Buying a home in the USA compared to the UK and Ireland
Steps to buying a home in the USA versus Great Britain and Ireland.
Every country does things a little differently and that's definitely the case when it comes to purchasing a home in Dublin, Ohio versus Dublin, Ireland or Manchester, New Hampshire compared to Manchester in England.
So if you're going to be moving between the two regions and intend to buy a home when you get there, then this article is for you!
As an Irish ex-pat, having lived in London for 7 years after college and now that I've been a Seattle Realtor for over 10 years, I thought it might be interesting to compare the home purchase process on each side of the proverbial pond.
Side note: an apartment in the UK and Ireland is the equivalent of a condo (aka condominium) in the US. In the UK & Ireland, you buy/own an apartment but rent a flat, whereas in the US you buy/own a condo and rent an apartment. In America, a flat is a punctured tire, which is spelled tyre in the UK and Ireland.
I'm glad we got that one out of the way early!
Although there is some state to state variations in the steps to buying a home within the US and some differences between Ireland, England, Scotland, Wales and Nothern Ireland, the overall process is very similar for each geographical area. This article does not cover every little nuanced difference otherwise it would be the length of Moby Dick!
Since I'm a Seattle real estate agent, let's review the steps to buying a home in Washington State, which obviously is the greatest state in the whole of the USA! Whether you're thinking of moving to Seattle or not, here are the steps to buying a home.
The different players involved in the home purchase/sale process.
Before we jump in, here's a list of the different players that are involved in the home buying/selling process on both sides of the Atlantic. You can refer back to these lists once I start describing how the process works in each country.
- The home buyer.
- The home seller.
- The listing agent (represents the seller).
- The buyer's agent (represents the buyer).
- The mortgage broker or lender.
- The home inspector.
- The Appraiser.
- The Escrow company,
- The Title company.
Side note: Realtors and real estate agents are the same thing. Realtors are fee-paying members of the National Association of Realtors (NAR) which doesn't necessarily make them any better at helping you buy or sell a home.
Team GB and Ireland:
- The home buyer.
- The home seller (aka vendor).
- The estate agent/auctioneer.
- The Surveyor.
- The mortgage broker or lender.
- The buyer's Solicitor (called a Conveyancer in the UK).
- The seller's Solicitor.
Side note: in the UK and Ireland, an attorney is called a Solicitor whereas, in the US, solicitors are those annoying people who knock on your front door in the evenings and weekends trying to sell you dubious magazine subscriptions, join some weird tax-exempt church or get you to contribute to the Nature Conservancy. Hence, the NO SOLICITING signs you'll see on many front doors in the land of the free and home of the brave.
As you can see, there's a significant difference between the composition of the two teams and this correlates with how the home purchase process works in each part of the world.
Step 1: Determine your budget and determine how much you can borrow
No matter where you live and want to buy a home the first step is always crunching your numbers and determining how much home you can realistically afford to buy.
You need to have sufficient funds in place to cover your downpayment on the home AND the funds to cover all the fees associated with closing on the home.
In the US, before you can make an offer on a home you must be pre-approved for a loan. You can try and make an offer on a home without being pre-approved but good luck with that! A seller will not entertain an offer from a buyer who cannot demonstrate that they have the financial means to buy their home. The seller does not want to take their home off the market only to discover the buyer doesn't have two pennies to together.
To get pre-approved for a home loan in America, the buyer can contact either a mortgage broker or a lender (usually a bank) to shop and compare interest rates and the various fees associated with each loan. The buyer will need to submit various documents including W-2s and pay stubs and have a credit check done.
Note that a mortgage broker can shop around all the different mortgage products out there and find the best one for you whereas a bank typically will only guide you towards their own loan programs. There are pros and cons to using a mortgage broker or a bank for your home loan.
In the US, if a buyer is putting down less than 20% on the home, they will be required to get PRIVATE MORTGAGE INSURANCE (PMI). The less a buyer puts down on a home the greater the perceived risk for the lender. The PMI rates can vary from 0.2% up to 1.5% depending on the credit rating of the buyer and the perceived risk for the lender.
