Top 10 differences between real estate in Japan and America
As in any country, you may be surprised by the difference in common sense from your own country. The Japanese real estate industry is also unique.
I would like to introduce the differences between Japanese and US real estate in a TOP 10 format, based on what I have actually heard from Japanese real estate agents who are active in the US.
No. 10 :
In Japan, people are settled for life, while in the US, people buy houses over and over again.
Buying a house in Japan is so special that it is said to be “the most expensive purchase of your life.
For the majority of people, buying a house is a once-in-a-lifetime experience, and most likely they will make it their final home.
In the US, however, people usually buy a house and move to another house according to their life stages. For example, in the US, people buy a house suitable for each milestone stage of their lives: single, married, raising children, and then retired. It is not uncommon for people to buy a house four or five times during their lifetime. It may be similar to the way Japanese people replace their cars according to their life stages.
The reason why moving to another house (selling the existing one and buying a new one) is common in the US is due to the fact that the market for used properties is very large.
According to a survey, the percentage of used properties(existing homes) in the US is nearly 80%. In Japan, by contrast, it is about 30%. The large number of used properties means that more used properties are sold in the US.
In fact, we often see people in the US, who bought a large house (sometimes second-hand) to raise their children, sold it after the children left home, and moved into a compact house for just two people, and are living comfortably in their retirement with the money left over.People’s views on real estate in Japan and the US are completely different.
No. 9:
People believe that the value of used properties will decrease in Japan.
One of the reasons why home buying is so popular in the US is that prices do not drop significantly for used properties. It is not uncommon for the selling price to be higher than the purchased price after 10 years, since the price of real estate goes up every year, rather than down, even for used properties.
In the United States, people buy real estate with the expectation that it will rise in value. Real estate has been one of the popular investments for many people.
For a house, it is a long-term investment, but still 5-7 years (!) or so in the US. Apartments and condominiums are short-term investments for 3-5 years, and if the price is expected to rise during that time, people tend to buy more properties (of course, it is quite possible that the price of used properties will fall in the US as well).
In Japan, on the other hand, there is a strong belief that the value of the used properties is going down. Recently, prices of properties in Tokyo’s 23 wards have been rising even for the used properties, so this mindset is gradually changing, but even so, there are probably few people who buy used properties with the expectation that prices will go up.
After all, the difference in the size of the used property market in Japan and the US matters. Is the used properties market growing in the US because people are buying more and more houses, or is the used properties market so large that people are buying more and more houses?
It is not a question of chicken first or egg first but as the size of the used properties market grows, people’s mindset might change in Japan.
No. 8:
Custom-built housing in Japan, area-oriented in the US
The majority of people in Japan would probably prefer to buy a custom-built house rather than a ready-built house if they are going to buy a house anyway.
However, very few people in the US build their own houses.There is a good reason for this. In the US, there is a culture that values things that are firmly visible. So they feel uneasy about building a new house from scratch.
The difference in attitudes toward housing between the Japanese and Americans is clearly evident in the cityscape. In Japan, each person builds a house of his or her own design, so even within the same town, the houses look all different. At best, the landscape is unique; at worst, it is uneven.
In the US, on the other hand, many areas and communities have their own rules regarding the appearance of houses. This results in a row of houses that are similar in appearance. So the landscape is unified.
You have probably seen such scenery in Hollywood movies. At worst, all the houses look the same.
Therefore, in the US, where you live becomes a more important factor than what kind of house you live in. Because of the clear disparity among the areas, it looks like many people want to live in the premium neighborhoods as much as possible.
No. 7:
People in Japan have a “newly built house if you want to buy” mentality.
In Japan, more people are gradually buying and renovating existing houses these days. This has to do with soaring construction costs and other factors, but people still want to build new properties if possible! There are still many people who are thinking, “If possible, I would like to build a new house!
This may be a value shared by the Asian regions rather than the Japanese unique mentality. This is because, even in the US, areas where new housing is built tend to attract more Asian people. After all, everyone likes new things.
