BUYING A PROPERTY IN SPAIN?
CHOOSING THE RIGHT PROPERTY
You know the famous saying about the three most important things when it comes to buying a property - location, location and location! Yes, we all know it but it's extraordinary how many foreigners buying in Spain miss this fundamental point.
Carried away on a wave of sun, sangria and a pushy sales pitch from a local estate agent, too many people rush in to buying their "dream home" only to find it's in a completely inappropriate location for their needs.Research your chosen area fully, if you have children check out the local schools, if you cant drive see where the nearest public transport runs from.Spend some time in the area (not just two weeks on holiday).
The golden rule is: DON'T make an offer after your first viewing of a property. Make copious notes, take photographs if possible, then go away and think about it with a cool head.
However much you want the property, think hard about whether there are any drawbacks. Will you be able to have a phone line installed (don't take the agent's word for it!) Is it near to shops, bars, restaurants and other facilities you may regard as essential? Does it have letting potential? What's the area like out of season?
Jot down all the questions which come to mind and go back to visit the property. Put your questions to the estate agent, the owner and preferably someone completely independent. Find a friendly local bar where some of the regulars might be able to give you a better picture of what it's like to live in the area.
Ideally you should make two or three visits to your chosen area at different times of the year. Some Spanish "urbanizaciones", where large numbers of foreigners have their holiday homes, become virtual ghost towns in the winter months. If you're planning to live there all year, you may find yourself feeling a bit isolated from October to April.
Take your time deciding to take the plunge. Remember, you're buying in a foreign country, where the culture and laws are very different to those of most north European countries, it's much easier to come a cropper. Remember: only fools rush in!
BUYING FOR INVESTMENT PURPOSES
If you're buying a Spanish property as an investment, rather than as a permanent home, you'll probably be looking for a villa or apartment with good rental potential. After all, you may as well enjoy the income from it while you sit back and watch your capital grow.
Many owners make a very decent living solely from letting their holiday homes.
Go as upmarket as you can afford,dont skimp on fixtures and furnishings, check out local amenities,decide which bracket of the rental market you want to appeal to.Keep decor neutral and in the style of the property and extra comforts such as satellite tv,private pool, air conditioning etc. can all add value to the rental price.
Keep the property well maintained as a tired looking property is less likely to rent.Dont over price your property,if you are asking a high fee make sure the property lives up to it.
The same applies even if you're buying a small studio apartment. Furnish and equip it well and pay attention to small details - a welcome pack with helpful information, a bottle of wine in the fridge and some Body Shop goodies in the bathroom all make a huge impression on people (especially women!).
Miserly owners who try to cut costs only succeed in shooting themselves in the foot. If you rent a lovely three-bedroomed villa with a private pool you would be horrified to find saucepans with broken handles and a motley collection of mugs and glasses.
Location, as highlighted in the last tip, is everything especially when it comes to holiday letting. A private or communal swimming pool is essential for successful letting as is easy access to the beach, shops and nightlife. Your holiday let will also need to be within easy reach of an international airport with regular charter flights.
Sure, you can go for a lovely little mountain hideaway in the back of beyond and aim for the more "discerning" holidaymaker...but you won't make your fortune that way!
DO I HAVE TO USE A PROPERTY AGENT TO BUY A PROPERTY IN SPAIN?
The answer is no!
At least that's my opinion and one which is shared by many fellow property owners in Spain.
Many people have sucessfully bought direct through the owners saving themselves thousands on commission fees.It just takes more time and you have to find your way to the properties.
By all means by-pass the middleman if you've got the time and inclination to seek out your dream home by your own efforts. But whatever you do, DON'T by-pass a lawyer once you've found it.
As long as you take good legal advice you don't actually need an agent. Of course there are many good and helpful agents around (they're known as "inmobiliaria" in Spain); the obvious advantages of using one is that they have a ready stock of properties available and will escort you to view them, often supplying much helpful advice and information along the way.
The great disadvantage is that average commissions are about 6% of the purchase price and in some cases much higher. Agents use the complexities of Spanish property law and the time and effort involved in dealing with overseas buyers in order to justify what are often extortionate fees.
If you have the luxury of being able to spend some weeks in your chosen area hunting for suitable properties, you'll find plenty of villas and apartments advertised as private sales. Look out for "se vende" (for sale) signs which vendors stick on walls, hedges and gates. Properties are also advertised privately in the local Spanish and English language newspapers and the free guides which you find in supermarkets, bars and hotels.
If you do decide to use an agent, hunt around for a firm with a good reputation and low commissions.
Then get yourself a good lawyer
DO I NEED A LAWYER?
Definately yes! You wouldn't buy a house in the UK without one and the same applies here..
While you can purchase property in Spain without an agent you should always use a lawyer as they will check that all the paperwork that goes with the property is legal and in order.Also they know the laws and the language,and will draw up a contract that protects your interests.Its not worth saving money on legal advice only to pay a higher price at a later date.
Use a lawyer who is recommended to you by someone who has used their services.Check with previous clients that they were satisfied with the service they received.
Do not use a lawyer that the owner or agent uses always try to use an independant lawyer.
OFF PLAN PROPERTY
Buying a yet-to-be-built property, either through an agent or directly from the developer, is a popular option because it often works out cheaper plus you get a say in the buildings specifications and fittings.
But be wary - there have been many horror stories involving foreign buyers who have been well and truly "had" by rogue developers.
The golden rule is to get yourself a good lawyer who will make some vital checks on your behalf and draw up a cast-iron contract to protect your interests.