In the event the new homeowner fails to keep making their mortgage payments, the bank can repossess the home, get 20% of the value in an insurance payment and then sell the home to recoup the rest of the loan. On the upside, when a new homeowner's equity reaches 78%, they can jettison and stop paying the mortgage insurance.
In Ireland and the United Kingdom, the process is similar. Home buyers can shop for a mortgage with either a mortgage broker or a bank. The buyer will be granted a Mortgage Approval in Principal. When they make an offer on a home, they will need to provide proof to the seller that they have already spoken with a lender and have their financing locked down.
On the eastern side of the Atlantic, the home buyer will be required to get MORTGAGE PROTECTION INSURANCE (MPI) which is a life insurance policy specifically designed to pay off the remaining balance on your mortgage if you pop your clogs. The insurance lasts the lifetime of the mortgage but decreases as the principal is paid down over time.
Now that you have your financial picture in perspective, let's go see where we can find some homes for sale.
Step 2: Finding homes for sale and getting access to them.
On both sides of the pond, almost all homes that hit the market will be listed for sale on the internet. In the UK you can search on Right Move, in Ireland Daft.ie and you can search on this site for homes for sale in the Seattle / Washington State.
When it comes to getting into homes to see them in person, there's a big difference between home buyers in the two regions and the US buyer is a lot more pampered by comparison!
When buying a home in America, the buyer teams up with a real estate agent /Realtor. The real estate agent works solely for the buyer and has no loyalty to the home sellers. The agent is there to help you find and buy a home and hopefully protect you from buying a lemon.
The buyer agent will be able to get you access to any home you want to see and you can schedule a property tour of multiple homes in a day. Just sit in their car (or follow them in yours) and get chauffeured around town. Your agent might even buy you coffee and a frosted cupcake too at Starbucks halfway through the property tour to keep you caffeinated, enthusiastic, and alert. They do want you to buy a home after all.
Even better. The American home buyer doesn't have to pay their Realtor a penny. The service is FREE. The buyer's agent gets paid by the home seller as a percentage of the sale price (if the buyer closes on a home).
In the US, a home buyer will usually have no interaction with the listing agent unless they go to an open house at the weekend.
The Irish and British home buyer, on the other hand, does NOT have their own estate agent working for them. They are required to arrange and coordinate viewings themselves! There are no buyer estate agents in Ireland and the UK.
Homes are listed by an estate agent/auctioneer whose loyalty is to the home seller. If a buyer wants to see a home, they have to contact the seller's estate agent to see the home. The estate agent will meet them at the home and show them around the home.
That same listing agent will not pop you in their car and drive you around town showing you a bunch of other homes. You have to contact each estate individually to schedule each viewing.
The estate agent's sole responsibility is to the home seller. They want to sell that home and they are definitely going to hype up the home while showing it to you. Plus they get to listen to all your opinions on the home, get to read your body language, and gauge your level of enthusiasm for the home. If you subsequently make an offer, that estate agent will probably be pretty tuned in as to how serious you are about buying that home.
Side note: the vast majority of home buyers in America are represented by their own real estate agent. However, an unsuspecting home buyer might be lulled into what is known as DUAL AGENCY. Say a buyer, who hasn't signed up with her own agent yet, walks into an open house and immediately falls in love with the home and wants to make an offer.
The listing agent Jeff, (aka seller's agent), who is hosting the open house, offers to write up the offer for the buyer and says he is more than happy to represent both the buyer and the seller in the transaction.
Although legal in some states, it is illegal in others and that should be enough of an indication that dual agency is a bad idea and should be avoided at all costs. It's a complete conflict of interest and makes it impossible for the same agent to represent both parties with full loyalty and confidentiality. Plus the agent will pocket a lot more commission dollars. Agent Jeff is just plain greedy, pure and simple.
Just say NO to dual agency and get your own agent!
Step 3: Making an offer on a home.
Making an offer on a home in America.
In America, when a buyer wants to make an offer on a home, they sit down with their buyer real estate agent who fills out the contract. The agent uses standardized forms and essentially just fills in the blanks.
The offer will comprise a Purchase and Sale Agreement (PSA) which identifies the parties (buyers and sellers and the agents), the property, how much the buyer is offering, the closing date, and other specifics.
