Editor’s note: This is Part 4 of a four-part series. Read Part 1, Part 2 and Part 3.
Favorable immigration policies, relatively low prices, the American system of title insurance, and an attractive lifestyle make the United States a desirable location for real estate investment. How can you best serve this fast-growing market segment?
Your international buyer or seller is ready to transact, so now what? What is the best way to handle the negotiation? What pitfalls lie ahead? Being able to answer these questions will not only help you close the deal, it will help you generate more referrals as well.
Cultural mindsets and how they influence negotiations
An important step in understanding how to best work with global clients in an offer situation is to understand their cultural mindset when it comes to negotiation. Here are three important sets of factors to consider based upon your client’s native country.
1. Directness vs. implying the message
If you’re dealing with someone from the United States, Canada, Australia, Southern Europe or the Middle East, get to the point. They prefer directness.
In contrast, clients from China, Japan and India usually respond poorly to a direct approach. For example, someone from Japan will not tell you “no” but will instead say, “It is difficult.”
Or perhaps you’re working with a buyer from India. You ask if he can get his money to the title company no later than the 15th of the month. Your buyer says “yes.” The challenge is that this “yes” doesn’t mean that he is agreeing to your request. Instead, it means, “I will do my best to have it there.”
2. Follow orders or engage in debate
While there are major differences in this dimension depending upon the client’s home culture, there is a simple solution that works with virtually everyone. Outline the various options available to the client and then ask, “Which option works best for you?” That puts the client in charge and avoids confrontation.
3. Individualism or consensus
Australia, the United States and the United Kingdom are often individualistic and independent. Nevertheless, with members of Gen Y in these countries, they are often as likely to seek consensus from their friends and family as are Native Americans and people from Africa, China, Japan and Russia.
Paying attention to these factors can help you avoid the frustrations that arise from being unaware of these major influences on your clients’ negotiation style.
Differences in lending requirements
Many international clients, as well as the agents who represent them, are unaware of how the requirements for domestic clients differ significantly from those for global clients. Lending requirements top the list.
To illustrate this point, only a limited number of banks will do business with foreign nationals. If you are working with this niche, it’s important to identify who those lenders are in your area.
Other differences include having a 30-40 percent down payment, having an additional $100,000 on deposit at the bank over and above the down payment, plus a full year of payment, taxes and insurance on deposit. They will also probably pay a higher interest rate.
Beware of tax traps
If you are working with an international buyer, it is absolutely critical that you advise them to see a tax attorney who specializes in international purchases prior to your clients making an offer.
The reason for doing this is that your clients can be liable for huge amounts of taxes if they don’t address these issues upfront. On the other hand, if they set up the right structure for their purchase, they can deduct interest payments, take capital gains deductions, and avoid paying many federal, state and local taxes.
For example, if a buyer in California takes title as an individual, up to 46 percent of all his global income may be subject to California state income taxes. On the other hand, if he takes title using a limited liability company (LLC) owned by a foreign corporation, normally he will have no tax.
Again, the buyer must take these steps prior to closing in order to avoid these taxes. They cannot do this after the property closes. A key point to note is that there is no exemption for the death tax on any property over $60,000 in value. Also, keep in mind that is illegal for you to give your clients tax advice. They must seek the advice of an attorney who specializes in this area.
Resources from Real Estate Connect
Realtor.com operates an international site where you can post your listings and search for property in other places in the world. Olivia Decker, a luxury real estate agent working in the San Francisco Bay Area, pointed out that most countries require you to be licensed there in order to conduct business. Consequently, it’s important to network with local agents who can help you find good legal resources to help your clients who are purchasing outside the U.S.
We want new
Many international clients want new, low-maintenance properties that they can lock and leave. One speaker said that the best way to tell if Chinese investors have an interest in your area is to see whether there is a direct flight from Beijing to your location. When that happens, the investors will follow.
Working with international clients can be a highly profitable niche if you take the time to study cultural differences, are willing to adapt your style to fit your clients’ needs, and to guide them to avoid the numerous pitfalls that they will face.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of Realtors’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named “new and notable” by iTunes, at www.RealEstateCoachRadio.com.