The average American, however, usually buys used properties(existing homes). Or perhaps the term “used property” itself does not exist. The English term “second-hand,” is not used in reference to so-called second-hand (used) properties. Used properties are called “resale”. It’s not in the sense of being someone’s secondhand but in the sense of reselling.
Of course, just because a house is used does not mean that the house itself is bad.
For example, in Seattle, properties that are about 100 years old are usually resold, and houses of that age are conversely the most solid.
In Japan, there are people, who renovate old private houses, but it is very costly to make them look modern. This is because old Japanese houses have low insulation and airtightness, and must be modified considerably to make them comfortable and compliant with future energy-saving standards.
(For more details on this area, please see “Let’s think about airtightness, which is indispensable for building a comfortable house from now on! for more details.)
In a sense, it might be reasonable to buy a newly built house if you think you need to spend money on renovations after you purchase an existing house.
No. 6:
Japan: Real Estate Brokerage Act throughout Japan, US: State by State
One clear and easily recognizable difference between Japanese and US real estate is the difference in laws. In Japan, the Real Estate Brokerage Act is the common rule wherever real estate transactions are conducted in Japan.
In the US, however, the laws regarding real estate transactions differ from state to state. This is true not only for real estate transactions but also for driver’s licenses, drinking age, etc. which are different laws in different states.
As we call the “United States”, the US is a country as a collection of states.
The laws are different depending on the state, and so is the way people buy their houses. This is complicated.
I think if the US had uniform rules there like in Japan, things would be much easier, but the US is a large country, and each state needs to have its own laws.
Actually, if the laws change from state to state, the advantage is that it would be easier to revise laws according to the requirements of each state.
For example, I heard that in the US, the laws regarding real estate contracts change a few times a year. And with that legal reform, the good thing is the laws are gradually improved.
Conversely, due to frequent changes in the law, the number of contracts is also increasing rapidly, and in the past 20 years, the number of real estate sales contracts has doubled from a dozen or so to about twice as many.
In the US, contracts are everything, so the laws regarding contracts are being amended all the time to protect each other.
In Japan, you need to follow the Real Estate Brokerage Act mainly, but on the other hand, it takes time to revise the law. It is quite interesting to see the difference between the Japanese, who value the principle of “good faith,” and the Americans, who value the contracts.
No. 5:
In Japan, people choose a property first; In the US, people choose an agent first.
When choosing a property in Japan, you first visit a real estate agent or, more recently, look for a property that meets your requirements on the Internet.
Then, you visit the property, and if you like it, you sign a contract. First, look for a good property. That is the Japanese style of choosing real estate.
In the United States, however, the situation is very different. The first step is to find the right real estate agent, not to find a property.
They count on professional agents to find good properties. They know very well that this is the best way to find good ones. Real estate agents are, of course, professionals, and they keep information on a large number of good properties in their respective communities by communicating with other agents.
Then you may think it is the same for a real estate agent in Japan, but a real estate agent in the US is not a contractor, but only an agent for the client. They listen carefully to what their clients have to say and introduce the most appropriate properties from the client’s perspective.
Therefore, when looking for real estate in the US, interviewing several agents and choosing the one who fits you best is a good start.
Unfortunately, real estate agents are still not common in Japan. It is really hard for a person without knowledge of real estate to do everything from choosing real estate to signing a contract.
It would be better for you to ask the professionals for help. I sincerely hope that real estate agents will become more common in Japan, as they are in the US so that people will be able to choose real estate more easily.
No. 4:
Real estate agents have different scopes of work.
There is a difference in the scope of work for real estate agents as well as views in real estate between Japan and the US.
In Japan, real estate agents not only act as brokers, buyers, and sellers of real estate but also manage properties and process mortgages(For a real estate registration, the real estate agent asks a certified administrative procedures legal specialist to register the real estate).
In the US, on the other hand, real estate-related work is basically performed by different specialists with their own roles to play.
For example, the real estate agent is responsible for brokering the property and signing the contract, but after that, the rest of the processes are done by the mortgage broker as the mortgage specialist, the escrow officer to scrutinize the contract, the home inspector to inspect and repair the building, the appraiser to appraise the real estate, and the title agent to investigate rights, etc. The duties related to real estate transactions are divided into detailed tasks.