Attached to the PSA will be a number of Contingencies / Addenda which are the conditions under which the buyer is willing to buy the home. Commonly included contingencies are the Financing Contingency (the buyer is relying on a loan to buy the home) and the Inspection Contingency (the offer is based on an inspection of the property).
Note that although Realtors are not allowed to practice law, they are still held to the same standards as an attorney. US attorneys would love to wrestle this business away from the real estate agents and previously did try to do so through a well-known court case.
The buyer will sign the offer paperwork and then the buyer's agent will email the signed offer to the listing agent (seller's agent) who then shares it with the home seller. And then the buyer waits to hear back from the sellers.
Making an offer on a home in the UK and Ireland.
The process is a lot different in the old countries. When a buyer in Dublin wants to make an offer on a home, there is no buyer's estate agent.
The buyer verbally negotiates with the home seller via the seller's estate agent, haggles back and forth on the price, which items are included in the sale, and on a tentative closing date. The buyer tells the estate agent that their offer is "subject to contract and survey".
Once the parties reach what is essentially a verbal agreement, the estate agent will write up a letter detailing the main points of the offer.
The buyer will then have to submit a BOOKING DEPOSIT of around 3% to the estate agent and the status of the listing will go from for-sale to SALE AGREED.
The booking fee is the equivalent of earnest money in the U.S. and will go towards the buyer's downpayment on the home. The buyer can only forfeit the booking fee if he or she breaks the contract with no justification.
This initial Sale-Agreed phase can be considered the first part of the "offer to purchase the home". As you will see in step 4 below, for the UK and Ireland, legally speaking, the buyer makes an offer to purchase the home only when contracts are exchanged which takes place just before closing.
Whereas in the US, all the contract paperwork and negotiation is taken care of by the buyer's agent and the listing agent, in Ireland and Great Britain, once the buyer gets an initial verbal agreement with the seller, two solicitors make an appearance, one representing the buyer and one representing the home seller. Neither of them will ever set foot in the home.
Step 4: When is an offer legally accepted?
There's a polar opposite difference between the two areas when it comes to this particular aspect of the home buying process.
For the American home buyer, if the seller signs the offer and returns it to the buyer team, then the two parties have a legally binding agreement. The buyer and seller are said to have reached MUTUAL ACCEPTANCE.
Obviously, many times there is some back and forth negotiation on the terms of the offer, and changes are made to the offer. However, once the seller signs and returns the final agreed-upon terms to the buyer, the offer is legally accepted.
Once a buyer has their offer accepted, they are required to make an EARNEST MONEY deposit to either the listing agent's brokerage or to the escrow company. Earnest money is a demonstration of the buyer's serious intent to buy the home and that the buyer is willing to forfeit that money in the event they break the contract without legal recourse.
Depending on the sale price and how competitive the sale is, buyers will do between 1% and 5% earnest money. The most money a buyer can forfeit is 5% of the sale price.
As you can see mutual acceptance is reached very early in the process. In America, the seller can only work with that buyer now. The seller cannot accept any other offers, even if another buyer submits a much better offer. The home buyer and seller are locked into a binding contract to buy/sell right at the start of the process.
It's the opposite case for a UK & Ireland home buyer. The buyer and seller only have a legally binding contract to buy/sell just before closing when contracts are exchanged and signed by both parties.
Although, the "sale agreed" sign might have been slapped on the listing at the start of the buyer/seller "agreement", there is nothing legally binding with that initial agreement. The seller is completely free to accept a better offer from another buyer all the way up to closing when contracts are exchanged which can be 6 weeks or months after the sale was agreed.
So how, and when, does the buyer get a legally binding agreement to buy the home?
After a buyer gets an initial agreement with the seller, the buyer INSTRUCTS THEIR SOLICITOR to oversee the CONVEYANCING, i.e. the legal work required to transfer ownership of the home from the seller to the buyer. The buyer's solicitor is responsible for:
- Dealing with the buyer's lender to coordinate the financing of the purchase.
- Cooperate with the seller's solicitor on writing up the contract to buy.
- Review title documents.
