Selling Your Overseas Property For Top Dollar
You’ve decided to sell your overseas property, maybe to realize a capital gain or to take advantage of a favorable exchange rate…
Maybe it’s just time for a new adventure. Whatever the reason, you want to sell your property in the most efficient and profitable way possible. Let’s walk through the process together…
First Steps
- Gather all the paperwork you have related to the property, as you’ll need the original title documents.
- Get in contact with your lawyer or the bank if either has them.
- Get a local property tax statement after paying any outstanding charges.
- If your property is in the EU, you’ll need an Energy Rating Certificate.
- List the details of any construction work you’ve had done with copies of associated planning permissions and other certificates of compliance that were required.
- If your property is in a managed development, gather the contact details of the management company and a copy of the HOA agreement.
- If you rent your property, include a copy of the lease agreement.
- List the details of anything included with the sale, such as fixtures, fittings, and appliances.
- Provide details of your water, heating, and cooling systems and their operating manuals.
- Go online and check out what similar properties in your area are selling for.
- Decide what sales terms you are willing to accept. You could accept an offer that is subject to loan or you could offer owner financing.
- You will need to retain a local lawyer to handle your end of the transaction.
The Home-Selling Process
#1. Get a pre-sale home inspection
This isn’t compulsory but, in some countries, you can be liable for defects found after the sale. Fix any major issues.
#2. Don’t waste money on unnecessary upgrades
Don’t remodel the kitchen or make major renovations without consulting your real estate agent first, as the costs of many of these improvements often don’t add enough value to the sales price.
#3. Get professional photos and a video walk-through
Real estate agents will usually try to do this, but most aren’t good at taking quality images.
#4. List your property with local real estate agents
Avoid giving an exclusive listing if you can. Confirm their commission structure and any extra marketing fees before signing the listing agreement.
#5. Consider the absorption rate of the market
It’s a rough indicator of how quickly you should expect to sell. You do this by dividing the number of houses sold in a month in your area by the number of houses on the market. This information is often available online or from realtors.
#6. Set a timeline for selling your home
Agree on an initial listing price, and have an idea of how low an offer you’re willing to accept.
#7. Review offers and accept the best one
Have your lawyer handle the payment and paperwork.
#8. Pay your taxes and enjoy your next adventure
Getting The Best Out Of Your Realtor: Psychology Of Selling
In a busy market, it often isn’t in your realtors’ best interest to try to negotiate the best deal for every one of their clients. They only get 1.5% to 10% of the sales price as commission, depending on the country.
Realtors in busy markets might be inclined to finish the bidding process quickly so they can move onto the next sale rather than spending a lot of time getting you maximum value.
Sometimes offering a larger commission for the portion of any sales price that exceeds their agreed valuation can get both of you more money.
For Sale By Owner
Some people forgo paying a realtor commission and try to sell the property themselves. With commissions as high as 10% in some countries, and especially if you live in the country where the property is located, it could be worth your while to list your property on an MLS website and handle the sales process yourself. I’d only advise this if you are in a strong seller’s market or you already have a buyer and are somewhat tech savvy.
Most of the time you will make more money with much less stress by listing your property with multiple realtors and paying the commission. Owner financing is a potentially lucrative option if you don’t need all your money up front. You can get more offers and possibly a higher price by offering long-term financing. You take a down payment and then receive monthly payments and interest until the loan is paid off. A local lawyer can draft an agreement and stipulate the currency the loan is denominated in. The added bonus is that the buyer could default on the mortgage, and you could get your property back.
Taxes
Some countries (like Belize) have no capital gains taxes, but most others do.
Capital gains tax = (sales price – purchase price – cost of improvements) CGT% rate.
For Americans, if you own the property for less than a year, any gains are considered income, and you pay tax on your gains at your usual U.S. income tax rate by reporting the gain in Part I of the Schedule D.
Long-term capital gains are taxed at 0%, 15%, or 20% depending on your taxable income and are reported in Part II of Schedule D.
These are the long-term capital gains tax rates for the 2022 tax year:
| Filing Status | 0% rate | 15% rate | 20% rate |
| Single | Up to US$41,675 | US$41,676 to US$459,750 | Over US$459,750 |
| Married, Filing Jointly | Up to US$83,350 | US$83,351 to US$517,200 | Over US$517,200 |
| Married, Filing Separately | Up to US$41,675 | US$41,676 to US$258,600 | Over US$258,600 |
| Head Of Household | Up to US$55,800 | US$55,801 to US$488,500 | Over US$488,500 |
Sales Of A Principle Foreign Residence For U.S. Taxpayers
If you’ve lived in your overseas home for at least two of the last five years, you can exclude a gain of up to US$250,000 per spouse from your IRS filing.
