We’ve been focused this week on current opportunities to buy real estate overseas.
That’s because the world right now is serving up some of the most irresistible opportunities for buying real estate that I’ve seen in more than 35 years of looking.
I understand, though, that, if you’re new to the idea and considering a first purchase, you might understandably be feeling intimidated and uncertain how to proceed.
So starting today and continuing for the next few days, I’d like to review some fundamentals. Think of this as a How To Buy Real Estate Overseas Mini-Primer.
Today’s lesson is to do with comparables. One of the first things to wrap your head around as you begin shopping foreign markets is that you can’t run comps. They don’t exist.
Reviewing comps, as any would-be real estate buyer would do when shopping in the United States, depends on referencing a multiple listing service (MLS). No such organized, computerized, easily accessible database of properties on the market exists in most of the world. With limited exceptions, the MLS is a U.S. market phenomenon, an indispensable tool that, somehow, the rest of the world’s real estate markets manage to survive without.
With an MLS, you can find out, within minutes, what every property of a certain type in a certain area has sold for within a certain period of time.
Without an MLS, you can’t.
Take a minute to think through the implications of that.
What should a two-bedroom, two-bathroom apartment of 2,000 square feet in a certain neighborhood in Panama City cost? Without an MLS to reference (and no MLS exists in Panama, although the local real estate industry is working to create one) to find out what every property fitting that description has sold for in the past year, say, you have no idea, and neither does anyone else.
The owner of an apartment fitting that description can decide he’d like to sell it for whatever he’d like to sell it for, and who are you, or anyone, to tell him that his price isn’t appropriate? You, he, and anyone else who might be interested have nothing to compare it to.
That’s just the start of what it means to shop for real estate in a market without an MLS.
It also means that every agent operating in that market has access to his listings only. No real estate agent in Panama City can tell you about every two-bedroom, two-bath, 2,000-square-foot apartment for sale in a particular area or neighborhood of the Panamanian capital, because he doesn’t know about every apartment fitting that or any other description currently available. He knows only about the apartments his agency has listed. His listings are proprietary, as are the listings of every other agency in the market.
To find out about every apartment of a certain description in a certain region, you’ve got to meet with many different real estate agents operating in that region.
When you do, you’ll discover, probably, that some apartments fitting your criteria are listed with more than one agent. This is not because those agents are sharing the listing, but because the seller has listed his apartment with more than one agent, perhaps, you’ll find, at different prices. Listings are proprietary but not necessarily exclusive.
Some foreign markets are more open in this context than others. In Panama City, for example, some agents will work together, allowing other agents to show their listings and, if a sale is made through another agent, splitting the commission.
In other markets, including in Ireland, Lief and I were surprised to find years ago, agents are more cut-throat. When we were living in Waterford, there were eight or nine agencies operating in the city. Not only would an agent working at one agency not ever consider the idea of cooperating with an agent from another agency, he wouldn’t even say hello to any competing agent he passed on the street.
When Lief and I were shopping for a building to buy to use as an office for Live and Invest Overseas in Panama City, we worked with three agents. Each took us to see houses that the others may or may not have known were listed for sale but that, even if they knew of them, the other agents wouldn’t have been able to show us.
More than once, we found a listing that one agent had shown us available from another agent at a different price.
Bottom line, after almost 12 months of serious searching, we couldn’t tell you what the house we decided we wanted to buy “should” cost. We couldn’t reference comps, because, again, they don’t exist. We couldn’t find out how many houses of the kind we were shopping for had sold in the past year. We had no way of knowing—other than anecdotal reports from the agents we were working with—how active the market was at the time for the kind of property we were hoping to buy.
All we could do was compile our own data, based on the pricing and specs of the properties we viewed. So that’s what we did. Our spreadsheet included a 2,500-square-foot house on a small lot in a not-ideal neighborhood priced for two times as much as a 4,000-square-foot house on a bigger lot in a better neighborhood.
Multiple listing services do exist in a few localized markets of Latin America, including on the Bay Island of Roatan off the coast of Honduras, in Buenos Aires, and in parts of Mexico, including Puerto Vallarta. Beyond those few regions, you must do your best to create your own database detailing properties, sizes, locations, and prices for your own reference.
Sunday lesson number two—on how to carry out due diligence before any purchase.