You need to be sure that the developer has all the appropriate licences, that he is in fact the true owner of the land under development, that there are no outstanding mortgages attached to the land etc.
You also need to protect yourself against such eventualities as the developer going bankrupt, failing to complete the property or completing several months after the agreed date. Your lawyer will be able to incorporate various safeguards and penalty clauses into your sales contract.
You should never commit yourself to buying off-plan after a "free" inspection visit organised by a development company. In fact a lot of people who have experienced the high pressure sales techniques used during these visits advise you to steer clear of them altogether.
If you do succumb to the allurements of a free or cheap inspection flight and accommodation, whatever you do don't sign anything straight away. Think about it with a cool head when you return home, discuss it with friends and seek legal advice.Also return to the developer and make an offer direct you may be suprised by the price he comes back with.
Don't be pressurised by the "buy now, this is your last opportunity" sales patter. There are plenty more off-plan purchases to be had and there's no sign of the holiday complex development programmes abating in Spain in the foreseeable future.
Do not buy off plan thinking you can 'flip' it.(This means selling the property on before its completed for a higher value than what you paid).Many people did this around the Torrevieja area and are now either stuck with them or have had them repossessed as they could not afford the final payment on completion.(payment is usually in 3 stages).
BUYING WITHOUT AN ESCRITURA
You can buy a property which does not have an escritura -title deed(this makes the price a bit cheaper) but you must engage the services of a lawyer to ensure that it can be registered.
It is quite common in Inland Spain and on older properties for it not to have an escritura as many sales have just been done by a private contract to avoid paying taxes.
The problem with buying without an escritura is that you will not be able to get a mortgage to buy it or on it for up to two years after registration.
BUYING A RESALE PROPERTY
With a resale property in Spain you are able to see what you are buying. By this I mean that you can see the apartment, townhouse or villa with all its pros and cons.You can see the views it has and whether this is likely to change in the near future
You can buy a resale property direct from the owner.The advantages of buying a resale are:
The area is more likely to be established with amenities close to hand.
You can see how the gardens are looking, how they have been maintained, How the pool is maintained and what the internal communal areas look like.
You can see how well the properties have aged, how do they look after being empty or lived in for a while, do all the appliances still work, are there any signs of damp, mould or leaking roofs.
You can investigate the running of the complex, find out exactly what the service charges are, what they will be in the near future and how many people are not paying their service charges. Bad Debts are the blight of all complexes.
You can speak to some of the neighbours and find out about the noise insulation and more importantly how they feel about the complex or area.
If you intend to let the property you can speak to other people who already do so and establish what occupancy they have had, how they found their tenants and what rents they have been receiving.
The disadvantages are: the property may need cosmetic work or maintenance.
BUYING ON AN URBANIZACION
There are many advantages in buying into a community development. You'll have a ready-made community of neighbours around you, probably including many of your own nationality. Many communities have superb facilities including swimming pools, landscaped gardens, bars, restaurants, even shops.
You pay an annual fee for the maintenance of the communal areas so you don't have to worry about cleaning the pool, trimming back the hedges and mowing the lawn. Even the exterior painting of the properties is done on behalf of the owners on a regular basis in many community developments.
Great, I hear you say! What could possibly go wrong? Well, nothing much if it's a well run community, with a good committee which is truly representative of the majority of owners.
All community developments are governed by certain rules and regulations laid down under a national Spanish law.
But each community has its own local by-laws, drawn up by the governing committee and this is where you can come a cropper if you don't know exactly what you're getting into.
The committee may decree that your property can only be painted a certain colour, and even a particular shade of that colour. It may decide to ban all pets, ball games and lilos in the swimming pool. That's fine if you agree with all the rules - just make sure you know what they are before you buy.
Ask for some back copies of the community's last few annual general meetings to see if there are any local disputes or controversies you ought to know about.
And talk to some of the other owners before you commit yourself to a purchase - they're the Best ones to advise you as to whether or not this is a peaceful, well-run community (or a Spanish version of the Gaza Strip).
Living on an urbanizacion can be a nightmare if its not run properly,the power struggles and politics can be terrible.
That's not to say that community life won't work for you. It particularly suits people who plan to spend only part of the year in their Spanish property. But do some thorough research before buying and go in with your eyes open.
THE COSTS OF BUYING PROPERTY IN SPAIN
I'm often asked about this one and of course there's no hard and fast answer. But, as a rule of thumb, be prepared to fork out 10% of the purchase price in various fees and taxes.
It's important to bear this in mind before you even start looking for a property because it can come as a nasty shock to buyers who haven't put enough aside to pay for all the extras.
You may pay more or less than 10% depending on your lawyer's charges, the notary fees and the level of the "plus valia" (a bit like capital gains tax levied on the increase in the value of the property since it last changed ownership).
It's a common practice in Spain to under-declare the true value of the property in order to reduce the level of plus valia. Be careful on this one because the Spanish are starting to clamp down on what has previously been a quite acceptable tax dodge. You'll find more details on this rather grey area in my ebook A Warts and All Guide to Buying Property in Spain.
Lawyers' fees vary but are usually around 1% of the sale price plus the costs of any official documentation needed. Don't just go for the cheapest lawyer to save money - he or she could cost you a fortune in the long run! Make sure your lawyer is from a reputable Spanish firm or a firm based in your own country with a strong reputation and special expertise in the Spanish property market.
If you use an estate agent this could prove to be one of your biggest extra costs. Commission fees can run into thousands of pounds, depending on the purchase price. Average commissions are around 6% but some agents charge 10% or more (and that's after they've already hiked the price far higher than the owner's actual asking price!)
