Real Estate Conveyancing in 5 European Union

Member States:Final Report

Peter L. Murray

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.

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.

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 .

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?

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.

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.

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.

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.

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€

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.

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.

Transfer costs – purchase for 500,000€

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.

Conveyancing costs / purchase price

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.

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

Sale of house for 250,000 Euro..

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.

Purchase for 1,000,000 Euro

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.

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

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

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?