Tax-deferred vehicles that hold your overseas property such as IRAs allow for faster compounding interest.
Selling a home abroad requires you to file IRS Form 8949 and a Schedule D.
Any capital gains taxes paid in the foreign country can be deducted from your IRS filing using the foreign tax credit.
A 1031 like-kind exchange allows you to defer paying the CGT if you reinvest the profits into another foreign property and you report this transaction on IRS form 1031.
Net Investment Income Tax is also payable on your profits at a rate of 3.8%.
If your property transacts in a foreign currency, you need to be aware of the exchange rate.
For Americans, if you have a U.S. dollar mortgage and realize a loss by selling your property at a bad exchange rate, you cannot carry this loss forward. However, profit due to favorable exchange rates is fully taxable by the IRS.
Selling costs vary depending on the country and other factors such as:
- Realtors commission and potential marketing fees,
- Mortgage cancellation fees, if applicable,
- Cleaning and touch-ups,
- Photography and video costs,
- Staging costs,
- Capital gains tax,
- Planning permission for any unapproved additions to the house,
- Legal fees.
Tips For Improving Your Curb Appeal
First impressions matter when it comes to selling your property. Inexpensive changes can improve the appeal and sales price of your house. You can do these yourself, but it’s often more practical to hire a local handyman.
If you own an apartment, there isn’t much you can practically do to the exterior look other than try to ensure your HOA keeps the common areas in good condition.
Paint your front door, or touch up the paint on the front of the house. If the paint is dull, flaky, or a strange color, it can drastically reduce the appeal. Use neutral colors to appeal to the widest audience, and paint your trim a different color to accent it.
Power wash the exterior paths, drives, and walls. Use bleach or fungicide in the water to remove any mold. Paint or replace your front light fixtures and house number if they aren’t looking sharp. Put nice seating on your porch or paint tired outdoor furniture.
Place potted plants and window boxes with bright colors outside the property. Trim your trees, bushes, and hedges. Refresh the mulch in your garden beds. Mow the lawn and sprinkle seed and fertilizer on any bare patches. Remove any weeds in your flower beds, driveway, or patios. Clean and maintain gutters or downspouts.
Staging The Inside Of Your House
Proper staging can add significant value to the sales price of your property. The idea is to make it generic and appealing to the widest audience possible…
– Declutter And Depersonalize
Clear all surfaces, rooms, and corners of everything that doesn’t need to be there. Anything that signals that anyone actually lives in the house, such as small appliances, clothes, toys, and personal items like photographs, needs to be out of sight. People have difficulty imagining themselves living in a place full of someone else’s personal items.
– Deep Clean The Entire House
Steam your carpets and curtains, clean grout, remove any old rugs, clean windows, and ensure all large appliances are absolutely spotless. Empty and clean the fridge. It’s a huge turnoff to see leftover food in a fridge when viewing a house.
– Fix The Little Things
Make a snag list of the small maintenance jobs. This includes replacing knobs on drawers and wardrobes, light bulbs, fixing cracks on the walls, and repainting or refinishing floors, doors, and walls if they are damaged, chipped, or worn.
– Get Rid Of Smells
This is a huge issue. Any funky smells and you lose 80% of buyers right away. If there are odors after the deep clean and the sinks aren’t clogged, use essential oils to mask them and get a professional to check there aren’t septic issues. Throw some prebaked baguettes into the oven before a showing to give that homely fresh-baked bread smell to the house.
– Create An Open Space
Remove some furniture if the room is too full. Rearrange the rest to ensure easy flow of people around the house. If your furniture is small and it’s a big room, or vice versa, it can feel strange to viewers. Borrow or rent furniture that fits the space for the showing if needed. Open the curtains and add mirrors. Small spaces seem much larger when you hang mirrors around the room, and it enhances the natural light. Add plants and flowers around the house to brighten it up.
The most expensive staging task you can undertake is renovating your kitchen or bathrooms. Your realtor should be able to advise you as to whether the investment will be worth the return. Don’t be daunted. Properly marketing and presenting your overseas property will maximize profits and allow you to make more lucrative international investments.
Con Murphy
Editor, Overseas Property Alert