Purchasing a Home in Japan
Subtle differences to be aware of (vs the United States)
I’m not an agent, but let me summarize my understanding of the home purchase process in Japan and some caveats.
Agent segmentation
The first major issue is that Japan lacks a publically accessible transparent database of all current listings and past sales. Unlike most of the US (sorry only have purchase experience there, but others from UK, AUS, etc please chime in the comments) the transparency of sales is not there so you have little ability to do “comps” (finding comparable sales in the past to measure the right fair price).
The second major issue due to this segmentation is that agents often don’t cross-list their properties with other agents. A major agency may list only their properties — so you see a fraction of the market from each agency. Very annoying. (Note suumo website has most properties but not all and REINS (not public) may have most if not all).
Some agents cross boundaries, and some selling agents cross-list with other agents, but ultimately if you want to know EVERYTHING available for sale, you can hire a special buying agent and pay a little more commission, or search ALOT on your own.
Commissions
These are similar to what I’m used to — 3% for the seller/listing agent paid by the seller, and 3% for the buyer agent paid by the buyer (in California it has dropped to 2.5% each since properties are nearly $1m on average).
Big caveat — due to the segmentation problem mentioned earlier, it is often the same seller and buyer agent behind the deal and earning the whole % commission hence highly incentivized to make the deal happen. There is much research and debate questioning whether this is ethically a problem (I think it clearly is) and whether it should be illegal or not as it is in some other countries.
Inspections and Appraisals
Even on a bank-financed property, the bank hardly does much in the area of appraisal of your land and building. In popular areas and new buildings they may fund the full 100% of the purchase price, for all others, they will simply tell you what they will finance without much explanation (usually closer to the land value alone + fractional building value).
They will *not* give a formal appraisal report nor do an inspection which is very surprising to me. It has to do with the land typically being 70%+ of a property’s value in high-valued areas like Tokyo.
Additionally, the last 3 times I have asked an agent if I can hire a building inspector for my own peace of mind, the responses were:
- “I can ask an architect we know to take a look” which turned out to be like my uncle coming to kick the tires on the car and say “this feels solid”
- “Finding one will take weeks and we won’t have time since we must close by end of the month”
- “The deal is as-is so there is no point in doing an inspection”
So I was heavily dissuaded from hiring an inspector. I bought 2 properties without inspections that turned out fine, but a 3rd was a nightmare. Why anyone would buy without an inspection goes back to the land being 70%+ of the value, and it is assumed the house has flaws and will be rebuilt soon enough to not merit much focus.
You may not have much choice on inspection demands depending on how desperate the seller is and how flexible the buyer agent is about you bailing on the deal after finding some flaws. It is always best to be dispassionate when it comes to real estate, but easier said than done.
More on bailing out next.
No Refund Society
The tactless American way is to buy something, try it out a few days, then return it for no reason. In real estate, you pen an offer but a few weeks later say “nah I change my mind” and walk off scotch free*. This is NOT how it works in Japan! (*not true in all US states I know).
In Japan, you make a verbal or flimsy paper offer with 0 money down and no legal obligation but it seems the selling agent and buying agent have put some trust that this deal is FINAL. If you back out, the agents are more than upset, they will likely blacklist you!
The 2nd step after the offer is signing the legal contract (a few days or weeks out) where you typically give 10% (5% on new builds) as the non-refundable deposit along with the signing. These deals are contingent on final loan approval but not always on inspections (see prior point). The 5/10% are basically liquidated damages which one could argue/fight/sue to recover since I have read these are not fully backed by the laws in Japan (gray area — they surely are not in California, because I have personally sued to recover a deposit successfully myself).
Also note, there is no escrow, so you just deposit the money directly to the seller! So if the deal falls thru, you may have trouble getting the money back!
The 3rd step is the settlement & closing which I’ll cover next!
Closing Time
“Every new beginning comes from some other beginning’s end.” — Closing Time by Green Day
The closing day depends on when the seller is moving out (since this is formally when you take ownership of the property), and when your loan is ready from the bank (if financed).
As mentioned there is NO ESCROW nor Lawyer. You pick a place like Starbucks (mostly joking, but it has been done there before). You meet the agents, a legal scrivener to sign over the property and I recall you bring:
- Hanko & perhaps a Hanko Shoumeisho (proof this is your hanko)
- Identification & I think a Jiminhyou (proof of your address)
- Cold hard cash (* more on this)
The seller is present, so you get to see them face to face whether you want to or not…
Why Bring Cash??
While some amount may be financed, there is still an odd tradition to bring something like 5–10% in cold hard cash. I bought a $1m property and no joke, I had to bring more than $70,000 in cash to the closing for some odd reason. Criminals ought to stake out people leaving banks after selling their homes for a quick score.
When I did this, the bank provided counting machines and the seller painstakingly counted $50,000 in hundreds (10k yen bills). Then when the bank said the wire of the loan is done, he called his bank to confirm the deposit. Surprisingly very manual isn’t it?
Sign and Stamp
Get used to writing your name and address like 20 times in Japanese and stamping your hanko perfectly. The agent or scrivener must read every page out so you know what you’re agreeing to so this takes some time.
The seller may also hand over all kinds of docs like blueprints, original home and land test details, operating manuals for the washing machine, etc if he’s a nice person. Otherwise, you may just get the keys and that is it. Congrats!
Warranties & Insurance
What my last agent told me is that there is no warranty for “used” houses. He said if something obvious doesn’t work in the first week, like water, power outlets, etc I can have the seller fix it right away but it was very vague. Otherwise caveat emptor!
New homes come with multi-year warranties hence another reason why everyone in Japan flocks towards new homes.
As some consolation, you will typically buy Fire and Earthquake insurance. If your property is financed the banks will require this. While you may not get the home warranty on an older house, fire & casualty insurance is quite powerful and you can claim things a lot easier than in the States.
Good luck!
