Over the last few years, my wife and I have been weighing the pros and cons of buying versus renting in France and going over the financial metrics, taking into consideration also that we are mid-lifers. So I was rather intrigued by a New York Times article in June – “More Americans Are Renting, and Paying More, as Homeownership Falls” – which cited a report by Harvard University’s Joint Center for Housing Studies stating “the nation’s homeownership rate has been falling for eight years, down to 63.7 percent in the first quarter of this year”. Consequently, the figure for rentals has seen its strongest 10-year growth period since the 1980s, with a large proportion of renters “paying more than 30 percent of their income on rent”.
Meanwhile, research from the Council of Mortgage Lenders in the UK indicates that 71 percent of people born in 1970 were homeowners by the time they were 40, but only 47 percent of those born in 1990 will be able to buy property by the same age.
We opted to get our foot on the property ladder, which I thought would be a similar process to purchasing my condo in Los Angeles some years back. Well, I can sum up the experience in this country by borrowing a few words from John Gibson: The wheels of French real estate grind exceedingly slow.
First the similarities: both experiences are nerve-wracking, especially when you are buying with a partner. Just because you love somebody doesn’t mean you share the same taste in what will probably be your living space for the next twenty years. But I believe a home, just like a dog, is not chosen but rather it chooses you. When my wife and I visited an apartment early July, we both knew within minutes, without saying a word to one another, that this would be our place.
Another parallel is the commission for the agent immobilière (real estate agent), which is about the same percentage as what I paid in the US and this was also factored into the asking price. So, essentially, the seller pays for the sale of the house in both cases.
That’s where any similarity of buying properties in these two countries ends.
To start with, the behavior of real estate agents. When buying stateside, I dealt with only one realtor whereas in France we had several. In fact, every time we saw an apartment (www.seloger.com is a good start), it was with a new agent but, unlike realtors back home, none tried to give us the hard sell. In fact, all were so laid back and frank that they seemed to be protecting us from a potentially bad decision: “Always offer at least €20,000 less than asking price.”
Making a formal offer is also completely different. As I said, within about five minutes of seeing one apartment, we wanted to buy it. We’d been told that another couple was coming to look at it for a second time after us (it was my wife who pushed to see the property before them), so I immediately let go of any notion of getting the place. I figured the other couple would put in a similar offer and we would get locked into a bidding war until we were outpriced. Since there wasn’t much wiggle room on our budget, we had very little ammunition. The estate agent explained, remarkably, that if we put in an offer then that meant nobody else could, it would immediately be sous compromis (under offer) and therefore temporarily off the market.
So it would be difficult for France to have a housing bubble. When I purchased my condo in LA it was pre-crisis, when the housing market was nuts. Prices of one-bedroom condos I was looking at would literally rise by ten thousand dollars each week.
As soon as we put in the offer, we went back to the real estate agent’s office and spent over two hours signing and initialing paperwork, including, as Tim Clark points out in Rules and regulations when selling a property that has a septic tank, diagnostics, the building’s AGM minutes, official charges and tax bills. We also signed a 10-page Vente de biens et droits immobiliers sous conditions suspensives – aka the Compromis de vente, an offer with conditional clauses. Here’s where we had our first deadline, as this document gives you a certain amount of days, usually 45, to prove that you are in the process of obtaining a mortgage (and within ten days you must also show good faith about getting a loan).
This is also the stage when the agent can recommend a notaire if neither the buyer nor seller has one; the buyer is then responsible to transfer a deposit of the notaire’s total fee, which can be between 7 to 10 percent for older properties.
Also worth pointing out is that anyone living on the property as a primary residence must sign the Compromis. So, for example, a boyfriend of the selling girlfriend; this serves as official recognition that the property is being sold, and so legally this non-owner must also leave.
Also, once the Compromis is signed, the seller is legally bound to the agreement and would have to pay a penalty, around 10% of the selling price, to pull out at this point.
For the buyer, there’s lots of time to change your mind. The notaire will process all the paperwork you have initialed (paraphé) and signed, and eventually (for us it took 5 weeks) all that paperwork arrives by registered mail from the notary’s office, from which point the buyer has eight consecutive days after signing to pull out of the deal without financial penalty. (However, the conditions suspensive de financement in your offer should also indicate that if a mortgage cannot be obtained then the deal is annulled without penalty.)
But this, as we learned, is still nowhere near the closing date, the acte authentique, which transfers ownership to you.
In parallel to the notaire’s handiwork is the actual mortgage process. Be prepared: this is going to take a while. It is said that the whole buying process, from the offer to the transfer of ownership, takes about three months but, after some investigating, it can take much longer.
We could have approached the banks directly to try to wrestle a deal but we went to a mortgage broker, un courtier, who, for a fee, finds the best mortgage rate possible from all the banks.
Mortgage brokers have become more popular in France with the rise of Auto-Entrepeneurs, or freelancers. For us, a broker made sense because we didn’t have the time to make six appointments with every bank in the city, and also with the language, we felt he could better represent our financial case, which in the eyes of French banking institutions isn’t typical. My wife had already visited a few brokers to get an approximate budget so that we wouldn’t be wasting anyone’s time, but we decided to go with the one that was recommended to us by our agent: a dapper young man who worked in a big, bright, professional-looking office, a few steps from Place Wilson. What we liked about him is that he was up front about all of the mandatory costs involved above the mortgage, like the frais de dossier – a processing fee paid to the bank that can range from €150 to €1500; the frais de garantie, which, if I understood correctly, is a non-refundable security deposit that covers the processing cost to the lending institution to recover your property should you default repayment; and of course, the broker fee (frais de courtage).
The other point about negotiating your mortgage is, unlike in the US, the question of compulsory life insurance, which can be taken from the mortgage institution or separately from another insurance company. In addition, depending on your age and the size of your down payment, you are obliged to take out a heftier percentage of insurance (the minimum is 50%). This is something my French lessons at Alliance-Française Nice did not cover.
Anyway, when we met with our broker to provide the stack of required documents, we were feeling a bit of a time crunch. Even though we put the offer in on July 2nd (2015), August was creeping up: les vacances. Since all of France basically shuts down for holidays, we knew we had to get the mortgage ball rolling before les vacances.
It seems strange to me that the mortgage process in France starts after you make an official offer. And so lies another difference between France and America. Back in California, when I purchased my condo, I went to my mortgage broker armed only with a driver’s licence and bankcard. With only these two pieces of information, the broker was able to access all my financial information and approved me not only for the amount I was seeking but said I qualified for double. Granted, this was the lead-up to the crisis when kids with newspaper routes could qualify for six-figure mortgages, so I hope lenders are a little more cautious now.
What happens next is another story but let’s just say that the first ten days of September passed and we had a mortgage approved for a move to the new place ... before Christmas.
Part 2: An American in France goes house-hunting: Home sweet home, finally