Real Estate Conveyancing in 5 European Union Member States: Final Report

1. Real Estate Conveyancing in 5 European Union Member States:Final Report Peter L. Murray

2. Real Estate Ownership and Transfer Systems • A dull but important subject. • Billions of Euros change hands every day. • Massive investments are made in real estate. • Certainty and clarity of ownership is vital. • An economical and efficient system of transfer is important to a modern economy.

3. Real Estate Ownership in the EU • Most EU Member states use land registration systems. • England, Scotland and Northern Ireland are in the process of changing over. • Some member states are implementing land register systems over time.

4. Real Estate Transfer in the EU • In 21 of the 27 EU Member States - exclusively or largely by public notaries. • In some EU Member States - lawyers (laypeople can do their own). • In a few Member States - real estate brokers .

5. What are the pluses and minuses of each of these real estate transfer systems? • Cost? • Accuracy and certainty? • Service to participants (particularly advice)? • Speed and flexibility?

6. Purpose of this Study • Analyze practices and systems. • Compare actual costs - residential real estate. • Identify quality factors. • Assess any effect of regulation on costs or quality of service.

7. Countries chosen • Estonia – new EU Member State • France and Germany– Traditional civil law notarial conveyancing systems. • Sweden – Nordic system - conveyancing by real estate brokers. • United Kingdom – Common law system - conveyancing by lawyers.

8. Comparative Law Study • Not economist. • Examined systems with help of research assistants. • Reviewed literature . • Spoke with colleagues. • Observed actual operation. • Priced out hypothetical transactions – same for all systems.

9. Outside Comparison - • Two States of the United States. • Real Estate Law in the US is state, not federal law. • New York – large State with urban and rural economy. • Maine – small State with largely rural economy.

10. Eight hypothetical transactions • lot or condominium - 100,000€ • With and without mortgage for 75,000€ • house or condominium - 250,000€ • With and without mortgage for 150,000€ • larger house and lot for 500,000€ • With and without mortgage for 400,000€ • large house and lot for 1,000,000€ • With and without mortgage for 750,000€

11. Cost Analysis • Real estate transfer costs were estimated • Fee Schedules and tax rates • Estimates based on practices • Costs were analyzed on Quantrix • Costs of Conveyancing Services were analyzed • In the case of Sweden conveyancing costs had to be broken out of the overall brokerage compensation.

12. Is there a relationship between regulation of conveyancing professionals and conveyancing costs? • NO. • Some highly regulated jurisdictions have low costs. • Some less regulated jurisdictions have higher costs. • And vice versa... • Other axes seem more important.

13. Transfer costs – purchase for 500,000€

14. Conveyancing professionals are a small part of transfer costs • Real estate brokers commissions are biggest. • Ranging from 2% to 6% of the value transferred. • Transfer taxes tend also to be large • Ranging from 1% to 3.5% of the value transferred. • Professional conveyancing costs range from .6% to 1.6% of the value transferred.

15. Conveyancing costs / purchase price

16. Low and Average Value Transactions • Numerous - significant for the market and for public policy. • Conveyancing costs for transactions of lower and average value - lower in notarial jurisdictions. • Estonia and Germany • England and US (NY) are the highest • Aacess to justice.

17. Professional Conveyancing Costs – Purchase of House for 100,000€

18. Sale of house for 250,000 Euro..

19. Comparative Costs – Higher Value Transactions • Professional conveyancing costs in high value transactions tend to be lower in England and the US. • Work is not significantly more than for lower and average value transactions. • Ability of parties to bargain may be greater. • Number and policy significance is less.

20. Purchase for 1,000,000 Euro

21. Comparative Costs – Sweden? • Swedish brokers do the conveyancing • No Free Lunch • Swedish brokers garner nearly 100% of transactions • A portion of the brokerage commission (.9% of the purchase price?) attributed to conveyancing function.

22. Systemic Function • An important component is the quality of the public title system. • Modern registry systems • Reduce uncertainty in transactions • Reduce costs for determining ownership • Estonia, France, Germany • Other registry systems without routinely registering pending transactions. • Sweden, France – pre-notation rarely made • England – priority search? • Recording systems • U.S. and Title Insurance

23. How about quality? • The purchase of a home - the biggest economic transaction of a person’s life? • Parties need independent legal advice and careful execution. • Systems that provide independent impartial legal advice have a quality edge. • France, Germany, Estonia • Sweden – quality and conflict of interest issues • England – buyer-lender representation, quality? • U.S. – lender appropriation of representation and funds

24. The Future? • Electronic conveyancing is coming! • can reduce gap between “deal” and effectuation. • Registry system requires review of incoming messages to protect register. • Currently provided by officials – delay. • Can this function be outsourced to the conveyancing professionals? • How does this affect the character and regulation of the profession?