The basis for the illusion is straightforward. In a property transaction it’s the seller who pays commission to the estate agent, after their home’s been sold. “He who pays the piper calls the tune,” as the old saying goes. But in this case it’s wrong.

In an earlier article I described how estate agents add enough to the price of a property to cover their commission. It’s effectively the buyer who is paying the estate agents and, arguably, that means they’re not acting on behalf of the seller. Maybe. But it’s only part of the story.

Actually, estate agents don’t work for the seller or the buyer. They work for themselves. And it all comes down to maths, but don’t switch off now, this knowledge could save you a lot of money.

Getting the highest possible price for a property is a much less important part of an estate agent’s work than getting any sale at all. Certainly knocking money off the price is going to reduce their commission, but how important is that?

Let’s consider the example of an apartment costing 250,000 euros. If our property consultant gets 2% commission from his generous employer that’ll net a nice 5000 euros, not bad for a few hours work.

A buyer comes along and offers 225,000 euros, that’s 25,000 euros less for the seller which, incidentally, is around twice the average annual income people round here in Ibiza declare to tax authorities. Contrast that with the estate agent who, in this deal, will lose 500 euros in commission or about two weeks of average declared income.

Obviously the estate agent would like to get the whole 5000, but really losing a few hundred isn’t going to be such a big deal. And there can be additional pressures on him just to make the sale. Even estate agents have mortgages which have to be paid, even in a bad month. And there’ll quite possibly be other companies representing the property. If one of them gets the deal, it’s not just a matter of losing a few hundred euros, but the whole deal.

Estate agents overseas often have an additional power. The buyer and seller can’t communicate with each other because they don’t speak the same language. So both sides have to accept what the estate agent is telling them. That can help you in the game of bluff that is negotiating the price of a property. It’s much harder to drive a hard bargain if you’re on chatting terms with the people who will lose out.

Before you finally agree on anything make sure you get a good lawyer who is independent of both seller and estate agent. You might think you’ve got the estate agent working on your behalf, but you can never be sure.

Happy house hunting.

Having said that, what most agents really dream of is the commission on a huge property. After all even if they only get 1%, when a place costs two million pounds, dollars or euros that’s 20,000 of any currency, which is a nice prize to win. Those big property sales don’t come up very often, but the commission on even a modest apartment is still measured in thousands. That’s often more than the average monthly pay in many countries.

With the sort of money on offer it’s little surprise then that you’ll be told, for instance, that local planning laws prevent anything being built to block the view from your dream home. You’ll also hear how the neighbours are quiet, parking is easy and the local school is the best in the country. Don’t believe a word unless you can get it independently verified.

It’s not always deliberate dishonesty on the part of the agent. Often they simply don’t know. As we searched for property we lost count of the number of times that we actually knew more than the “expert” who was trying to sell to us. That’s because many were even newer to the area than us.

After all a company has little to lose if it “employs” more property consultants if they’re only being paid on results. You also find many of the people you deal with are just estate agents “on the side” and hold down a variety of other jobs.

There’s even a dentist near where we live who also sells property. It’s bad enough when a dentist starts asking questions when your mouth’s full of metal. I hate to imagine what it would be like if he started listing details of property.

Incidentally, if you think I’m being hard on estate agents, just think of the process you go through if you sell your home. Do you mention the neighbours who get in at 3am shouting at each other before turning the telly on full blast? Do you spend a packet getting rid of the cause of a damp spot or paint over it in the hope it won’t show until after the sale has gone through? The whole process of selling property makes crooks of us all.

If you expect estate agents to be dishonest and incompetent you probably won’t go far wrong. In fact you’ll be pleasantly surprised if you find one who is truthful and efficient, although that wouldn’t be sufficient grounds for dispensing with a good lawyer.

Anyway, having spent this article slagging off estate agents in the next one I’ll look at how they can really help you when you’re buying a property abroad.

People will generally talk to their friends and in local bars about selling their home long before they actually get round to actually putting their property on the market. Indeed, they may welcome a reasonable offer for their apartment, house or villa if it avoids the hassle of going through the commercial selling process.