Many agents, responding to buyer dissatisfaction with their fees, are now charging rates more akin to those in the UK - a more palatable 2.5 - 3%.
Of course if there are any problems or disputes over the sale (say, for example, the property is found to be carrying "hidden" debts) you'll incur greater legal costs.
It's common practice in Spain to put down an initial small deposit to persuade the agent and or owner to remove it from the open market. After preliminary legal checks prove satisfactory, it's normal to pay a 10% deposit to secure the property. This has the advantage of stopping the iniquitous UK-style gazumping - you lose your deposit if you pull out of the bargain but the owner has to pay you double your deposit if he or she reneges on the deal.
10 REASONS TO HIRE A LAWYER
marbella-lawyers.com
7th of April 2004
On the subject of buying property (safely) in Spain, we still receive enquiries on whether it is important, or necessary, to appoint a qualified legal representative to look after the interests of the buyer. And we say that we ´still´ receive enquiries because fortunately most investors have realised how essential it is to be protected when parting with substantial sums of money.
Buying a property in Spain has become a risky business. Nevertheless, foreign buyers don’t want to give up having a home in the sun, and want to buy soon before the prices rise too much. Developers are aware of the existing demand and try to build as much as possible before any possible drop in the demand may occur, which drives them to build quick without complying with the existing laws and regulations. Knowing that foreign buyers are less informed, unscrupulous developers and estate agents don’t think twice before selling an off plan property that may eventually be demolished. Although the scenario depicted rarely happens, it is perfectly possible to take place if regulations are not complied with. Luckily, in the past years legal security has tightened on property transactions, but lets not forget that things can go wrong if one is not properly advised.
There are many reasons to hire a lawyer when buying property in Spain. We have thought of the ten following:
1. Avoid Horror Stories
These stories can be originated in one of the following scenarios:
* Buyer buys property with charges, encumbrances and other debts.
* Buyer buys a property that has never been registered.
* Buyer buys a property with perfect clean title, registered, taxes paid up to date. The property is however not the one that has been seen. They had relied on a description and some land registry details which simply corresponded to another property. They have no right of recourse.
* Buyer hands over a deposit to someone purporting to be owner who subsequently disappears.
* Buyer buys a property with tenants living legally, but unbeknown to him, there are legal tenants occupying the property. The latter either decide to stay until expiration of the term of the contract, exercise their priority purchasing rights or even demand a sum of money as compensation.
* A buyer who had paid a sum of the money towards a new property is unable to complete because the developer has run out of money and declares bankruptcy.
2. Get an Independent and Impartial Service
Not only is the lawyer obliged to observe strict professional standards, but he will get paid regardless of where and from whom the buyer buys. Conversely, the seller of the property will only receive his money if the buyer purchases his property and will therefore be unconcerned about what happens next. Almost identical situation happens with many real estate agents: they don’t get paid unless a given property is sold and are therefore bound to let their impartiality slip to get a given property sold.
3. Get Protected with the Lawyer’s Legal Insurance
Registered lawyers are covered against negligence by professional indemnity insurance, which means that if something goes wrong during the transaction and as a consequence your interests are injured, the professional indemnity insurance must cover any liability arising from this negligence.
4. Avoid the Language Barrier
As most conveyancing lawyers are fluent in English the chances of confusions and misunderstandings occasioned when attempting to understand or translate the promises of a seller are reduced, and with it, the transaction increases in safety. A lawyer will also provide you, unknowingly, a free translation service when dealing with the Notary Public, banks and many more instances.
5. Get Better Conditions in your Mortgage
Even where the buyer finds a suitable mortgage loan to finance the purchase of a property, the lawyer will be able to give a second opinion. Non-resident applicants are typically burdened with the highest rates as they appear as awkward clients. The reason for this is that paying for a holiday home (which in most cases becomes a retirement home) abroad comes as a 'secondary' priority when the owner is faced with financial difficulties: the likelihood of defaulting payment of the loan is higher. Lending entities are naturally conservative and in order to mitigate this risk they increase interest rates, increase arrangement fees, reduce loan periods and lend less on the loan to value ratio. A loan for a non-resident borrower is as a consequence more expensive, where these are given, as many lending entities do not even contemplate these applicants.
6. Avoid Bank Charges
All conveyancing lawyers hold a clients account with a Spanish bank with preferential conditions. When transferring monies from abroad you can bypass the extortionate conditions imposed on non-resident accounts, anything up to 0.5% of the sum transferred) bank accounts and save good money. If you transfer 100,000 euros to Spain, you can save 500 € by using your lawyer’s client account.
7. Get a Free Escrow Service
Did you know that in some countries certain professionals and companies provide an escrow service for a fee? (e.g. http://www.escrow.com in the UK). Most, if not all, Spanish lawyers consider this as part of the conveyancing service and do not charge separately for it. An escrow account allows parties to a transaction to deposit funds in an impartial party held account. By using your lawyers free escrow service, you can save 800 € when putting in escrow an amount of 100,000 €, which is what escrow.com charges for that amount (0.8% of the amount).
8. Get More Advice and Services
Lawyers will not only provide you advice on the transaction itself but will assist you in the processing of NIE numbers, opening bank accounts, changing utility contracts and arranging payment standing orders, setting up companies, drawing up wills, rental options, etc.
9. You do Not Need to be Present
All the above can be done by the appointed lawyer, in your absence. All which will be required is a visit to the Notary Public, in Spain or even in your home country to sign power of attorney (in which case it will be posted) and follow instructions from the lawyer.
