Is the benefit for the buyer attached to the deduction of the value of furniture from the sale price oversold?
I have recently noticed an increase in the amount of requests relating to a clause implemented in the contract by estate agents and whispered to them by notaires. The clause allows the deduction of the value of furniture from the property price in order to reduce “notaire’s fees[1]”. This has been developed to the point that some will try to deduct built-in kitchens, heating systems, swimming pools, etc.
It is important to note that this deduction is subject to the condition that there are two separate prices: one for the property and one price for the furniture. In addition, the value of the furniture must be detailed item by item.
Moreover, this deduction is a tolerance of the French tax authorities which, by nature, are not very tolerant. All the hype could therefore lead to being challenged not only on the value of furniture but also on that of the building for which the price could be deemed insufficient.
So what is the economy and who benefits from it?
Consider a villa sold €200,000. Working fingers to the bone, it could be possible to reach €15,000 for the value of "furniture". As a result, duties would be paid to the Land Registry (5.19% in total) at € 9,601 instead of €10,380; which is a saving of €799.
But the notaire’s fees, on the one hand, will be calculated on a total €200,000 and the calculation is made on a sliding scale, it will be returned to the base for both the property and the furniture. According to the tariff of notaires, if agreements are independent and give rise to separate registration duties, Land Registry tax or VAT, which is the case, the fees are due for each sale even if they are included in a single deed.
Thus a sale for €200,000 leads to notaire’s fees of €2,366.58. A sale of property for €185,000 gives rise to notaire’s fees of €2,218.58 and an independent sale of furniture for a price of €15,000 gives rise to notaire’s fees of €478.69; a total of €2,697.27 including VAT.
The actual economy made by the buyer is no longer €799 but €448.31, the difference of €330.69 being received by the notaire.
Some notaires, as a simplification, receive the fees on the total price, but none fail to receive the formality fees for including the price list of the furniture in the deed.
So where is the benefit to the buyer?
There is little interest for the buyer given the very low savings and extra hassles of buying the furniture separately. The only real advantage is the certainty for the buyer that the items agreed will be included in the sale.
In contrast, the seller subject to capital gains tax (there will be more and more attempts to deduction with the looming tax changes) can benefit from this deduction, and so is the notaire.
Finally, everyone knows that banks do not lend to buy a 10-year old washing machine and a faulty fridge. So, retaining the example above, if the furniture is mentioned independently, the funding will only be calculated on a price of €185,000 rather than €200,000.
[1] Notaire’s fees are incorrectly named as they usually include any tax and duties paid. Please note that the notaire’s fees mentioned below only include the actual amount paid to the notaire notwithstanding taxes.