- Overseeing the conveyancing, i.e. the legal work.
On the Euro side, the actual contract is drawn up by the seller's solicitor who sends duplicate (unsigned) copies to the buyer's solicitor.
The buyer then signs both copies of the contract, both of which are sent back to the seller's solicitor. This is legally considered an offer to buy the home. The buyer will also sign the Letter of Offer and various loan documents.
The buyer will be required to pay a deposit (downpayment) of around 10% when they make their offer less the booking deposit they paid to the seller's estate agent at the sale agreed stage earlier in the process.
Once the home seller signs both copies of the contract and delivers one copy back to the buyer's solicitor, then the seller has legally agreed to sell the home to the buyer.
Step 5: You say, home inspector, I say surveyor.
Regardless of where you are buying a home, you want to avoid buying a big hairy lemon of a home.
In both the US and Ireland /UK, most home buyers make their offers contingent on an inspection of the home.
When buying a home in Seattle, for example, the buyer's offer to purchase the home will usually be contingent on an inspection of the home to the buyer's "subjective satisfaction". The inspection must be done by a licensed home inspector. The buyer will have a set number of days to complete the inspection of the property and home, including the sewer line and septic system where necessary.
Note that the term subjective satisfaction means that after completing the inspection the buyer can terminate their offer, get out of the contract and get their earnest money back even if there is nothing wrong with the home. It's the great get-out-of-jail-card of American residential real estate and the reason why in multiple offer situations, sellers almost always go with the offer that has waived the inspection contingency.
In Washington State, the home seller is legally required to disclose all known defects to the home and must also disclose any issues they had during their ownership of the home.
The seller must fill out a 6-page SELLER DISCLOSURE STATEMENT where they answer a long list of questions about the current and past condition of the home. The seller must provide the buyer with a copy of the seller disclosure statement within 3 days of mutual acceptance.
Some states, however, have less stringent legally mandated seller disclosure requirements. For example, Massachusettes is a Caveat Emptor, or let the buyer beware state and the seller only has to divulge certain information when specifically asked by the home buyer.
In Ireland and the UK, the home buyer will have the home and property inspected by a surveyor or an architect.
In the UK and Ireland, the seller is not required to disclose any known issues with the home...unless they are asked specific questions. For example, "has the roof ever leaked during your ownership of the home?"
The seller will only volunteer that information if you actually ask them that question. The buyer's solicitor, as part of their due diligence, will submit a long list of questions to the home seller about the history and condition of the home.
Regardless of the seller's disclosures, always do a home inspection, even for brand new construction homes!
Side note: in American real estate, a surveyor is someone who determines and marks out the legal boundaries of the plot of land a home sits on. They are usually hired when a homeowner wants to add an extension to their home or has a dispute with their neighbor Bob who thinks that the fence is encroaching on his property. You know what they say about fences and neighbors...they keep surveyors busy! Surveyors are rarely part of the home purchase process in the US.
Step 6: Determining how much the home is worth.
When buying a home on either side of the pond, if the buyer is relying on a loan to purchase the home, then the lender will want to make sure that the home is worth the money the lender is giving to the buyer. The bank wants to know that they can recoup their money in the event the buyer defaults on the mortgage.
In American real estate, an independent 3rd party, called an APPRAISER, will visit the home and look at its overall condition. The appraiser will then write up a report giving their price opinion of the home based on the sale of comparable homes in that neighborhood. The report then goes to the lender's underwriter for approval.
If the appraised value of the home comes in at the agreed-to sale price or above, then all is good in the world. If it comes in low, well then the buyer and the seller have negotiation to do.
Note that the appraiser is given a copy of the sales contract and already knows the agreed sale price and 9 times out of 10 the appraisal will pass. If they were doing the appraisal blind there might be a lot more failed appraisals. The appraisal is ordered by the mortgage broker or lender and the buyer pays for it and is part of their closing costs.
In Ireland and the UK, the lender will require a professional VALUATION completed on the home before they formally agree to lend you the funds to purchase it.
Either the buyer hires a professional valuer or the lender will appoint their own one. As per the US, the valuation will only look at the general state of the property and current market value. And yes, the buyer pays for the valuation.