The division of roles and responsibilities ensures accuracy and smooth real estate transactions.
The role of a real estate agent in the US is to look after the entire process from the conclusion of the contract to the safe handover of the property, allocating the work to the respective specialists.
The idea of raising overall quality by delegating work to specialists may be unique to the US, which values rationality.
No. 3:
Brokerage fees vary.
Finally, the top three differences between Japanese and US real estate.
The difference in brokerage fees is one of the most obvious differences between Japanese and US real estate transactions.
In Japan, basically, the seller and buyer each pay a 3% brokerage fee. In the US, however, the seller pays a 6% commission when selling a house.
The 6% figure itself is the same, but in the US, the seller bears the entire brokerage fee. Therefore, in the US, the buyer does not have to pay a commission when purchasing real estate.
The purchased property is often sold and resold in the future, and at that time, on the contrary, you are responsible for the full cost of the property. Therefore, in the long run, it will be the same, but it is a great advantage to have less burden at the time of purchase.
When the house is sold, the seller only needs to pay the commission from the sale price, so the burden on the seller is not so great. Furthermore, in the US, real estate prices are basically going up, so the concept may be that you should give back the return from sales of the real estate.
Even though there is no commission when buying a house, there are cases where the seller adds 6% of the broker’s commission to the price in order to secure a profit, so it is not generally true that you can buy real estate more cheaply in the US. But it is still nice for homebuyers not to pay a commission on the purchase.
Even just the original price is large, the cost of registration, mortgage fees, etc. are also necessary for them.
However, I think it is quite challenging to introduce this system in Japan.
Since the amount of money handled for real estate transactions is large, it is not easy to figure out when to make the change and when to make the change to the system even if such changes might be beneficial.
The business practice that the seller bears the commission fee seems to be fitting the US, where its culture is to keep moving to new houses (buy and sell).
No. 2:
The scope of responsibility of the seller and the buyer differs in Japan and the US.
The second most common difference between Japanese and US real estate is the difference in the scope of responsibility between the seller and the buyer.
Although it is in second place, I personally think this is the most impactful.
What is the scope of liability in real estate? For example, if a defect such as a rain leak is found after the building is delivered, basically, the seller is liable in Japan.
In the US, however, it is quite the opposite. Basically, the buyer is responsible for everything. Even if a leak is found, it is the buyer’s fault for not checking the properly beforehand. That is their mindset. I think this is rather, a business-like or contract-based American system.
In addition, I would say that the main reason for more liabilities for the seller side in Japan is that in Japan, more new buildings are traded. If a defect is found after the delivery of a newly built property, people think that “The seller should take full responsibility for it!”. This is not so much a matter of which system is better or worse, but rather a difference in culture and mindset.
However, I personally feel that in Japan, the responsibility is placed on the seller,so consumers may be a little careless in some aspects. For example, if you purchase a new property from a major house builder, a 10-year warranty is mandatory from the date of delivery.
But this is a warranty against defects in the structural part of the home and does not cover everything.
In Japan, many people believe that “new construction equals safety”. However, when we actually see numerous newly built properties, we can clearly see that this is not the case. Even for the buyer, it is important to learn the difference in the scope of responsibilities between the buyer and the seller.
It is clear that in the case of used properties, even more wisdom is required on the buyer’s side. Used properties have a warranty period of two years if the seller is a builder and three months if the seller is an individual.
So, for example, what if you buy a used house from an individual in January and find a leak during the typhoon season?Since three months of the collateral period have passed, it is no longer possible to pursue liability to the seller.
For this reason, I think it is ultimately in the best interest of consumers in Japan to consult with professionals like real estate agents and to have the mindset that “as long as you buy, you are responsible for the purchase”.
After all, real estate is a big purchase.
No. 1:
The purchase application – contract procedure is totally different.
Now, let’s take a look at the No. 1 difference between Japanese and US real estate. The process from application to contract for purchase is totally different.
