Sell a property in Italy

“I want to sell my property in italy”, are you in that phase?

Italy, with its millions of tourists and major economic importance offers superb opportunities for investing in real estate properties. Knowing the local real estate market gives an entrepreneur the ability to identify the right moment for the purchase and sale of properties in order to make profits. Other than drafting a business plan, however, an investor also needs to ascertain correct and comprehensive compliance with the designated legal procedures for the sale of properties. 

In detail, prior to initialization of the deal negotiations, the vendor will be required to provide the following documents:

• An energy rating certificate (APE – attestato di prestazione energetica) – certificate that contains the characteristics of an energy-efficient building. It is mandatory by Italian law that the vendor provide the prospective buyer with a copy of this. It is a control instrument, summarizing characteristics such as type of building, means of hot water provision, cooling and heating systems, energy production and installation systems.
• Certificate of habitability (Certificato di agibilità) – according to the Italian Civil Code the vendor is obliged to produce a certificate of habitability, a document which basically confirms that the building is fit for human occupancy.
• Planning permission building certificate issued after 1967-  it can be provided by the city hall, usually online. This certificate testifies that the property has been built according to the Italian laws and it corresponds to its registered floorplan. 
• Land registry certificate – this certificate contains information on any deeds of transfer of ownership, third party rights and/or burdens over the property, as well as the raising and writing-off of such.

Property evaluation

There is no such thing as a formula to calculate the exact value at which a property can be sold and last year’s market trends have well proven this is more than true. Due to the global health and economic crisis, predictions are that real estate prices will decrease by 1.3% to 4% in 2021/2022, and then increase again starting from 2022. Data from the Italian Revenue Agency also shows a significant decrease in 2020 property transactions, compared to 2019. Generally, however, the financial value of real estate units may be assessed considering three main factors, as below described in detail:

1. Construction costs

The first element which factors for a property’s price is its construction cost, or how much money has been spent to complete the property which is subject to sale. This criterion is based on the assumption that the value of a product is equivalent to the sum of the invested funds. In other words, it presumes that the market is willing to pay a price based on the cost of the asset and not on its utility. Such a cost would generally include the price paid to purchase the real estate unit as well as the price of all the improvements made on it.

2. Location

Location is unarguably one of the key criteria. If demand is higher in a particular neighborhood or position, the cost of property located there will be higher. than elsewhere. The same is true in case of a real estate asset located near the seaside, in the mountains, in the center of a big city, or with a splendid view. This factor can affect the price in a variable, but significant percentage – to be exact it generally ranges between 40% and 60%.

3. Physical comparison

Another criterion used to estimate a selling price is considering the prices of properties similar to the one in question and located in the same area.  A thorough research of the market, preferably with the help of an expert, is required to make the right conclusions thereon.

What does working with expert agents mean?

• Real estate agents. Foreign vendors who prefer working with experts may commence their enterprise by choosing their real estate agent. Needless to say, ensuring the selected agent is qualified and registered with the local Chamber of Commerce is vital. It is useful to know that, as per current Italian law, real estate agents are usually paid a commission known as Provvigione. Usually amounting to between 2.5% and 3% of the purchase price of the property in question, the provvigione is paid by both the buyer and the vendor (provided the parties do not negotiate different terms). The real estate agent is responsible for advertising the property. The seller, especially when non-Italian, will be required to sign a standard terms of engagement document. Such an engagement agreement would typically contain the fees of the agent, the duration of their mandate, and potentially, its exclusivity. Evidently, this engagement document is to be carefully studied and evaluated before signing.
• Special Power of Attorney (Procura Speciale). A Special Power of Attorney is a legal document in which one person, called the principal, appoints another person (usually an attorney) to act in their name and on their behalf. Thus an attorney is engaged to handle all legal assignments on behalf of the client. Hence, the client is no longer required to be physically present at the moment of conclusion of the distinct legal actions. A Power of Attorney may be signed in Italy or abroad – before a foreign notary or commissioned solicitor (for UK, Ireland or Australia), whereby the latter is to verify the principal’s signature.

Preliminary contract and final deed

• Preliminary contract (Compromesso). Drafting of a preliminary contract, to comprise all details as regards the negotiated full price of the property and conditions that need to be met before conclusion of the sale, takes place prior to issuance of the final deed. The parties are not obliged to sign this document, but it is often done so in practice. The preliminary contact also serves as a guarantee for both parties in their intentions for the upcoming deed. Also, since January 2007 all preliminary contracts need to be registered, a procedure usually completed by the Italian real estate agent in charge. Generally, the purchaser will also pay a deposit (down payment) which amounts to between 10% and 30% of the agreed sale price. In Italy there are two types of deposit – Caparra Confirmatoria and Caparra Penitenziale. The most commonly used type of  deposit is defined as Caparra Confirmatoria. This type of down payment implies that should the sale not be completed due to a shortcoming on the buyer’s part he/she will automatically lose the deposit paid. Vice versa, in case the seller is to be blamed, he/she will be required to pay the buyer the received deposit twice over. If there are any damages caused which exceed the amount of the deposit, the defaulting party may need to pay a corresponding sum over the deposit. On the other hand if the down payment selected is the Caparra Penitenziale the party that decides to withdraw from the agreement shall give its counterparty what has been agreed upon as a penitential deposit and henceforth the counterparty will have no further claim to exact. 
• Final deed (Rogito). The preliminary contract does not have the power to transfer the ownership. This procedure happens in the stage of the final deed. The final deed contains all terms of the sale and purchase agreement and is to be signed before a notary. Generally, the notary is chosen by the purchaser. The buyer and the seller are required to be present at the notary’s office in order to sign the contract. By law the deeds need to be drawn up in Italian language. However, if the parties declare that they do not speak Italian, the notary deed could be written in two languages, i.e in Italian and in a language understood by the non-Italian speaking party. In that case there is also the option to hire a lawyer by signing a Power of Attorney, so as to have a professional to handle the procedure on behalf of the client. According to Italian law the notary is required to read the contract aloud so as to ascertain the information is correct and both parties understand of the established negotiations. Once read and confirmed, the contract is issued in three copies and signed by both parties and by the notary. At the end, the vendor receives the remaining amount of the sale price. Many buyers prefer to transfer the money using a notary’s escrow account. This is a bonded client account, which the notary may use to receive funds resulting from the payment of properties, and hold these until the conditions required for the transfer of the payment to the seller have been satisfied.

Capital gains tax in Italy

In compliance with current Italian legislation property purchased less than 5 years ago and on sale again will be subject to a capital gains tax applied to the difference between the sale price mentioned in the deed (rogito) and the purchase price mentioned in the purchase deed. The capital gain represents the profit that the owner gets by selling a property at a higher price than what it was purchased for. Since January 1 2020, and according to the Italian Budget Law 2021, the capital gains tax is 26% (it was 20% up to December 31, 2019). This tax is applicable only for private property sales. However, art. 68, paragraph 1 of the  TUIR, the Italian Consolidated Law on Income Tax, introduces the possibility of deducting the inherent costs from the capital gain calculation, i.e. subtract all expenses incurred in for the property. Expenses to be considered may include taxes paid for the purchase, Notary fees, expenses incurred for the real estate agency, as well as all expenses paid for improvements and renovations, as long as the same can be documented by tracked payments and related tax invoices. There are also exceptions when this tax does not need to be paid – these include property received by inheritance or donation (if 5 years have passed from the purchase of the property by the contributor).