If the lender approves the valuation report, they will approve the mortgage application and send the buyer a LETTER OF OFFER which details the terms of the mortgage.
Step 7: The closing and exchange process.
Regardless of the part of the world, the whole process boils down to the buyer getting the keys to the home, the seller getting their bank account padded with lovely moola. And that happens at closing.
In the Escrow States like California and Washington State, an independent 3rd party called the ESCROW COMPANY coordinates the closing of the sale. Escrow acts as a traffic cop, coordinating the flow of funds from the buyer to the seller and the exchange of the title (proof of ownership) to the property from the seller to the buyer.
Some of Escrow's responsibilities include;
- Holds the buyer's earnest money through closing when released as part of the buyer's downpayment.
- Coordinate with the buyer's lender to get lender documents and then draw up separate signing documents for the buyer and seller.
- Send out the Final Closing Disclosure to the two parties the week of closing (details all the debits and credits for each party).
- Schedule separate signing appointments for both the buyer and seller. If the buyer is using a loan to buy the home, they will have to sign an extra thick stack of forms. The buyer will need to bring a banker's check or wire the funds for the remainder of the downpayment and the money needed to cover all their closing costs. Signing usually happens a few days before closing but can be as late as the day before closing.
- On the scheduled closing day, the buyer's lender will RELEASE FUNDS and escrow will transfer the necessary funds to pay the seller, keep aside a certain percentage to pay the two agents, taxes, utility bills, and transfer the title to the home from the seller to the buyer is conveyed through a Warranty Deed.
- Once the sale is recorded at the local courthouse (on closing day), and escrow has the recording numbers, the sale is officially closed and the buyer gets the keys.
Note that in non-escrow states like New Hampshire and South Carolina, attorneys will coordinate the closing of the sale. Note that this is not the same as attorneys writing up the offer/contract as practiced in the UK and Ireland. The attorneys are just taking care of the closing aspect of the sale
As described in step 4 above (When is the offer legally accepted?), the buyer's offer to purchase the home is considered legally accepted when the seller returns a signed copy of the contract to the buyer's solicitor. And this takes place right before closing whereas in the United States a legally binding agreement is reached right at the start of the whole process.
For the actual closing, both solicitors finalize the closing date, i.e., the day the buyer gets the keys. Assuming the lender is happy with everything, the lender will issue the mortgage check to the buyer's solicitor who then transfers it to the seller via their solicitor.
What are the main fees and expenses involved in buying a home?
What are the fees associated with buying a home in the United States?
Mortgage fees: sometimes the mortgage broker will charge the buyer service fee called a loan origination fee to find and secure a mortgage product for the buyer. This fee is usually a percentage of the loan amount. Sometimes, the lender will pay the mortgage broker fees. Other mortgage fees include a credit check, flood zone certification and whether the buyer is buying down the mortgage rate by paying points. Here's a detailed article on closing costs and fees when buying a home in the US.
Pre-paids: At closing, the home buyer will be required to pre-pay a number of months worth of certain charges including property taxes, hazard (property) insurance, and Home Owner Association dues if the home is part of an HOA.
Earnest money and downpayment: the buyer's earnest money will go towards the down payment and downpayments will vary depending on the type of loan, from as low of 3.5% for an FHA mortgage to 20% or more if the buyer wants to avoid mortgage insurance.
Appraisal: for the Seattle area it's about $700.
Inspector: for the Seattle area this varied between $300 and $700 or more depending on the size of the home.
Title insurance: Home buyers are required to get title insurance and this fee will depend on the area the home is located in, the sale price of the home and on the size of the downpayment. At the time of writing (summer 2019), for a $500,000 home in Seattle with a 20% downpayment, the title insurance fee for the buyer would be about $1,4000 and $2,400 for a million dollar home.
Escrow services: the escrow fee will also depend on the same factors as the title insurance fees above. As of summer 2019, for a $500,000 sale price with a 20% downpayment, the feel will be about $1000 and $1,400 for a million dollar Seattle home.
