Ultimate Buying Property in Italy Guide Part 2
In the first part of our Ultimate Buying Property in Italy Guide we took a ‘tour’ around this beautiful country and looked at some of the most popular regions for foreign property investment along with the property types available and a brief introduction to the major players in an Italian real estate purchase. If you happened to miss it all you can find it here.
Now, as promised, we are going to take a closer look at the buying property in Italy process itself. It’s one that is rather different to a real estate purchase in either the UK or the US, subject to rules, regulations and processes that are unique to Italy, as well as some old traditions that have been in place for many years.
For those of you considering making a move into Italian real estate as a foreign investor – either to buy a holiday home for yourself, a rental property to let to tourists or as a real estate ‘flip’ – it’s very helpful to understand from the start what to expect from the Italian closing process. That’s what we are going to take a much closer look at now.
Getting Ready To Make An Offer
You think you have found the property in Italy that fits the criteria you began your search with, whatever that was. It seems like all that you need to do now, having done all your due diligence re: repairs and renovations, is to make an offer.
In the first part of this Ultimate Buying Property in Italy Guide we introduced you to the essential players in every Italian real estate purchase, and explained why the ‘humble’ notary is such an important person in the process, basically replacing a lawyer. If you missed that part, or need a refresher, take another look here.
Moving on, once all the basic documents you’ll need have been assembled, something that working with a properly licensed real estate agent will make far easier, your chosen notary will get to work. But before they do, you’ll need to draw up a formal purchase proposal.
The Purchase Proposal Explained
The purchase proposal is a contract where the plan to buy the property at a certain price and within a certain amount of time is conveyed to the seller by the realtor in writing. The purchase agreement is not binding until it’s signed by all parties.
One note: If Italian is not your native language make sure that you double (triple?) check a translation of the purchase proposal to make sure that you really understand what it is you are proposing. It’s easy to make a couple of silly mistakes when you are not making a deal in English but Italian, as the law demands, but sometimes they could be costly!
The primary purpose of the purchase agreement is to allow time to do some preliminary due diligence and to ensure that until a certain date the seller will not try to sell the property to someone else.
Let ‘s say, for instance, that you want a survey done on the property. The notary doesn’t need a survey to seal a deed, so it’s not a compulsory step. But as a sensible buyer, fully understanding the structural condition of the house you are buying is a must.
Thus, in this case the purchase proposal can be written in such a way that states the results of the survey will decide whether the purchase bid goes ahead. If the survey is unsatisfactory, you, the potential buyer, will be refunded any deposits and released from the deal. It’s also helpful if you’ll need a little time to get your full financing together.
Your purchase offer will include a small deposit — 1.000,00 – 2.000,00 euro for example. This sum will be returned if the house’s records are not in perfect order or if the conditions that you required can not be met.
Is a Purchase Proposal a Mandatory Step?
In terms of Italian law, no it’s not essential that a purchase proposal be drawn up. This could be for a number of reasons, including the following:
The real estate market in the area your would be property is located in is not that active so you will have plenty of time to get surveys done, money transferred etc. and still plan to close on a mutually convenient date for both you and the seller.
You will be paying cash, so securing financing is not an issue.
The seller has inspection documents already, negating the need for a second round.
Should you make use of a purchase proposal anyway? In some cases it will serve as good protection, so consult someone who can give you an honest opinion on whether you need one or not, like your real estate agent.
Getting the Notary Involved
Once all the necessary documents have been obtained by the notary, they will conduct some additional searches to ensure the house has no reported debt, mortgages, loans etc. They will also search local house titles for the previous twenty years to track the history of ownership of the property to ensure that (perhaps) unknown third parties are unable to claim property rights.
If everything is in order the notary will issue a formal statement to that effect, along with an estimate, which will include their fees and the purchase taxes that the buyer must pay on the day of the closing. In Italy, transfer taxes are paid to the assigned notary, who then pays them to the appropriate government department when they register the deed.
The Preliminary Agreement
The preliminary agreement, which is usually drawn up when the notary has done their initial work, is the next step on the road to Italian property ownership.
Known as the compromesso or contratto preliminare in Italian this is a more formal document that is required by law.
The preliminary contract sets out all the official property details, including the agreed price, the proposed closing date, the required deposit amount, details about current mortgages, what’s included in the purchase (furnishings and fixtures), and any other contractual points to be discussed or fulfilled.
As to who writes this preliminary contract it can be drawn up by either your real estate or notary. In this instance it’s a MUST that you get the document translated from the Italian into English – or your native language – because this one is binding and it’s essential that you understand, and agree to, every word.
Once it’s signed, the preliminary agreement will trigger the payment of the full down payment to become due. Usually it’s 10% of the agreed upon sales price, but that can be negotiated during the proposal process. Occasionally, in a ‘hot’ market, or if the buyer is asking for longer than usual time to close – the average is 2-3 months – then the seller might request more than 10%.