Another reason why word of mouth is attractive, in this corner of Spain at least, is if you find a property without going through an estate agent there’s no commission to be paid. Theoretically it’s the seller who pays, but as I said earlier in practice the commission is often added to the price. Then the cost is borne by the buyer. Either way, saving 5% on the transaction has got to help the bargaining process.

It’s worth remembering also that buying and selling property in many rural areas of the world is a fairly recent innovation. Farmhouses, “fincas” as they’re called in Spain, have often been handed down for generations. Nobody ever bought a home, they simply built a new house on the family land or added rooms to an existing building.

There are expats who have found the house of their dreams because the nephew of the old man who drinks in their local bar has inherited a house which he no longer wants because he’s moved to the city. I’ll admit this is a rare occurrence because this is exactly the sort of thing local estate agents are looking for and they’ve usually been in the property business longer than you.

And don’t make the mistake of thinking that if you do find a local with a place to sell that you’re automatically going to get a bargain country house in the sun. Far from it. Everybody who lives in the country seems to have a relative who has sold a dilapidated “doer-up” or house “with potential” for a ridiculously large sum. They’ll expect the same from you.

Sometimes the myth of the British expat who’ll pay a vastly inflated price for a property has a basis in truth. Particularly in countries outside the EU and USA house prices can seem very low in comparison with the UK. Then there will be buyers who pay well beyond the local property valuation. These prices live on and grow in the native imagination.

At the same time there are misunderstandings about what people are looking for when they come to look for a new home in a new country. Traditionally, the locals wanted houses surrounded by good agricultural soil. They pitied the youngest son or daughter who’d inherited a worthless parcel of land by a beach or on a cliff overlooking the sea. Imagine how the locals must have felt when these places suddenly became the most valuable real estate in the area.

In a future article I’ll tell you a little about how we found our perfect home in the sun without using an estate agents. Meanwhile I welcome your contributions whether you're looking for a home overeas or if you've already got one.

I don’t know how it works in other places, but here in Ibiza anybody can set themselves up as an estate agent and most of them seem to find the majority of the houses and apartments on their books from the newspapers. It’s a cutthroat business because there’s no limit to the number of estate agents that can represent the same property.

As a result, what tends to happen is people with property to sell will first advertise in the local newspaper in the hope of avoiding the standard 5% fee estate agents charge here. As soon as the ad appears in the paper, the seller will be inundated with calls from estate agents as well as, perhaps, the odd genuine buyer.

In fact, estate agents don’t always bother to speak to the person selling the property before putting the house or apartment on their books. The salesperson thinks the seller isn’t going to be too bothered who introduces a buyer to them as long as they get a reasonable price.

In theory the vendor will lose out if the sale comes through an estate agent. They actually pay the 5% commission on the selling price. In practice the agent will add at least 5% to the price that the seller had originally asked for in the newspaper ad. In other words, the aim is to make the purchaser pay the commission.

Incidentally, you’ll notice after you’ve been looking at property in Spain for just a short time that estate agents never tell you in detail where a villa or apartment is located. The ads and pictures in their windows only give a vague idea of the area. That’s to stop prospective buyers knocking on the doors of properties for sale and dodging the commission that way.

So why do so many foreign property purchasers use an estate agent? The answer tends to come down to language. Many people are effectively paying thousands of euros for an interpreter.

It is nerve-wracking to phone somebody out of the blue when you’re not sure if you’ll be able to understand what they’re saying. This is, of course, an added motivation to learn to speak the language of the country you’re emigrating to. But, realistically, you may find it easier if you’ve got a friend or can pay somebody to interpret for you. You can also ask them to help you read through the local newspaper’s property pages.

In an ideal world you’d find the overseas property you want to live in, sit down with the vendor and work out a price that was agreeable to all. Sadly the real world doesn’t often work like that. The process of buying and selling property is designed to make everybody dishonest. I’ll look at that and how an estate agent could help you pay less for a property in future articles. 

My experience is based entirely on buying property in Ibiza. I’ve no doubt the experience is very different elsewhere in Spain, let alone the rest of the world. I’d love to hear your experiences. Please add your comments below or in the discussion forums.

