Eastern Europe Property

Foreigners’ Guide to Real Estate Buying

Good news: foreigners rarely get fleeced. The days of the Wild East are behind us, and while buying a house or apartment in the Baltic states isn’t as systematized as older markets, it is relatively straightforward. The information below, while not a trade secret, is not as readily available in this region as elsewhere. Real estate agency websites often describe services with flowery language about listening and communication. While these are nice ideas, they don’t remove much of the mystery surrounding the process. CITY PAPER talked to some progressive real estate experts in each Baltic country and assembled this short primer about what you need to know before you buy.

What’s the difference between the asking price and selling price?
Unlike in some countries where the asking price can be a trial balloon, the asking price for a house or apartment in the Baltic countries is usually very close to the selling price, if not the selling price itself.
There’s a building boom in every Baltic city, and some estimate the need at 3,000 new apartments per year. Much of this is the natural growth of the market to western standards—a Baltic average, one source reports, is one person per 12 square meters of living space, while in Scandinavia, it’s one person per 50 square meters. With this much growth going on, there isn’t always room to haggle.
Every instance is different, but the selling price is rarely more than five to seven percent lower than the asking price. If you were a wheeler-dealer in the USA, you may have to adjust your tactics in this region.

Do I need an agent?
The less you know, the more you need the help of an expert. Even a city like Riga is in some ways a small town, and a good agent will know every building and apartment and its history.
In the opinion of CITY PAPER, you’re not so much paying an agent to negotiate for you, as you’re paying him to help you avoid surprises. All information about a property is not always evident. A building can be under national heritage protection (limiting what improvements you can make). If you buy an apartment, you may be also acquiring undisclosed loan obligations for past improvements made by the building’s cooperative association. If you buy in one of the old cities, there are strict rules concerning remodeling and construction. For countryside properties, there are laws which may prohibit construction on riverbanks or lakeshores. If you’re unaware of any of these, then the purchase price is only the beginning of your investment.

Will I pay more because I’m a foreigner?
Probably not. Foreigners paid higher prices in the early 1990s, but things have changed. Now, many properties are developed by foreigners themselves, and the gap between foreign and local salaries has closed somewhat. The market has changed, and far fewer people, foreign or local, are being taken advantage of.
If you find an agent you trust and make sure your purchase price is in line with market realities, you should get the same deal as a local.

How much commission will my agent get?
The most important thing to know is that commissions for the buying and selling agents are almost always included in the sales price of a property. In all cases, you should verify it. There is no standard commission, although the pre-agreed sum often ranges between three and seven percent of the sales price. In Latvia, five percent is the maximum commission, though this is set by custom not law.

What additional charges are there?
Notaries play a significant role in the closing process and are paid separately. Their compensation is sometimes fixed by the state (Estonia, Lithuania), sometimes not (Latvia). Notary fees ranging from one-half to a full percentage point of the transaction value constitute a considerable part of the purchase expenses in Lithuania. A notary will perform the function of a closing or escrow company (in the US model), making sure the title is genuine and that there are no claims against the property you’re buying.
In all countries, ask questions about state taxes on the purchase, property taxes, land book registration costs, and notaries, and be clear about what you’ll be required to pay.
If there is any applicable Value Added Tax (18% in all Baltic states), it should always be included in the selling price.

Caveat emptor?
Before buying a house or apartment, a foreign buyer is wise to have a building expert look over the structure. This is important both with old and new homes.
The need to know the condition of an old home is obvious, but not always so with the new. New houses and apartments in the Baltic are too often shoddily built by lazy, sometimes drunken labor. A home that appears to be in good shape may have studs missing behind the sheetrock, floors laid while they were wet, plumbing not up to standard. An expert may improve your bargaining position or help you decide you don’t want the place altogether. It’s said all the good Baltic builders are working elsewhere in Europe for higher wages. This of course isn’t true, and there are good builders out there, both large and small. Still, there are a great number of bad builders who make life difficult for the good ones.
By law, new homes that are built in Estonia come with two-year building guarantees. In Latvia, the same guarantee is offered by big construction companies. In Lithuania, the general guarantee for new real estate is five years, with ten years for hidden structures and pipelines. While two years isn’t twenty, it’s still better than nothing and adds some measure of comfort.

How much to the tax man?
In Estonia, you’ll owe a land tax each year. The amounts vary depending on where your property is located. This is set by local government, and the listing we saw for Tallinn ranged from 0.2 to 0.7 percent, depending on the region. Latvia property taxes are 1.5% of the value assigned by the state to your property—although this is always lower than market value. Lithuania has no property tax on apartments or houses yet, but it is on the way. The Lithuanian land tax amounts to 1.5% of the nominal value.

Any mistakes in the above information are solely the fault of the editor. CITY PAPER is grateful to the following experts for providing information: In Tallinn, Eve Pedajas and Külli Oot with Aviso Kinnisvara; Härmo Haljaste with Kaanon Kinnisvara. In Riga, Ainars Tropins with Scintilla. In Vilnius, Ausra Mudenaite with Regija Borenius; and Vilius Vaseikis.