10. Get a Valuable Post Sale Service
The lawyer will look after the filing of tax forms, collection and registration of the deeds, but also will assist you helping you with dealing with after-sales situations which require a lawyers letter or phone call, such as arranging the "snagging", talking to the community of owners association, developer/seller, banks etc.
In summary, and considering the amount of money invested on a property, but in a foreign country with a different language and legal system, hiring a lawyer seems a reasonable step to take, and as we outline above, it can even save you enough money as to pay for itself!
LEGAL GUIDE TO BUYING PROPERTY IN SPAIN
The steps to buying your property
Once you have decided on the property that you want to buy, the process is this:
Nota simple informativa
With this document from the Property Registry (Registro de la Propiedad), you'll find out if the property is free of debt, if it really belongs to the seller, and if the description of the property matches what the buyer has been told (to avoid surprises about missing square meters).
The pre-agreement
Between the seller and the buyer there has to be a contract in place until the public deed of purchase is ready. It's usually a simple document in which the seller expresses their intent to transfer the property to the buyer, and the buyer expresses their intent to buy at the price and conditions agreed upon. At this time, the buyer also gives to the seller a percentage of the agreed-upon price. The typical agreement in Spain (called arras) is if the buyer backs out of the contract, they lose the deposit; if the seller backs out, they have to pay double. Of course, the buyer and seller may choose another type of agreement if they prefer.
The mortgage
The documents typically required by a bank are:
* Your DNI/NIE
* Your work contract
* Your last 3 paycheck stubs
* Your latest income tax return
* Your pre-agreement with the seller
* Proof that the property tax (IBI) on the house is paid up.
* Other mortgages or loans that you may have
* All property titles, both in Spain and overseas
* Certificate from work authorities (vida laboral), showing your past work history
* Records of your assets (bank/mutual fund statements, etc.)
* Prenuptial agreements, if any
* Nonresidents: A certificate of nonresidency (form available from the bank)
* If self-employed: Local tax on economic activities (IAE)
* If self-employed: VAT tax you paid for the last trimester and last year
If you get a mortgage, you will become acquainted with an appraiser (tasador). The bank requires an appraiser to ensure that their loan to you is safe. You will need to pay for the appraiser's work, usually between 300-500 euros. Note that the tasador by law is a licensed architect, so even if you don't need a mortgage, but have doubts about the structural integrity of the house, you might want to hire an appraiser.
The closing
The property transfer must be certified by a notary. The deed of purchase will be given to the buyer after the notary reads it and the parties present agree to the contents of the deed. The following must then be presented: proof of identity (or power of attorney) of both parties, the seller's title of property (a form that reports the investment to the Central Register), and the buyer's payment. The buyer and seller sign the contract; beneath their signature, the notary signs using his firma protocolizada and the deed is ready for taxes.
Taxes
For the buyer: transfer tax(impuesto de transmisiones patrimoniales) and stamp tax(impuesto de actos jurídicos documentados).
If the seller is an individual, the buyer pays a tax of 6% (7% in some regions) of the price specified in the deed. If the seller is a real estate developer and the building or land to be built on represents a first-time transfer, then the buyer pays VAT tax instead, meaning 7% for housing, 16% otherwise. If for housing, you have to add a stamp tax, in this case reduced to 0.5%, depending on the region (for Madrid it's 1.5%). Some special conditions apply for the Canary Islands.
For the seller: a local tax called the plusvalia
With a copy of the deed in hand, the seller must go to the City Hall (or wherever local taxes are paid). After filling out the form, the seller will receive in the mail a notice of how much they have to pay. This amount is calculated based on the number of years the property was held, and on the property's valor catastral. Be aware that each town has a different procedure regarding payment of this plusvalia. It's best to ask at the notary's office about this payment.
Property Registry
If you want to be sure that your rights to the property are fully protected, you must register your title at the local office. (Some small towns don't have an office, some big cities have many -- check the original deed of the seller to find out which office corresponds to you). You will be charged a standard fee (about .4% of the first 6010 euros, going down to .02% for over 6,010,121 euros).
Buying a property in Spain
Foreigners buying property in Spain has become very popular. The country has a pleasant, healthy climate and in recent years the local authorities have made great efforts to increase the number foreign tourists and residents. Spain now derives more of its foreign income from tourists than any other country in Europe. Due to low European interest rates, now is a good time to buy property in Spain. There is a very wide selection of standards, from farmhouses (fincas) and plots through to villas, townhouses and new apartment developments. There is no shortage of real estate agents in Spain and it pays to search out a good company who will care for your requirements. Before you buy a property in Spain you should use our website to look at the different areas then consider visiting your favourites before deciding where to buy. Many people also rent a property in that area first.
Here's a simple guide to get the most out of buying a property in Spain:
* Set your budget limit and stick to it.
* Visit the property at least twice before you make a decision.
* Check what amenities the property has such as electricity, water, gas.
* Have a builder or architect examine the structure of the building.
* Talk to your prospective neighbours about the area.
* If you are unsure about a property, take photos and draw sketches to take home with you.
* Have your legal advisor check ownership of the property before you sign anything.
* Have your legal advisor check outstanding debts on the property before you sign anything
Initial Costs
As well as the cost of the property, the buyer will be liable for transfer tax (IVA), which at present is 6% on a second-hand property and 7% on a new one, plus 1/2% stamp duty. The property registration office will charge you a fee to change the new deeds into your name. This is usually around 300€. There will also be notary charges for copies of the 'escritura publica'. The charge is on a scale depending on the contract price. In total you should allow 10% of the purchase price for costs. It is often the case that the buyer also pays the sellers fees. Check this at the point of enquiry and it is often possible to negotiate. Banks may also charge an opening commission for mortgage loans.