As in the UK, the web offers the best way to shop around for auto insurance quotes overseas. Language feels as if it’s the biggest barrier when you’re trying to get the best price for your motor insurance. But the internet offers ways round that too.

If you’re looking for a deal in France, for example, try typing “French car insurance” or “car insurance France” into Google, Yahoo or another search engine. The results at the top of the list will probably be from insurance companies and brokers with an English language service. Any area with a large British community is likely to have at least one ex-pat insurance broker.

Using an English-speaking insurance agent could, however, leave you feeling that you may be losing out on the best deals because they’re only available on the internet in the native language of your new country. But the web offers a way round this problem too. Try using Google’s language tools or Babelfish to translate the parts of the insurance company’s website that you don’t understand. It’s not that difficult.

When I wanted to insure my new motorcycle I looked around and found that Linea Directa, the Spanish arm of Direct Line in the UK, was offering a discount of 20% to online applicants. I duly filled in the form, including my nationality, in order to get a quote. Then I left it.

A couple of days later I received a call from an English-speaking insurance salesman who pointed out that I’d made a small mistake on the online form. But the quote he gave me included the 20% discount for online applications.

Perhaps I could have persuaded the salesman in the English-speaking department to knock off the same amount from my motorcycle insurance policy. But I wouldn’t have known the concession was available if I hadn’t looked at the insurance company’s Spanish language website.

Finally, here are a couple of points that may be peculiar to Spain, but I’d really be interested to hear if there are similar quirks in other countries’ motoring laws. 

In order for your Spanish insurance documents to be in order you have to be able to produce not only the relevant parts of the policy, but also the bank receipt to prove you’ve paid. This isn’t just a matter of theory either. Certainly, the Guardia Civil here are in the habit of setting up fundraising roadblocks purely to check peoples’ papers.

The other thing which caught me out was the way all types of insurance premiums are paid. I didn’t realise when I first took out motor insurance that I’d actually started and signed a direct debit amongst all the other papers.

At the end of the first year after receiving the renewal notice I shopped round and found a substantially better deal. So I signed the papers and paid for a year’s fully-comprehensive insurance with the new company. Then, on the same day, both insurance companies took their premiums from my bank account pushing me into overdraft.

This shouldn’t have been a major problem. In Spain you’re allowed to cancel direct debits even after the payment has left your account. Unfortunately there’s a small charge for this. At the time, this left me confused and tearing my hair out. Every time I tried to cancel the payment online an error message came up in Spanish. Even when I translated the words from Spanish into English the message was meaningless.

In the end I worked out that if I put sufficient cash into my bank account to make sure I was at least 3 euros in credit I could then cancel the direct debit. And that was all there was to it. I kept expecting some comeback from the insurance company that had told me I needed to give at least six weeks notice to cancel one of their motor insurance policies.

Has anybody had any similar experiences or, indeed, can they add anything to this page on international car and motorcycle insurance. My only experience is in Spain, but I’d love to know what the situation is like in other countries. 

When Barbara and I first came to Ibiza it was never our intention to settle here permanently. The idea was that we rent an apartment for a year which would give me time to research the novel I intended to write. We’re still here, but the novel remains unwritten.

But our accidental decision to rent a place before buying was the best thing we did. Let me explain why,

If you are planning to live in a foreign country you really need to get to know your chosen area of residence in all seasons. I know there are villages, complexes and what the Spanish call "urbanisaciones" which are lively during the summer, but are completely dead in the winter. Equally, if you've only seen a place in the off-season, you may find it unpleasantly noisy, crowded and devoid of parking spaces during the annual tourist invasion.

Another thing which happens when you live in a place is that distances increase. That scenic 20 minute drive from your idyllic cottage in the country to the nearest little shop becomes a boring trudge on a damp February morning when you've run out of milk.

It also takes time to discover what you really want in your new foreign home. On holiday you never notice the absence of storage space or the size of the kitchen. That romantic old-fashioned fireplace or wood-burning stove looks lovely, but is it really adequate for the winter?