When you find a property you like in Japan, you first make a “Letter of Intent(LOI)”. This is a statement of intent to purchase the property. The LOI is generally made in writing, but sometimes the verbal agreement is acceptable. If you make an LOI, it is not a contract (not regarded as legally binding), and you will not be charged a penalty even if you cancel it.
And even if you make an LOI, it is not always possible to buy the property.
Since it is not a contract but merely a declaration of your intent to purchase, if someone else comes along, who wants to purchase the property on better terms, the owner can sell the property to that person. Therefore, once an LOI is made, the contract must be signed shortly to prevent others from buying the property.
In the US, when you find a property you want to buy, you submit an offer to purchase. The offer will include the desired purchase price, whether the property will be purchased with cash or with a loan, the desired delivery date, the desired repairs, and other conditions.
Although detailed conditions are attached, it is not different from a LOI in Japan in the sense that your intention to purchase is expressed.
In Japan, however, the meaning is very different from that in the US. In Japan, once an LOI is made and the seller approves, you are going to move to the contract process. In the US, however, the final decision to purchase the property depends on whether the prospective buyer’s conditions are met.
In other words, in Japan, after submitting a LOI, you simply wait to see if the other party is OK, but in the US, after making an offer, the prospective buyer conducts a survey.
In the US, generally speaking, a one-month period is set from an offer to purchase to signing the contract, which implies it takes roughly that long for the mortgage loan to be approved. And during that time, the buyer conducts a thorough investigation.
Of course, the building itself must be inspected for defects, but the surrounding environment and the schools that the children will attend must also be examined.
They also make sure that the surrounding environment and the schools that the children will attend are safe for them to live in.
Once they sign a contract, that’s it, so they do a thorough investigation before signing, and then you sign the contract with mutual consent. They write all the requirements into the offer. And then they will check if those requirements are met before signing the contract.
The offer will include a very detailed set of conditions under which the contract will be concluded. It is a statement of intent to purchase the property if those conditions are met, and if those conditions are not met (for example, if the inspection reveals a defect in the building, or if the building’s appraised value is
less than the offer amount), you can cancel the offer.
On the other hand, if you cancel after all the conditions have been fulfilled, you may have to pay a penalty fee. So an offer to purchase in the US is more like a provisional contract than a mere declaration of intent to purchase.
I would say that this is a typical purchase procedure in the US, which is a contract-based society that places great importance on rationality.
However, Japan, on the other hand, also has its own unique advantages.
Once an LOI is made in Japan, normally, first come, first served. If someone with better terms comes in later, legally there is no problem canceling the initial LOI, but in general, the first person, who made the offer first will be given the priority.
Unless that person cancels the purchase, we will not (basically) talk to another applicant. Even if it is a promise that is not protected by the rules, we try to keep it based on trust.
I think this is a good part of Japanese culture. An LOI requires only a single sheet of paper in Japan. This is not going to happen in the United States, which is a contract-based society.
summary
In this article, we have introduced the differences between Japanese and US real estate in a Top 10 format. I was also surprised to see how much difference there is between Japan and the US, although we do business in the same real estate industry.
But don’t get me wrong, I don’t mean to discuss superiority or inferiority when I address these differences. Many of the differences in real estate transactions are rooted in cultural backgrounds, not showing which one (Japanese or American) is better.
In fact, by looking at the differences, I believe it will be a good opportunity to review the Japanese customs and mindset in the real estate business, which has been taken for granted until now.
Furthermore, Japan is expected to have a large market of used properties in the future. Under such circumstances, it would be beneficial for us to adopt some of the American ways of doing real estate business because in the US a large share of the real estate business is based on the used properties market while retaining good aspects of Japanese-style real estate business.
I believe that knowing the views and ideas about real estate transactions in the United States, the home of real estate agents, will inspire us, doing real estate business in Japan.
You cannot change the rules regarding real estate transactions on your own.
However, we can change our mindset. We would like to continue our efforts to make real estate transactions even better for our customers, without taking our current business practices for granted.