Annual Costs
The local town hall charge IBI which is an annual real estate tax. The previous owner is obliged to give you copies of previous bills. Community charges apply when you buy a property on a community development. These cover things like maintenance, swimming pools, gardens etc. You will also be liable for a wealth tax, payable annually and based on the value of the property and a property owners income tax based on your income from the property. You should clarify these in detail with your estate agent at point of enquiry.
Finance
Many developers of new properties are now offering up to 80% over 20 years for non-residents. Local banks will offer anything up to 60% for European residents. Most loans are long-term and secured on the property. When seeking a loan, make sure you are aware of the interest rates and if they are fixed or floating. Banks will ask for passports, residence permits, payslips, sale contracts and copies of the title deeds. There are many advantages to taking out a loan to purchase your property, in the form of tax allowances. We have not listed them here as they are subject to fluctuation. You may need to transfer money into Spain and you need to protect yourself:
When you buy a property in Spain, you will know the price of the property in Euros but you will not know the actual cost until you buy all of the currency to pay for it. This means that the property could either cost you more than you had planned (if the Euro strengthens) or the property could become cheaper (if Sterling strengthens). Recently Sterling has fluctuated more than 10% against the Euro within a matter of months, so this does deserve careful consideration. On the basis that you are buying a property and not speculating on the currency markets, it is worth fixing the exchange rate for all of your future stage payments to the agent or developer.
How to fix the exchange rate:
1/ Buy all of the currency now on a "spot contract". Hold the currency on deposit and send payments when they are due from your Euro account. To do this you need to have full funds available.
2/ Buy as much currency as you can afford now (e.g. for the first 2 payments) and reserve an exchange rate for the remaining payments. To reserve an exchange rate you need to buy a 'forward currency contract'. In effect you are buying currency now but paying at a later date when you have the funds available. The exchange rate that you achieve on a "forward contract" is not quite as good as that for a "spot contract" but it does guarantee that you know the cost of the property. You will be required to pay 10% of the value immediately and the balance by the date that you have reserved the currency for.
Use a specialist currency broker: As a result of extensive research Idealspain are pleased to offer preferential currency transfer rates for all their clients and visitors, click here for more information. It is also advisable to speak to your new bank with regards to High Interest Sterling Accounts where your mortgage payments can be taken directly and converted on your behalf.
Approx cost to buy a home at 128,000 euros or (80,000 pounds)
IVA 7% Spanish VAT payable on declared property value 8,960.00
Legal fees Searches, preparing deeds and translation etc 900.00
Notary's fees Preparing escritura, registering and stamp duty 600.00
I.A.J.D Spanish tax of 0.5% of the declared value 640.00
Connection charges Water, gas, drainage, electricity etc 300.00
Plus Valia Capital Gains Tax on increased value of plot since last sold. Levied by the Town Hall 60.00
Total Approx 7,355 pounds €11.460.00
Legal Matters
Most properties in Spain are in fact NOT registered. Most of the re-sale properties are sold by Spanish ....still.... since they earned about 100€ a year from selling fruit and veg they would certainly not pay 300€ to pay for their property to be registered. The only way someone may find out if how many square meters is legally theirs to sell is by investigating at the Catastral Department and Town Hall. If they have ever declared that there is a property at all. A great deal of families have never informed the Town Hall that a senior family member has deceased and therefore many sales take months to proceed to completion. There are many families with complicated backgrounds, most children believe they actually own what is and sometimes what once was their parents, sometimes resulting in an Expediente Dominio where there can be no proof of title at all. A great deal of the beautiful villas you see advertised are not registered by the builder and therefore the purchaser pays for the first registration, sometimes no licences have been issued and the seller is required to pay fines to the Town Hall. Many many properties are then registered with less than the actual square meters of built area, and a great many are not mortgageable. Most urbanisation properties now being built are of course registered first because there is a compulsory registration system in Spain for new developments but this is Urban land - not countryside. Most of the old village properties have no Title Deeds.
The seller of a second-hand home should provide the following documents:
The title deed of the property
Receipt of payment of the real estate tax for the last year
Receipt of payment of the tax on the increased value of Urban Land
Certificate that any community charges (if applicable) have been paid up to date
Latest copies of domestic bills so that you can take over the services such as electricity and water
The seller or developer of a new property should provide you with:
Deed of declaration of new construction
Occupancy permit
Certificate of rateable value of the property
Normally, before the purchase of a property is made official, there is a prior agreement drawn up between the buyer and seller. This document will identify the two parties and set out the terms of purchase. You must seek legal advice before signing this and you must be sure that this is the property you want to buy. You can lose any deposit you have paid if you pull out of the purchase and there is a penalty clause in the contract. In the case of the seller defaulting then he has to pay twice the amount. When it comes to signing the contract, this has to be before a notary, in the form of a public deed. This ensures that the details are entered onto the public records.
Insurances
Fire insurance is compulsory by law when taking out a mortgage. Comprehensive household insurance is available to protect your home and contents. Life insurance can be taken out to guarantee payment of the loan in the case of death.
The cost of property - trends
Official figures for the Costa del Sol state that property prices will increase this year by 12-15%. It is claimed that an average new property with two bedrooms in a block now costs 241,000 euros (around 2,000 euros per square metre). An average villa costs 388,100 euros. On the Costa del Sol there are around 20,000 homes for sale, 40% of which is in the Marbella area. 75% of home buyers on the Costa del Sol are foreign. The increase in prices is leading to an increase in the number of smaller, cheaper municipalities springing up, away from the coast.