Much of this information will come from the network of friends and acquaintances that you'll build up. I know many people say they'll never become part of the ex-pat community and instead they'll join the "real" locals. That's a lot easier said than done. Beyond the language barrier there's an even tougher cultural barrier. Outside of cities the locals' social life revolves around the extended family. You may be welcomed, but you'll always be an outsider. After all you've left your extended family behind.

The ex-pats will also be able to help in ways that the locals can't. When you buy or sell property abroad you'll find that you've subconsciously absorbed a certain British way of doing it. Whether it's haggling over the price, paying the deposit or dealing with banks and lenders, you have expectations.

When we bought our house, for instance, we knew there would be various Spanish property taxes to pay on the deal. However, as the haggling over the precise details of the transaction carried on until we were actually signing the papers at the official notary, we assumed the tax bill would come through at least a few weeks later. Instead, that day the bank took from our account the amount of money it thought would be needed to pay the taxes and other bills. The small amount left over was returned to us sometime later. Our bank manager and lawyer didn't tell us about this because it's the way property transactions are always carried out in Spain and they assumed it would be the same if you were buying a house in any country. But it's the sort of thing a fellow British ex-pat could warn you about.

I'm going to be adding more tips and hints about buying a foreign property. I'd welcome your comments and suggestions. 

 Being something of a bridge burner, my inclination was to sell-up and move on. In an ideal world that would have meant downsizing to the point where we’d have a place in Spain with no mortgage and a few euros in the bank. Actually, it wouldn’t have worked out like that anyway as we ended up buying a small villa with a swimming pool which cost rather more than our Edinburgh flat. But that’s another story.

Cost wasn’t the deciding factor. It was more to do with Barbara wanting to retain a place close to her family should things go wrong in Spain. From an economic point of view there’s also the argument that having properties in two countries spreads some of the risk. As in Britain, property prices in the Balearic Islands have risen astronomically over the last few years as they have in the whole of Spain. In both countries the increases have always threatened to end in a crash.

Hopefully, having two homes will halve the risk of being caught by the bursting of a national property bubble. Of course, it won’t actually cut the risk by as much as that because many of the same international factors affect both property markets. And, because so many people from England, Scotland, Wales and Ireland have bought holiday homes in Spain, a crash in any of those is bound to have an impact as people rush to sell off their second homes. That said, there are probably as many Germans as any other non-Spanish nationality with properties on Ibiza and the market has survived the dire state of their domestic economy over the last few years.

Another reason for using money raised from a British building society, bank or other financial institution is ease. Dealing with an organisation in English is much more straightforward than in a foreign language, especially as banks can be scarey institutions at the best of times. Also, if you're giving up a steady job to emigrate it's much simpler to raise finance if you've got a fistful of recent payslips to show.

As well as simplicity, there’s another investment reason why it may be worth mortgaging your UK property rather than selling it. I’ll keep the numbers simple for the sake of illustration. Say you have a property in the UK that’s worth £100,000. You take out a mortgage of 80% giving you £80,000 to spend on your home in the sun and £20,000 invested in the UK. If the value of your UK home increases by 5% that makes the property worth £105,000 and your British investment has risen to £25,000. That’s a nice 25% increase on your investment.

Of course, nothing is as straightforward as this. First of all, the figures rely on you being able to cover the mortgage payments with rental income. Then, there’s the tax man. First, you’ll have to pay income tax on the money you receive as rent, although you can offset your mortgage payments against that. Then, you’ll be liable for capital gains tax (CGT) if and when you come to sell the property as it is no longer your principal residence.

It’s not entirely bleak as there are all sorts of allowances that an accountant with knowledge of owning property overseas can help you with. It’s just worth knowing before you take any irrevocable steps that there may be pitfalls in owning properties in two countries. As ever, if you’ve experience as a property owner, an expert financial adviser or are thinking of making the move, it would be great to hear your comments. This is undoubtedly an area that will be covered in my forthcoming book on living and working abroad to be published by A&C Black, probably in 2007

. ]]>http://www.adeskinthesun.com/money-abroad/rss-comments-entry-674943.xmlNick ClaytonSat, 02 Sep 2006 13:36:18 +0000http://www.adeskinthesun.com/money-abroad/2006/9/2/how-i-became-an-international-financier-or-foreign-exchange-for-beginners.html59571:770593:666316Anybody who leaves the UK to live and work abroad finds themselves turned into an international financier, whether they like it or not. The days when you can just up sticks with a wad of cash have long gone, as just about everybody in Britain now has a complex collection of bank accounts, loans, credit cards, investments, pensions, mortgages, life insurance policies, endowments and other personal finance products.

