1. Not using an Independent Lawyer.
Number one on the list! Your lawyer is important in the buying process and it is vital to get one on YOUR side. There are UK based lawyers who specialize in foreign property transactions and will speak the lingo (try www.internationalpropertylaw.com). They must be completely independent from the developer or agent that is selling the property. Don't be pushed in to appointing the 'chosen' lawyer of the developer or agent.
Many people make the mistake of thinking a notary (who you may ALSO have to pay) is a substitute for a lawyer. Notaries work for the government and will oversee the transaction to ensure that it’s done properly - but won't offer advice or warn you about unfair clauses in the contract.
A lawyer, will look after your interests and do all the necessary checks like a solicitor acting for you on a UK purchase. It will provide you with legally binding security should things go wrong.
2. Signing Contracts too Early
You may be pressured to sign the ‘Preliminary Contract’ - particularly if you buy a new build property from a developer. Signing it legally commits you to buying the property.
Don't confuse the Preliminary Contract with the Reservation Agreement. This is something you sign when you put your name against a property. By signing a Reservation Agreement, the seller agrees to take the property off the market. Usually you pay a holding deposit at the same time (typically around £2000). Very often this isn't refundable if you change your mind.
The Preliminary Contract must be thoroughly checked by your independent lawyer. Once you sign, you are committed to buy and must be sure you can afford the property. You may pay up to 40% of the purchase price at this time.
3. Unrealistic Budgeting
Buying a property abroad has lots of additional costs, which can be easily overlooked. There are fees for agents, lawyers and notaries, purchase taxes and VAT. Check what extra costs apply in the country you are buying in - you may have to cough up an extra 20% on top of the property price.
As in the UK, if you are renovating, work can end up being more expensive than first thought. If you are taking out a mortgage on the property, remember that interest rates can go up. On that note - if a mortgage is mentioned, don’t assume you will get it - lending criteria in other countries can be more restrictive than in the UK.
Be aware that exchange rates can affect the cost of the property and mortgage.
4. Buying a House you Don’t Own
Sometimes it hard to know who the actual seller is because agents and 3rd parties are involved. Some unsuspecting Brits have paid for a property they ultimately don't own. Get your lawyer to check through the paperwork and contract before you sign. If the person who’s selling doesn't own the property, make sure you understand why. Also make sure that the proper planning permission is in place - particularly if you are buying a new build.
In many countries, debts are attached to the property, not the owner so check to make sure you don’t buy any nasty surprises along with the house.
5. Too Risky
If you are buying as an investment, balance the amount of risk you are willing to take with the potential returns. Don’t be seduced by promises of huge increases in value or rental income without doing the research and taking a measured view. Many overseas property investments are in undeveloped places and it may take many years for returns to materialize.
Breach of Contract
If your property is finished later than expected - then you may be entitled to compensation. However, you will have to wait until the property is finished to make a claim. Clauses in your contract surrounding late completion can be quite vague so make sure you understand the implications.
On the other hand, if you don’t complete the purchase once the property is ready, you could be in breach of contract and the developer may pursue you.
If the developer goes bankrupt before completing your property you need to know that someone else will finish the work. In some cases, a bank will have accepted joint liability with the developer and has a responsibility to complete the project. Some guarantees say that the developer will refund your money if they are unable to complete the project. Get your lawyer to check this. Also check what guarantees the developer offers on his work post completion.
The best way to find out if a developer is a good one or not is to ask for client testimonials and speak to satisfied buyers. Research the track record of the company and if possible get a written statement of the service they offer. Between this and the property contract, you should know what the developer will and won’t do when they hand over the property.
Developers and agents who are members of the AIPP (the Association of International Property Professionals) www.aipp.org.uk, comply with a professional code of conduct. Check out the AIPP website for loads of information, and also their new bond- a way of paying which can protect any payments you make.