Tax advantages for property owners
If you spend more than six months a year in Spain, you are obliged by law to apply for a residents permit.* This law is currently being abolished.
There are however, several tax advantages for residents of Spain that do not apply to non-residents.
Inputted income tax is an annual tax on an imaginary income resulting by virtue of ownership of a property and is charged as 0.5% of the catastral value. If you are a resident you will not be charged this on your principal home.
Wealth tax is a tax on all assets in Spain and is charged at 0.2% of the catastral value of any house owned. For residents the first 108,000€ is exempt and for a joint ownership this would apply to each partner. These two taxes are paid annually as long as you own the property. Non-residents do not receive any relief so therefore have to pay 0.7% of the catastral value every year.
When you come to sell the property, capital gains tax will be charged on any profit you have made. This is 35% for non-residents but only 20% for residents. A further concession for residents is that if you are over the age of 65 and have lived in your property for at least three years, you are totally exempt from capital gains tax. Finally, if you are 60 years of age or more and have lived in your property for at least three years, you can bequeath your property to your spouse or children and avoid paying inheritance tax on 95% of the valuation. The inheritor must also be a resident of Spain and agree not to sell the property for at least ten years.
BUYING PROPERTY FROM A PRIVATE SELLER
marbella-lawyers.com
15th of March 2000
Buying property in Spain from a private seller puts both parties on an equal footing with regards to the protection the laws contemplate. The transaction will be mainly governed by the Spanish Civil provisions. Once the buyer has chosen a property, it is recommendable he instructs a lawyer to assist in all the conveyancing procedure.
Normal Schedule of Events
In Spain, commonly the transaction is divided in three documents:
* Deposit document.
* Private purchase contract document.
* Completion by means of Public Deed of conveyance signed before a Notary Public document.
Deposit Document
The nature of deposit or reservation sum contract has been succinctly explained in the article "Buying from a Developer". In short, most of these agreement are to be construed as being true purchase sale-contracts, thus granting the same legal remedies to buyer and seller as for any purchase-sale agreement. Both parties are entitled to sue for performance and claim damages, if any.
The deposit is normally left to the real estate agency, which depending on what sort of agreement they have with the vendor will legally bind the latter. We will analyse in this section the relationship established between the purchaser and the agency and the purchaser and the seller. The legal relationship arising from the agency and the seller is to be analysed on an article titled "Real Estate Agencies: how they operate." This article will enable purchaser and seller to understand the degree of involvement of Real Estate Agencies in the transaction and what their position is.
The reservation sum document should describe the identity of the vendor, the property and price. If this is the case, a purchase-sale contract is construed when offer and acceptance by the required parties are met, not needing the parties to draw up the so-called private purchase contract in order to commit themselves. The commitment has taken place, and therefore, being the offer of the buyer and the acceptance of the seller put together, the law does not allow any of the parties to withdraw unilaterally. However, the lawyers of both parties will normally draw up a more extensive document, either an option to purchase or an ¨arras¨ contract, which have significant differences as to the effects and remedies of the parties.
Another particularity of the reservation sum contract is that it enables the buyer to make his offer according to his needs and desires: for example, the buyer can insert a clause "subject to sufficient mortgage granted", or subject to "property sold together with furniture for the offered price." If the vendor or the agency, as the case may be, accepts the offer, the deal is struck.
Problems may arise where the vendor, either himself or by a representative, accepts the offer and subsequently decides to alter the conditions of this reservation sum on a further document. On a normal case scenario, the buyer, in view that the vendor wants to, for example, stipulate that the buyer will bear all the costs arising from the deal, decides to stick to the reservation sum document which will be governed by what the parties have agreed and in the absence thereof, by the Spanish Civil Code. The dispute arises and the vendor decides to withdraw and refund the deposit or instructs the agency to refund the deposit. The buyer seeks legal advice and finds out the law entitles him to sue for performance, putting the seller in a very difficult position.
Conversely, a buyer may lodge with the agency a significant amount and sign a ´contract´. On the assurance that he has bought a property, he sells his property in the U.K., closes bank accounts, transfers his monies, ships his furniture and when visiting the property his has purchased, he finds out that the vendor has not been informed of any deposit left with the agency nor has the slightest intention of selling the property for that ´agreed price´. He has signed nothing but an instruction to sell slip, which is not and express mandate to sell, thus the vendor being not the least bound by the document The multiple problems which may arise at this stage of the deal are sufficiently serious and are by themselves a powerful argument for employing the services of a lawyer. This applies as much to buyers and to sellers.
Private purchase contract document
If the parties decide to convene the signing of a further document, where new terms and condition can be agreed, against payment of a sum which is normally 10% of the purchase price. Once this document is signed, the reservation sum document ceases to be valid and enforceable.
This agreement may adopt the form of an option to purchase contract, an `arras´ contract or a new private purchase contract.
Briefly, the option to purchase imposes obligations only on the vendor. Against a sum of money, the seller undertakes to hold the property for the buyer until a given date and obviously undertakes to complete when the balance is paid. If the buyer withdraws, the seller keeps the money. If he decides to go ahead, the vendor has to grant Public-deed of conveyance. This contract is unilateral, in that the vendor is the only party under any obligation. The buyer, after signing, is not liable for defaulted payment of the balance. Only the premium of the option is liable, which is lost to the vendor. Conversely, the vendor is liable and can not withdraw from the deal until it has expired. Before this date, the buyer informs the vendor he wants to exercise the right granted by the vendor, and against payment of the balance, the Public Deed of conveyance is signed.