Before you move abroad you have to decide whether to move this stuff, cash it in, pay it off or at least find a way of keeping track of this complex financial web. Incidentally, the growth of the internet has made the latter a whole lot easier as it often you don’t need to rely on an erratic postal service to deliver your bank account statements.

In this first international money blog I want to look at just one area that I’ll admit caught me a little by surprise. Before I moved to Ibiza I had thought that transferring cash overseas was simply a matter of asking my bank. That's a very good way of throwing away your hard-earned cash.

Most people still use their British high-street bank, probably without checking the small print to see how much it costs. You’ll probably be charged commission of 2% and transfer fees from £20 to £40 for each transaction.

Often the overseas transfer is carried out at the tourist exchange rate which is 2% or 3% below the commercial rate. If you were transferring the money from the UK to buy an overseas property costing 150,000 euros it would probably cost around £5,000 more to use a high street bank instead of going through a specialist foreign exchange broker.

Incidentally, setting up a foreign exchange or “forex” trading account is best done before you leave the UK. There are a number of forms that need to be filled in and checks carried out as a result of international legislation to prevent money laundering. This is far more straightforward if you’re in Britain. Once you’ve opened one or more accounts there is no obligation to use them and the forms don’t take long to complete.

Once you’ve opened your foreign exchange account the process of transferring the money is almost scarily simple. You simple phone up your foreign exchange dealer who will then make an offer based on the current spot price of the currency. Either you accept it or you try another company. Once agreed on the phone you have a binding contract to pay the forex company.

A few minutes later you’ll receive an email confirming the deal with one form for you to sign and another to fill in with details of the foreign bank that’s to receive the funds. You can either post, fax or scan and attach the completed forms to an email.

Finally, you have to ensure that the foreign exchange dealers receive your pounds sterling. With most British banks this process can be carried out over the phone or on the internet. There may costs involved depending on the amount involved and the speed of the transfer. But, providing you make the payment to the foreign exchange company within the agreed period, the amount of foreign currency you receive will be fixed at the point you made the initial phone call and agreed the price.

If you’re transferring a substantial amount of money overseas, for instance to buy a property, the process can turn you into something of an international exchange speculator. Prices on the money markets rise and fall by the minute. If you’re sending £100,000 to a European Union country and the pound gains a cent against the euro you’ve instantly gained 1000 euros. At the moment that’s worth about £700. It’s better than working for a living.

Of course, the opposite can happen just as easily. If you’re worried about foreign exchange fluctuations a specialist broker such as Moneycorp can help out by agreeing a fixed rate for future payments. This is particularly useful if you’re buying a new property overseas where there are regular amounts to be paid to the builder during the construction. You can also make similar fixed-rate arrangements for monthly transfers from the UK which is useful if you still have rental income or investments in Britain.

The only problem I ran into when buying my house in Ibiza was timing. A large proportion of the payment for the Spanish property was to come from a let-to-buy arrangement on the flat my wife Barbara and I own in Edinburgh. Basically, Bristol & West Building Society cocked-up the documentation which led to a delay in payment.

As the point at which we actually had to hand over the money for our new Ibiza home grew ever closer, it got more nerve-wracking. It looked as if we’d just make it on the basis that Moneycorp transfers to European Union banks are generally received on the same day. The trouble is that Moneycorp carries out these overseas transactions in the morning, my British bank makes its electronic transfers in the afternoon. So although it’s all supposed to be a same-day arrangement, the actual result is a day later.

Anyway, I’ll be discussing these things more as time goes by. Meanwhile I’d more than welcome your tips, experiences and reactions to this article. There’s room for comments below or in the money discussion forum.