Buyer agent fee: Both the buyer's and the seller's real estate agent are paid a pre-determined percentage of the sale price as specified in the listing agreement between the seller and the listing agent's brokerage. It is completely the seller's choice as to the total percentage they want to pay and it usually varies between 2% and 6% of the sale price, usually with the commission being divided equally between the listing agent and the buyer's agent. Although both agents are paid from the seller's proceeds of the sale, since the buyer is the only party bringing money to the table, it is now considered that the buyer pays the buyer's Realtor commission. Previously, agents used to say to their buyer clients, "I'm free, the seller pays my commisison, not you". However, recent class action lawsuits against the National Association of Realtors (it's a long story) means that buyer agents now have to clearly state that the buyer pays their fees, even if it is coming from the proceeds of the sale.
Celebratory 6-pack of decent beer: $10.
What are the fees associated with buying a home in the UK and Ireland?
Let's the example of buying a 300,000 Euro home in Ireland.
Solicitor/legal fees: about 1,700 Euro.
Land registry fees, search fees etc: about 1,000 Euro.
Lender's evaluation: around 200 Euro
Surveyor: about 350 Euro
Stamp duty: this is a government tax and is currently 1% of the sale price which means in this example for 300,000 Euro home, that the buyer must pay a $3,000 stamp duty.
Side note: there is no stamp duty in the US for the buyer but the seller has to pay a Federal Excise Tax of 1.78% plus a local addon tax.
What are the pros and cons of each system?
Trying to remain as neutral as possible and suppress my America-based greater exposure/potential bias...
Buyer representation is a lot better in America with the vast majority most home buyers having their own dedicated real estate agent helping them find the perfect home, getting access to homes, advising them on what's good and what's a potential money pit, negotiating on their behalf plus preparing the offer on the home and taking care of all the contract paperwork. And it doesn't cost the buyer a penny!
In the UK and Ireland, the home buyer doesn't have their own agent and are essentially on their own when it comes to finding homes and getting access to them. A newbie buyer with no prior experience or knowledge of market prices could end up making an offer on an over-priced lemon because they are not getting any subjective advice from their own agent. The seller's estate agent who lets buyer in to see their listings naturally wants to sell it home and get paid and so will hype it the home's virtues.
From the seller's perspective, the British and Irish system probably seems a lot more favorable to the American home seller. In the US, the seller has to pay the commission for their own listing agent but also pays the buyer's agent commission. However, in the old countries, the home sellers have to pay both their estate agent and their own solicitor. However, the total fees for both of these in most cases will be a significantly smaller percentage of the sale price compared to their American counterpart.
A major difference between the two systems is specifically when the buyer and seller have a legally binding contract to buy/sell the home. In the US, the two parties have a legally binding contract right at the start of the whole process when they reach mutual agreement. As long as the buyer adheres to the terms of the contract, the seller cannot accept any other offers or work with any other buyers.
In the UK and Ireland, it is only right before closing when fully signed contracts are exchanged that the buyer and seller have a legally binding contract to buy/sell. The seller is legally entitled to dump the first buyer and accept a better offer from another buyer between the sale-agreed stage and up to exchange contracts. Anyone care for a serving of gazumping? The buyer may have already spent money on a surveyor, an evaluation and solicitor fees and yet the seller can legally go with a different offer. Sorry, but that's a dumb system! So much for containing my personal bias.
I asked Gary E., who moved from Dublin, Ireland to the great Pacific Northwest and who has purchased homes in both countries, for his opinions on the two systems:
- Overall, the process seemed smoother in the US.
- Solicitors in Ireland can move very slowly and don’t seem as incentivized to get the deal done as quickly as Realtors and escrow here in America.
- Realtor fees for the buyer and listing agent seem significantly higher in the US.
Neither system is perfect and there are pros and cons to each.
Some additional helpful reading on the subject of buying a home in America, the UK, and Ireland.
How to buy a home in Ireland from Colleen, (a Kiwi who moved to Ireland via Australia) on her Relocating to Ireland website.
How to buy a home in the UK from The Money Advice Service (UK Gov site).
This article on Buying a home in the USA compared to the UK and Ireland, was written by Conor MacEvilly, a Seattle and Eastside (Kirkland, Bellevue, and Redmond) real estate agent.