The `arras` contract enables any of the parties to withdraw from the proposed deal. The buyer loses the reservation sum, and the vendor will have to refund twice that amount if he withdraws. The Spanish Supreme Court has stated that in order for this to be applicable, the document has to specificly provide for this and mention without a cast of doubt that it is intention of the parties.
The private purchase contract as such binds both parties, enabling the non-defaulting party to sue for perfomance and/or claim damages. Where the contracts previously described fall short of the requirements to qualify as such, then deal will be regarded as a plain private purchase contract. However, it has to be said that these types of contract are not water-tight compartments. Parties can draw up taylor-made contracts to suit their interests, inserting clauses of the most varied nature. These are valid and enforceable so long as:
1. They are not deemed unlawful
2. They are easily interpreted. Otherwise, an ambiguous or cofusing clause will be interpreted by a Court of law to the detriment of the party who created the ambiguity or confusion.
What the buyer should check before handing over any monies:
* Who holds the monies? The deposit should be left with either a reputable and financially sound agency or directly with the seller. The most secure bank account for lodging these monies is the clients account of the lawyer of the vendor. Although not technically an escrow account, it is bonded inasmuch as lawyers have very restrictive rules as to monies given to them for custody. It is recommendable to use this procedure where the owner of the property is an offshore company or when the buyer´s lawyer advises accordingly.
* Property: It is vital to make sure the description of the dwelling corresponds to the one you are buying. Read carefully the details, location, number of floor, inside division etc. The land registry certificate might be as clear as the air, the owner may offer you discounts and also a bank guarantee in exchange for the monies you are lodging with him to secure the property and indeed, many more facilities. But in spite of all these assurances, he might be selling the buyer another property of his own, not the one the buyer wants. What happens then? The seller is not really defrauding, unless the purchaser can prove it. And all the evidence supports his innocence: private purchase contract, correspondence exchanged, completion at the Notary Public, all these agree on the same property details. The buyer has an unencumbered property which is, quite simply, not the one he wanted but a cheaper one the seller wanted to get rid of.
* Mortgages, liens, encumbrances or any charge registered against the property: A mortgage on the property is something normal and a buyer should not be surprised to find one: all contracts include a clause stating that the seller sells free from any charge, including mortgages. But beware, since although a mortgage can be easily cancelled, charges or liens might be registered against the property due to court order arising from a previous procedure where the buyer is not party. A lawyer will make sure the property is clear in this respect.
* Date of completion: If the buyer is raising funds, he should agree a completion date far enough in time to enable the balance of the purchase to be in place. It is normal for buyers to exceed this date due to banking delays in swift transfers and clearance of drafts. Although not recommendable, not meeting the date of completion does not automatically amount to loss of deposits. The seller who wishes to discharge the deal will have to prove that the buyer has deliberately delayed and avoided payment.
* Costs: The most favourable (for the buyer) wording of the clause regarding costs is the one which states that the costs arising from the transaction will be borne by the parties according to the provisions of the law. Agreeing this, the buyer saves some money. However, it is normal for the vendor to impose on the buyer payment of all costs. These costs include Notary fees, Land Registry fees and the Plusvalía Tax. (Increase in the value of the land over the years.). It is matter to negotiate betwee the parties.
* Inventory: If the price includes furniture or other items, run through the inventory list to make sure it is correct according to what has been agreed.
Signing of Public Deed of Conveyance before a Public Notary
This is the moment where the buyer becomes officially the owner of the new property. A private purchase contract is enough to buy a property and live in it. However, with this legal status, ill-intentioned vendors are in a position to create the most devastating type of fraud. Double sale of a property. He takes the monies of the first buyer on a private purchase contract and shortly afterwards sells on a Public Deed to a new buyer whilst the first buyer was away. It has hapenned. The first buyer has lost his property and his money if he cannot find the vendor. And the latter will never be found, since he is a proffesional fraudster. This type of fraud is possible, although fortunately quite improbable.
By becoming public and subsequently registering the deed in the Land Registry the buyer avails himself of the full protection the law offers. In addittion to this, lodging all monies with the vendor´s lawyer will render the transaction totally safe. The Public Deed also transmits possession from vendor to buyer, unless otherwise agreed. Occasionally, the buyer allows the vendor to stay in the property after signing. This can create more than one headache to the new proprietor if the vendor refuses to leave the property, because he is simply not entitled to kick him out by using the force. After all the latter reverted possession on the vendor.
The only recommendation to be made here is to withhold from the purchase price an amount equivalent to the legal costs of the eviction procedure, since more often than not the vendor will have nothing to sequestrate in order to cover those costs. There are many more issues sorrounding the functioning and effects of the intervention of a Notary Public and Land Registry in a purchase sale transaction. These are however to extense to be addressed on a single article.
Always employ a lawyer for purchasing real estate. For a reasonable fee you protect yourself of what is at times a real minefield and could turn out to be the worst of nightmares.
MAKING AN OFFER AND ISSUES RELATING TO PRICE
marbella-lawyers.com
2nd of March 2000
* Do I need a lawyer for making an offer?
* What contingencies should be put in the offer?
* Is there a secret to good negotiating?
* Can you negotiate a price on a new home?
* How is the price set?
* What is the difference between list price, sales price and professional valuation value?
* What are the pros and cons of adding on or buying new?
* What do you think of get-rich-quick real estate schemes?
Do I need a lawyer for making an offer?
You certainly need to be advised by a lawyer throughout the purchasing procedure. Buying property in Spain is not a straight forward task for the newcomer, given the special complexities of the national, regional and municipal regulations. For a reasonable fee they ensure legalities are complied with and that there are no adverse occurrences which the value of the property. An offer accepted by the vendor is as binding as any other private purchase contract, hence a mistake or omission will not be easy to undo insofar as the law will protect the vendor. Your deposit would then be at risk.
