Paris vs. New York: The Sale of Two Cities
Paris and New York are often compared for their sought-after real estate and interesting market characteristics. But there are some startling differences as well. Julia Hoagland of Brown Harris Stevens (New York, NY), and Miranda Bothe of Paris Property Group (Paris, France) pool their knowledge to highlight some of the striking differences between the luxury property buying processes in these two world cities.
What percentage of properties are sold by owner vs. listed with an agency?
NYC: In Manhattan roughly 5% of the properties are sold directly with 95% being represented and sold through a broker.
Paris: About 40% of the properties in Paris are sold directly without being represented by a broker.
Do agencies cooperate to share listings with each other?
NYC: Over 300 NYC firms, BHS being one, are members of the Real Estate Board of New York. REBNY members share all their listings with each other within 24 hours of signing the listing, via a centralized database hosted by REBNY. The only exception is if sellers specifically instruct us not to, which can happen with certain extremely high-end properties and/or with high-profile sellers who don’t want publicity on their sale. This likely represents less than 1% of member-listed properties.
Paris: Paris has over 3,500 real estate agencies, each operating separately and offering only their own listed properties. There is no multiple listing service in Paris or other market-wide database of shared properties. One seller will often list with more than one agency in order to gain the exposure for their property that is inherent in a market with a more complete centralized database. Even within a given agency, or between different offices of the same agency, there is no reward for the agents to share their listings, so they don’t. There is a shared database with about 400 members, but they are not required to list their properties there and often will list only properties that are also represented by other agencies, or properties that they are not able to sell quickly. The result for buyers is that they either need to canvas dozens of agencies to see a number of good properties, or hire a buyers agent to help them cover the market. The disjointed, uncooperative market is the reason for such a high number of owners who choose to sell their properties without using an agent at all.
How much earnest money deposit must be put down at the signing of the initial contract to purchase property?
NYC: The good faith deposit at contract signing is typically 10% in New York City.
Paris: The buyer is liable for 10% of the purchase price if he defaults on the purchase. In practice, some sellers will allow a buyer to put down only 5% at the time of signing, even though he remains liable for the full 10%.
How is the purchase executed?
NYC: The buyer will sign the initial purchase agreement first, then the contract plus deposit check is sent to the seller’s attorney for his signature. The deposit is put into the seller’s attorney’s escrow account, and the fully executed contract is returned to the buyer’s attorney. Only then are both buyer and seller bound to close the deal. One attorney cannot represent both the buyer and the seller of the property.
Paris: All property transactions go through a notaire, an attorney with a special license from the French government to oversee official contracts like real estate purchases, wills and marriage contracts. Each party can be represented by their own notaire, or one notaire can represent both. The total cost for notaire services is regulated by law, coming out to about 1% of the purchase price. In most instances, both parties and their notaries meet to sign the initial purchase agreement; if one party is not in Paris and signs by a power of attorney, this collective meeting will still happen. From the moment of signature, the seller is bound to sell the property, while the buyer has a 7-day reflection period during which he can withdraw from the purchase with no penalty. Once that period has passed, the good faith deposit is transferred into the escrow account of the seller’s notaire until the final contract is signed.
How much will mortgage lenders give a non-resident buyer?
NYC: It is very difficult for foreign buyers to get financing at all, and when they can get it they will likely need to put down 30+% of the purchase price. The only recourse the bank has in NYC (and most US states) is to take possession of the property upon default of the mortgage or death of the owner/purchaser.
Paris: French banks will lend up to 85% of the value of the property to foreign investors, assuming that they qualify on a very strictly applied debt to earnings ratio. However, French banks require all buyers to obtain life insurance that covers the outstanding amount of the mortgage, a policy that pays out the bank upon death of the owner/purchaser.
How is property size measured?
NYC: In Manhattan there is no strict standard for measuring square footage of the property.
Paris: For apartments (most properties in Paris), the seller is required to provide the buyer with the official square meter size as dictated by the loi carrez, a law that strictly dictates what is and is not included. Only open floor space is counted, so if you add a closet or cabinets you can decrease the reported size of the apartment even though no outer walls are moved. Also excluded are areas with a ceiling height under 1.80 meters high, or balconies and terrasses. As such, apartments will sometimes be listed with the loi carrez measurement as well as the total surface area (the measurement au sol), to give a more complete picture of the usable living space.
What are the closing costs?
NYC: For non-sponsor co-op transactions, the approximate closing costs payable by the buyer are 1% of the purchase price. For purchases over $1M, there is an additional 1%. For sponsor units (apartments that are in new buildings or rental buildings being converted to co-ops for the first time), the buyer will need to pay a 1.825% transfer tax and often the seller’s attorney fees. For condo transactions, an additional 2.05% of the mortgage if any is collected as a mortgage recording tax. Attorney’s fees for real estate transactions in New York City are typically $2500-3500. The amount is negotiated with the individual attorney; it is not a percentage of the sales price as is the case in Paris.
Paris: About 5.5% tax is paid by the buyer for land transfer fees on a purchase of property that is more than 5 years old. Apartments in new-build projects are subject to value added tax of 19.6% instead of the land transfer fees. About 1% more is added to register the sale if the buyer is financing the purchase, and another 1% covers the fees of the notaire(s). All of these fees are collectively referred to as the “notaire fees,” and are payable by the buyer.
What is the capital gains tax upon sale?
NYC: When a non-US resident sells a property owned for over a year, she must pay 30% of the capital gains on the sale in Federal and State taxes. The closing costs, points paid for the loan (usually to achieve a lower interest rate on the mortgage), loan application fees and costs for improvements of the property are all deducted from the capital gains. Capital gains tax can be entirely deferred by purchasing a “like-kind” property in the United States, i.e. a home of equal or greater value than the property that was sold, usually within 180 days of selling the previous home (a “1031 exchange”).
On primary residences in the US, the first $250,000 (if single) and $500,000 (if married) of gain is not taxed.
Paris: For non-EU residents the starting capital gains tax rate is 33%; the rate is19% for EU residents. The rate decreases gradually over time after 5 years of ownership, with no capital gains tax owing on property held for 30 years.
There is no capital gains tax on a primary residence in France.
Julia Hoagland is Senior Vice President of New York real estate giant, Brown Harris Stevens, knows her market inside and out. Her firm has the top grossing sales volume per agent in Manhattan, and is the leader in New York City’s luxury residential real estate market.