We asked Bill Thomson, the managing director of the Knight Frank real estate network in Italy, to help us out with some basic questions regarding the purchase of property.
TF: Regarding purchasing property in Italy for non-Italians, we have been warned that it is easy to get “burned,” that you may buy a property, or think you have bought a property, only to then have it taken back and find that all of your money has been lost. What do we need to know to protect ourselves?
BT: Why is it that so many Americans assume that Italy is in the Third World! Here are the essential steps: First, when you find a property that you want to buy – but before you have agreed to a deal with your realtor, ask him or her the following question: “What percentage of the sale will I have to pay you?” In Italy, in most cases, the buyer, as well as the seller, must pay a commission. Thus, the purchase price you are offering is your offer price plus a realtor fee.
Second, once you have gotten past the commission stage and want to proceed with the transaction, you should definitely seek a local attorney who will assist you. Ask for recommendations, and be sure you find a representative who is experienced in real estate, and one who will not bog you down (and thus overcharge) in the details. A good attorney will perform the necessary steps so you can be assured you are buying exactly what you think you are buying, from whom you think you are buying it from, and that you will pay only that which you have agreed to pay. It really is not as complicated a process as many are led to believe.
TF: What are the laws for buying property for stranieri in Italy?
BT: Italy has no laws that differentiate between Italians and foreigners when it comes to the purchase of real estate. There are laws in Italy, just as there are in most other advanced countries around the world, that prohibit discrimination of any kind. You should (and will) be treated exactly like an Italian. However, if you are not, you should be asking your real estate professional or your attorney to look into the matter.
TF: How long must you own a property in Italy in order to achieve the maximum tax benefits?
BT: If you sell a property that you have owned for five years or longer, you will not be taxed (in Italy) on its resale. But, if you sell in less than five years, it is seen as speculation and therefore subject to high rates of income tax. There is not a capital gains tax rate in Italy.
However, if you are an American citizen, you may be subject to US income taxes, regardless of the taxes you pay in Italy. In this matter, you should consult with your US tax professional.
TF: What are some of the procedures regarding inspection, appraisals, title fees, and closing?
BT: The purchase rituals in this country allow buyers to agree to purchase a property based on a series of promises made by the seller (“vendor”) of the property. This may sound like fairyland to those of you who are used to a more formalized and seemingly “secure” transaction, but it actually works quite well. Following is a brief description of how things all come together:
First, your attorney will draw up a Compromesso, which is a promise to purchase, based on the declarations that have been made by the vendor. This document will describe the transaction in detail and will include such information as the lot size, a description and size of the improvements, description of permits that have been obtained or will be obtained, loans required, and on and on.
Second, based on your satisfaction with the accuracy and thoroughness of the Compromesso, you will then elect to proceed and pay a non-refundable deposit as designated in that document. In Italy, these deposits are normally 20% of the purchase price.
When you elect to proceed and make this deposit, you can feel reasonably confident that the vendor has told you the truth and that he or she will proceed to closing. Furthermore, the laws in Italy stipulate that if a vendor reneges, or has provided false or misleading information, that vendor must refund your deposit plus a penalty of 100%. In 20 years of doing real estate here in Italy, I have never seen a signed Compromesso that did not proceed to a sale.
I do, however, offer a word of warning to the buyer: once you have signed, you have obligated yourself to complete the purchase of the property, and if you should fail to close, for any reason, you will lose your deposit.
With this system, there is no need for appriasals, title searches, and so on, until after the Compromesso has been executed. Once you have signed that document you will have all the time in the world to verify the accuracy of all of the representations made by the vendor. (Usually, it will take 3 or 4 months before the final closing takes place.)
TF: Can you give an example of a common mistake or misunderstanding that non-Italians make during a real estate transaction?
BT: In my experience, many foreigners try and find out too much about a property before deciding if they like it! Look at the property, imagine yourself living there, and then ask if this is a place that you would like to have as your home. At that early point there is no need to find out how much ice the fridge makes. First, stop and take notice of the sunset…or the noise from the motorway.