What contingencies should be put in the offer?
The following have to borne in mind:
* Check price of property.
* Check completion date.
* Check offer subject to mortgage availability, as the case may be.
* Check if the property is being purchased furnished, list the items included, or even better, obtain an inventory list and attach it to the offer.
* Check who pays the costs of the transaction (Notary fees and plusvalia tax).
Generally for all offers
Most purchase offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
As a buyer, you could forfeit your deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called "motivated sellers"include people going through a divorce or who have already purchased another home.
Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighbourhood to see how the seller's asking price stacks up. Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.
Copyright © 2000 Inman News Features
Is there a secret to good negotiating?
There are several cardinal rules to negotiating effectively. One is do your homework, and learn as much about the seller or the buyer as you can. Another is to play your cards close to your vest and not reveal much information to the other party or their agent. Don't let yourself get rushed into any decision, no matter how tempting it may be. Finally, if you have doubts about your negotiating skill, hire someone to help.
Can you negotiate the price on new homes?
It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try. Experts say builders more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.
How is the price set?
It's very important to price your home according to current market conditions. Because the real estate market is continually changing, and market fluctuations have an effect on property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood.
A so-called comparative market analysis provides the background data upon which to base your list-price decision. When you prepare to sell and are interviewing agents, study each agent's comparable sales report (the data should be no more than three months old).
If all agents agree on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others.
What is the difference between list price, sales price and professional valuation value?
The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. The sales price is the amount of money you as a buyer would pay for a property. The professional valuation value is a certified valuer or chartered surveyor estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.
Copyright © 2000 Inman News Features
What are the pros and cons of adding on or buying new?
Before making a choice between adding on to an existing home or buying a larger one, consider these questions:
* How much money is available, either from cash reserves or through a home improvement loan, to remodel your current house?
* How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
* What do local zoning and building ordinances permit?
* How much equity already exists in the property?
* Are there affordable properties for sale that would satisfy your changing housing needs?
* Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.
What do you think of get-rich-quick real estate schemes?
Most real estate experts say there is no such thing as getting rich quick in real estate. But there are no end of get-rich-quick programs presented to the public as alternative methods of buying real estate. Some are reputable while others depend on your financial circumstances to work. A handful are simply scams. Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly. Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.
HOW DO UNPAID BILLS AND TAXES ON A PROPERTY AFFECT THE NEW OWNER?
Antonio Flores
9th of April 2002
Given the number of enquiries we are receiving regarding the legal implications of unpaid previous bills, invoices or mortgage instalments on the property, we have done a short report showing how would the new buyer be affected in this scenario. Although we may sound repetitive, and certainly biased, take no chances and hire a lawyer: a property purchase is possibly one of the most important decisions in life.
Unpaid Taxes
Unpaid IBI (Council rate): This debt is construed as a preferential charge on the property, and it is known in Spanish as a ´tacit legal mortgage´. An administrative procedure follows a couple of unpaid bills (depending on the municipality) and if no action is taken the property is sold at auction. The new buyer is prevented from paying this tax if previous years have not been paid.
Unpaid ´plusvalía´ (Tax on the increase of the value of land over the years): No effect unless the vendor is non-resident in which case the property will remain liable for payment, with the same effects as on the IBI (coucil rate) non-payment. The Town Hall will initiate a legal procedure against the vendor, obliged to make payment, and once he is declared unable to make payment (either by being declared bankrupt or not answering the administrative claim), they will proceed against the buyer, and ultimately against his assets, namely the property.
Unpaid seller´s capital gains tax: No effect on the new buyer.
Unpaid 5% retention of the purchase price to the tax office when the seller is non-resident: The buyer is himself liable to retain the mentioned percentage from the purchase price and lodge it with the Taxman. The property remains liable for non-payment of the tax retention. In fact, the non-payment of these monies could even be construed as criminal misappropriation, although the taxman will simply wait until the time limits expire and will set in motion the administrative procedure to eventually sale at auction. Although may lawyers do not check that this tax has been paid in previous sales of the property, it is highly advisable as your property could have been purchased and sold between non-residents more than once, and therefore there is the possibility that tax is owed.
Unpaid Mortgage Installments
The bank will insist on payment and if it does not take place they will instruct their lawyers to proceed with foreclosure of mortgage and sale of the property at public auction.
Unpaid Community of Owners Charge
The community administration decides to proceed against the new owner and if no action to pay up the outstanding debt is taken, the new owner will face the sale of his property at public auction following a court procedure. In addittion to this, the new Horizontal Property Act has given increased powers to community administrators to pursue debtors, and the new Civil Procedural Act has new precepts which allow a quicker execution of debts and therefore, increased facilities for bidders in a judicial public auction scenario.
Unpaid Service Bills
Not paying these bills has no effect on the property. They are debts which go with the person who signed the contract, and therefore the seller will be liable. However, the following can happen if they have not been paid for:
* Electricity: Supply will be cut off. (A fee may be charged to re-connect)
* Water: Supply will be cut off. (A feee may be charged to re-connect)
* Telephone: Line will be interrupted.
In principle, the buyer can sign with the supply company a fresh new contract and remain unnaffected by the debts. However, in practice the companies will put forward obstacles to this, and at times, it works out cheaper to pay the bills and ensure supply than litigating with the company, who will no doubt ensure no supply is available meanwhile.
Of course, the lawyer should have the checks done on this.
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