the deed of title, as its effective ownership is one of the very first things to ascertain. Without this, the signature of a preliminary contract by an unentitled person could be very risky for the unwary purchaser. Knowledge of the parties The agent must be certain that the person that is giving them the listing has proper title to do so, which will result from a titles search. In the case of companies, the person signing the listing must also be authorized, either by the company’s articles of association or by a special power of attorney. Regarding a particular type of sale, which is again coming into common use, of an elderly owner's home, whereby the property is sold at a figure lower than the normal market value and the owner retains the use and enjoyment of the property during his lifetime, the estate agent must be well aware of all the necessary elements.

Property Marketing Systems

This information is currently being compiled by the ICREA-member association in this country. Please check back or contact FIAIP directly for further information.

Referral System

There is no established referral system in Italy and the practice is not widespread

Relationship of Buyer/Seller to Practitioner

SOLE AGENCY In the past many estate agencies worked on a simple non exclusive listing agreement, often unwritten. However with the development of greater professionalism within the industry and the work of the professional real estate associations, the estate agents now generally use exclusive listing agreements, the Sole Agency. This does not preclude them from receiving a commission from the purchaser, as the law requires them to maintain impartiality, even if the agent receives written instructions from the seller. Usually however the percentage paid by the seller is higher than that paid by the purchaser.

MULTIPLE AGENCY still exists though it is not common.

MANDATO ONEROSO This is the closest, Italy get to the Anglo-Saxon system, whereby the estate agent acts as the agent of only one party. The agent therefore acts in that party's interest only and cannot therefore receive a commission from the purchaser. Normally this is the case when listings from builders of whole apartment complexes under construction are received. This new type of The length of listings agreements will vary greatly; usually an apartment in the city will have two or three month duration; more difficult properties will have longer ones, from six to nine months.

The Civil Code provides for the reimbursement of extraordinary expenses to the estate agent, but normally this is agreed beforehand by the parties.

TYPES OF SALE Unlike their counterparts in the Anglo-Saxon countries, Italian estate agents do not use auctions for the sale of properties. This is usually reserved only for bankruptcy cases, where it is the tribunal that directs an auction. The sale by tender is also used by the Tribunal, requiring tenders to be presented in closed envelopes. Estate Agents may represent purchasers in these cases.

As mentioned in an earlier chapter, Italy is very much a tourist country and it is not surprising that many estate agents work exclusively in this field. They will manage properties for absentee owners, arrange short holiday rentals, often legally representing the owner in the signing of rental contracts and their regulations, collect monies, give a full service to the client including the rental, cleaning and repairs of the property and equipment, and providing a full account to the owner at the end of the season. Estate agents in the cities will refer clients to these agents, both for rentals and for sales. The association FlAIP has a special section catering for the particular needs of its members dealing in the tourist sector

Remuneration

Article 1755 of the Civil Code stabilizes the right to a commission if the transaction is concluded with intervention of the mediator and this must be paid by both parties. The law of 1989 limits this right to only those mediators registered with the Chamber of Commerce; the motivation was to exclude free-lance persons from profiting from an occasional dabbling in estate agency.

The parties, buyer and seller, are free to agree the amount of commission to be paid to the agent, but in case of uncertainty, the Tribunal will make recourse to the local practice where the mediation took place in settling litigation on the matter. In fact there is no set commission in Italy, but it varies greatly from place to place. The Antitrust law has recently forbidden the use of general commission price lists, as these tend to limit competition and the bargaining power of clients.

The right to the commission arises at the moment of the conclusion of the transaction, from the proposal to buy, to the preliminary contract and to the final notary deed sale, it was important to determine at which moment the agent effectively has a right to the commission. Several judicial decisions have finally stated that the transaction is concluded at the moment of the signing of the preliminary contract, because at that moment both buyer and seller acquire legal rights vis a vis one another. Therefore the estate agent may ask for his fees to be paid at the signing of the preliminary contract and not necessarily wait for the signing of the notary deed.

However the serious professional will not consider his work terminated at the signing of the preliminary contract, but will follow his clients right up to the notary deed, when the transfer of property actually takes place. He will wait until this moment to invoice, especially when only a small down payment has been paid at the signing of the preliminary contract.

Estate Agency Commission

The estate agent is entitled to commission as payment for their services. The rate of commission varies according to the area and the price of the property and the specific terms agreed, but is usually around 6%, although larger agencies can charge up to 10%. In most transactions, this is usually paid in equal shares by the buyer and seller; but is paid wholly by the seller in the case of properties under construction.

In holiday resorts, where agents keep their offices open all year round, but negotiate sales only during short busy periods, the commission rates are generally a point or two higher. In urban rentals of apartments and offices, one month's rent is paid to the agent by both parties for their service. In holiday rentals, where a cost intensive service is given to clients, the estate agent's commission varies from ten percent, up to 25 percent, depending on the number of services offered.

I have purchased, rented, and sold a flat in Liguria, Italy as well.  The info above is helpful and there is a good deal of info available these days.  Identifying a trustworthy and bi-lingual immobiliare is key.  Beware that listings and some brokers are not always as advertised.

I am now exploring purchase of a second property with financing. I have found brokers and some institutions that will lend, but only 60% LTV and 20yr terms.

There are some great deals now with many older generations selling their properties, great renovation opportunities, and at the moment a very strong dollar. It would be great to figure out financing from a US lender with a fixed dollar based loan... but haven't found anyone who would cover this and HML terms are typically to high.

Italian Real Estate market is still going down, Especially for vacancy houses.

Babyboomers bought second houses in the '70. At the time they used to have 1 month vacation and strong inflation. Now they cannot afford taxes and manitenance anymore.

The newer generation has short vacation and money. So they are not interested in second houses.

A lot of seller and few buyer pushed the market down.

The last government changed the foreclosure process in order to speed up the selling. So a lot of deal : www.astegiudiziarie.com

It is an historical good time for buying.