Buying Property in California for (Foreign) Buyers
Welcome! This is a general outline of buying (and selling) property in California. In the United States, the practice of real estate is governed at the state level, as opposed to being governed by 'United States Law'. For example, the process in California is dictated locally and is somewhat different from the process in the State of Maryland. Regardless, the below outline if a good primer and covers the basic elements.
If you have specific questions or if you would like our assistance in finding a licensed real estate agent to work with you (this is a complimentary service), please feel free to send us an e-mail by clicking HERE (don't worry - you will not be added to any pesky email lists!) or sending a message via the message box on the right-hand side of the page!
*The information contained in this document is for general information purposes only. Always consult with a legal, accounting, or financial professional as needed. Please see the full disclaimer at the bottom of the page.
Typical Steps in Purchasing Property in California:
1. Contact a Licensed California Real Estate
Agent to guide you through the process and
assist you through all the steps
2.
The agent will show you suitable properties
3.
Make an offer on the desired property (this
usually includes a deposit)
4.
The offer is either accepted, rejected or
counter-offered by the seller
5.
Once your offer is accepted, the property goes
into ‘escrow’
6.
Review title reports, all rules and
restrictions, and Homeowner Association information (if applicable) regarding
the property. If you do not accept these documents you may be able to cancel
the contract (within specific time frames)
7.
Proceed with purchase
8.
Sign loan documents (if applicable)
9.
Close escrow and take possession of your
property!
The purchase process typically
takes from 45 to 60 days to process. You do
not have to be present at the time Escrow closes.
Costs
The total cost to purchase a property will be the price of
the property, plus approximately an additional 2% of the price to cover escrow
and purchase expenses (If you are paying cash, your closing costs will be
less). Additional costs include the Home
Inspection (if you are using a loan to make the purchase), which will average
around $400 to $500 depending on the size of the property. These costs are
estimates, but may vary, depending on the type of loan you are getting for the
property. (Your lender will give you an estimate that will provide more
detailed costs).
In The United States property buyers will make offers (with
deposit money held by a third party) and sellers will either accept the offer,
reject the offer, or counter the offer to try and reach a middle ground on the
price. In California, once the price is agreed upon all parties enter into
Escrow. Escrow involves a neutral third party (that is a registered company in
California) to handle the filing requirements to ensure a complete, and
successful transfer of the property.
Escrow usually eliminates the need for an attorney in the
transaction. While you may still consult or use an attorney, it is not
typically necessary for a common real estate transaction handled by an escrow
company in the United States.
Deposits: Most
contracts will require a 3% earnest money deposit. This deposit will be held
and credited to you at the close of escrow when the property transfers to you
and the monies to the seller. You will need this money or a check payable in US
Dollars for this amount when submitting your offer. Often times this check does
not get cashed for a week to ten days but it is needed to submit most offers.
Inspection Period: It
is recommended that you have any property you are making an offer on fully
inspected. Properties in California are generally sold “as is”. A seller is not obligated to make any
repairs; however you have the option of cancelling your contract during your
contingency period, if after the inspection, you find that the house is not in
the condition you expected at the time of your offer.
Loans: Currently
there are just a few US-based lenders loaning to foreign nationals. Typically
one would have to make an initial payment on a property equal to 30% of the
purchase price, but this may be as high as 35% or 40%.
Costs for Buyers:
The bulk of the costs in a real estate transaction are paid by the seller of
the property. Buyers are typically responsible for an escrow fee which
generally starts at approximately 500USD for the small purchases and increases
incrementally with the size of the purchase. If you do a cash purchase at
500.000 USD your total fees should be approximately 1.000 USD.
Purchasing property with a loan will increase your costs.
Loan fees are set by the individual lenders and you are entitled to an
estimated closing costs statement prior to signing for the property loan. This
document should detail the exact fees you are paying for obtaining the loan.
Insurance: If you
are getting a loan you will be required to provide proof of sufficient
insurance to protect the property which the bank is making the loan against. If
you are paying cash you do not have this requirement but it is still highly
recommended that you insure the property prior to purchasing it.
Additional estimated expenses for property owners:
·
Property taxes: approximately 1.25% of the
purchase price, per year. These are paid on a bi-annual basis in November and
February of each year
·
Home Owner Fees (if buying a condominium) Varies
per property, but averages around $400/month
·
Land Lease Fees (if buying on lease land) Varies
per property
·
Maintenance Fees - Single Family homes: On
average, you can expect to pay approximately 100 -200USD/month for landscaping,
and 100USD/month for Pool maintenance for a typical three bedroom home. (If
buying a condominium, maintenance fees would be covered by the Home Owner Fees
above)
·
Utilities: Gas, Electric, Water, Phone, Solid
Waste, TV/Satellite/Cable: Varies depending on usage.
Renting Your
Property:
If you rent your property for others to use, any rental
income will be taxed by the Internal Revenue Service (IRS) as income in the
United States.Selling Your Property:
In selling a property you will have multiple costs of sale. Roughly you are looking at 7% total costs to sell exclusive of taxes or any community fees. The 7% consists of escrow, title and real estate commissions as well as recording fees.
Taxes For Sellers:
If you do not have a US Social Security number you will be subject to the FIRPTA withholding. This is a one-time deposit against income tax that is taken out of the proceeds when you sell the property and held until you pay Income/capital gains taxes on the sale. It is approximately 10% of the Sales Price. There is also a tax by the California Franchise Board which is roughly just over 3%. The Escrow company will provide you with more exact figures.
Visas:
For more information on Visas for the United States please visit: http://travel.state.gov/visa/visa_1750.html
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Legal Disclaimer
The information contained in this document is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information, products, services, contained in this document for any purpose. Any reliance you place on such information is therefore strictly at your own risk. In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from losses or profits arising out of, or in connection with, the use of this information. Always consult with a legal, accounting, or financial professional as needed.