Also triggered by the signing is the notary, who will do as Italian law decrees and file the contratto preliminare with the local tax department. Once this is done if a buyer then backs out they will lose their deposit. If the seller happens to back out, they have to pay the buyer back double the amount received when the preliminary contract is signed. This serves as an extra protection for the buyer, as really, that’s the last thing any seller would want to do unless they REALLY had to.
Final Deed of Sale
Once the ink is dry on the preliminary agreement, and all monies due have been paid, your notary will begin drawing up the rogito – the final deed of sale.
This is, as the name suggests, the last step in the Italian property buying process. It has to be signed in front of the notary, in their office, by both parties.
As a foreign buyer it may be that you can’t make it to that final closing. If that is the case, then you can grant power of attorney to someone else you trust in act on your behalf. This can be a local acquaintance, your real estate agent or anyone else you trust.
Note: In some cases if you plan to be present at the closing but your grasp of Italian is not that good then you will still be required to have a native Italian speaker with you to help ensure you understand what’s being said in its entirety. Most buyers rely on their real estate agent to act for them in this scenario.
Buying a Property in Italy: Financial Notes
Obviously the closing is the where you will be paying for the property you are purchasing in full. Some people wonder if they need a dedicated Italian bank account to this, but the answer is no, not really. You can, if you prefer, transfer funds from your domestic bank account to your notary to hold in escrow until the closing.
That being said establishing an Italian bank account as soon as possible is still something you should plan on. Paying contractors and others, as well as navigating life in Italy in general is usually a lot easier if you have a local bank account.
The other big issue for many is they are not sure just what taxes and fees will come along with their Italian property purchase and just how much these are likely to add to the total final sale price.
So how do these break down? Here is some basic information. For the specifics as they apply to you check with your real estate agent and/or chosen notary prior to the sale going ahead to avoid any nasty surprises of the financial kind later on.
There are three main types of taxes you will need to pay as a part of your Italian property purchase:
- Imposta ipotecaria – the land registry tax
- Imposta catastale – the cadastral tax
- Imposta di registro – the registration or stamp duty tax
The prices on the first two – the imposta ipotecaria and the imposta catastale – are set figures, and are likely to run between 50€ and 200€, depending on the area and whether you are purchasing a property from a private individual seller of a construction firm.
It’s the third tax – the imposta di registro – that can get very complicated – and is easily misunderstood, so that is what we are going to take a closer look at now.
Imposta di Registro; What You Need to Know
This is the most important government tax associated with an Italian property purchase. One of the things that foreign buyers fail to understand is that this tax is not based on the price they pay for the property but on its cadastral value instead.
The cadastral value is defined as the rateable value of the property as determined by the municipal government. The good news here, if there can ever be good news about taxes is that the cadastral value usually turns out to be lower than the market value of the property.
If you are buying your property in Italy to serve as a holiday home, or to use it as a rental property, you will be charged 9% of the property’s cadastral value. If you happen to be planning a big move and making your new property in Italy your main residence, then that figure drops significantly, to 2%.
If you buy a property that is surrounded by land – something like an orchard, an olive grove, a vineyard, an orchard, or simply a large garden you need to consider that land in Italy is taxed at the 19% of its cadastral value.
As a result, if you buy a property with lots of land, be prepared for the price tag on the imposta di registro to increase significantly.
Residency and Taxes
Bear in mind that if you purchase your Italian home with the intention of using it as a principal residence, the notary will be obliged to mention this on your sales deed.
From that point on, the closing date, you’ll have eighteen months to establish residency. The government will access the extra taxes — plus a fine – if you fail to do so. And even when and if you get residency status, you will need to spend at least 185 days a year in the home to avoid penalties at a later date.
The basic wisdom here? If you really aren’t sure what your future plans are, don’t claim on the deed that you are purchasing the property as a principal residence. Yes, you’ll have to pay more upfront but it will save you from a lot of headaches in the future.
More fees? Unfortunately yes, but this is not something that is unique to an Italian property purchase, all real estate buys come along with those extra costs that, if you don’t factor them into your financial plan early on can come as a nasty surprise.
As a part of your purchase plan on paying all the following:
- A notary fee
- A real estate agency fee – about 3-4% of the final sales price.
- A surveyor’s fee (should you decide to have a survey done)
- A translator / interpreter fee (should you decide to hire a translator / interpreter)
You may also owe VAT, but this will vary according to the type of property you buy and the person you buy it from. As a general rule of thumb. If you are purchasing a property from a private, individual seller then you won’t pay VAT.
If you are buying from an established developer, and do not intend to use the property as a primary residence – or you are not sure – you may be accessed VAT of up to 10% of the sales price. That figure falls to around 4% if you are confident enough in your plans to declare the property a primary abode on the sales deed.
Note: This can all vary, so ensure that you get solid local advice for your unique situation before you buy!
At this point we are going to break again – there’s a lot to take in – but in Part Three of this Ultimate Buyers Guide Italy we will cover a few additional considerations and recommendations as well as answer some of the most frequently asked questions people have about buying property in Italy as a foreigner.