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LEGAL GUIDE TO SELLING SPANISH PROPERTY
VALUATION OF THE PROPERTY
You will have to decide the price to ask for your house.
The valuation can either be a low cost valuation, carried out by an Estate Agent, or it can be an official valuation, for which a substantial fee will be payable.The former type of valuation is usually sufficient.
CHOOSING HOW TO SELL YOUR PROPERTY
There are many ways you can advertise your property for sale you need to choose which option suits your needs best.
The following are:
Using an estate agent (immobilaris) - no advertising fees but commission due on sale between 3 - 10%, limited exposure.
Press advertisement - Insertion fees can be high, limited exposure.
For sale board - Limited exposure
Web based property sites - advertising fees and sometimes commission
Classifed Ads - limited space and exposure.
WHAT PRICE SHOULD I SHOW IN MY CONTRACT?
For many years there has, in Spain, been a practice of showing in the contract a price less than the actual price agreed for the sale.This can, initially, save both the Buyer and the Seller some tax, but it can lead to a lot of problems later.
Not surprisingly, the authorities have tightened up on this practice. The price that should be declared is the full value of the property — discounting any sum received in respect of furnishings etc.
It is illegal to declare less than the true value. It is normally highly dangerous to declare less than 80% of the price of the property. The Spanish Notary may refuse to sign the title deed if he considers that the price to be declared is too low. Even if he does sign it, the tax authorities have five and a half years in which to challenge the declared price and to raise a supplemental demand for tax — plus interest and penalties.
WHAT ABOUT THE MONEY I RECEIVE?
You may usually receive payment in Sterling in the UK or in Euros in Spain.
If the Buyer is also English it is normally easier for you if we can arrange for payment of an amount (agreed in £s Sterling) to be made in the UK as this eliminates your exchange rate risk. This is seldom possible if the buyer is not English.
WHAT TAXES DO I HAVE TO PAY?
Generally there are two taxes that you will need to think about.
Capital Gains Tax
This is payable in Spain and, if you are UK resident, also in the UK.
If you are NOT tax resident in Spain, the Spanish tax will be calculated at a flat rate of 18% of the gain (profit) that you made when you sold the house.This is the price declared on the escritura (deed of sale) when you sold the house MINUS the price declared on the escritura when you bought it. From this gross profit you can deduct your expenses of sale and purchase, the cost of any major improvements to the property – provided you can document them – and an annual allowance to reflect inflation. If you have owned the property since before 1986 more generous allowances are available.
If you are resident in Spain for tax purposes other – more generous – rules apply.
In the UK the gain you have made will be treated as part of your worldwide capital gains and will, therefore, be taxed in the UK too. The rules used to calculated the gain will be the UK rules, so the taxable gain will be a different amount from the amount in Spain. Any tax paid in Spain will be deducted from your UK tax liability.
'Plus Valia'
This is a – generally – modest Spanish tax. Be aware, however, that if you have owned the property for a long time – and, especially, if it has been reclassified as building land during this period – the tax can be substantial.
It is a local tax.
It is payable by the Seller unless the contract provides for it to be paid by the Buyer.
On most sales it is about £300.
The tax deposit
You should also bear in mind that, unless you have been the registered owner of the property since 1985, it is now the buyer's responsibility to lodge 5% of the purchase monies with the Spanish tax authorities on behalf of the Seller. Only the remaining 95% is paid to the Seller.
This responsibility is the same whether the money is paid in Sterling or in Euros.
The tax authorities retain this deposit until they have assessed the taxes, including capital gains tax, that are owed to them by the Seller. Once the Seller's tax position has been assessed, any surplus monies should be returned to the Seller.You must apply for any refund within 3 months of signing the deed of sale (escritura).The authorities may take up to a year before returning any money.
WHAT DOES THE CONVEYANCING PROCESS INVOLVE IN SPAIN?
You will probably be familiar with the Conveyancing process in England. The system in Spain is in many ways very different from the British system.
The first and most important thing to say is that you should NEVER sign ANYTHING until you have sought independent legal advice.
Once you have asked a lawyer to look after your sale for you, they will confirm the title of the property and, in most cases, prepare a preliminary or, as it is known in Spain, "private" contract to transfer it into the name of the buyer. This will be drafted so as to protect your interests. When this is signed you will, typically, receive 10% of the agreed price as a deposit.
Once this has been done, it is necessary for the official Contract/Conveyance ("the Escritura") to be prepared and then signed before a Notary Public in Spain.
The Notary is a public official who is there simply to put on the public record the fact that this document has been signed in his presence and understood by the parties concerned. He is not there to advise as to whether the document is valid or fair and he is certainly in no way there to protect either your interests or the interests of the person buying the house.
DO I NEED TO BE IN SPAIN TO SIGN THE DEED OF SALE?
Usually it is necessary for the person selling the house to attend in person before the Notary but, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another stipulated person to attend on their behalf. We recommend that your lawyer be named in the Power as this can aid the smooth progress of the case and, of course, giving the Power to them ensures that it will not be abused.
It is when the Escritura is signed in front of the Notary that the money is handed over to the person selling the house, less any retention that must be lodged with the Spanish tax authorities.
WHAT COSTS ARE USUALLY INVOLVED?
It is very hard to determine the exact costs involved in selling property as it varies from property to property.We would recommend you get quotes from lawyers regarding your particular property and circumstances. Below is a rough guide to possible costs:
Lawyer
Charges for all the normal legal work involved in the sale of your property are 1.0% of the price of the property, sometimes subject to a minimum charge of £1,500. (more if preparing power of attorney)
Estate agents
(If you use one) typically 5% - 8% of the price of the property
There are usually some other, relatively modest, payments that will have to be made on your behalf.These might include, for example, fees for a search at the Land Registry, couriers fees and bank charges.
Surveyors fees
Taxes
ARE THERE ANY OTHER THINGS I SHOULD DO WHEN SELLING MY PROPERTY?
You will need to make your Spanish tax declarations in order to recover any unused balance of the retention paid to the Spanish tax authorities.Once again, a lawyer can assist you with this.
GUIDE TO SELLING YOUR PROPERTY IN SPAIN
ESTABLISHING THE ASKING PRICE
The first and most important thing to establish is a "sales strategy" - a plan! The backbone of this strategy is the asking price. In other words, if you ask too much for your property, people will not even bother to view it and the result is that you won't even reach the market place. Ask too little for your property, and you are potentially giving away part of your assets! The right asking price is the perhaps the most essential ingredient in the art of selling real estate and is the result of thorough market research. Don't settle for the figure you want to hear, find out the true market value. What sales of comparable properties have been accomplished, and at what price? And what other owners with similar properties are asking? Is your property unique, which will allow you to ask a higher price as it cannot easily be reproduced, or are there many similar properties being offered?
BUILD IN A MARGIN FOR NEGOTIATION
An asking price is not necessarily going to be the sales price at the end of the day. It is considered suicide for a seller to ask his last price, due to the "macho factor" of most buyers who want to be perceived as winning in a negotiation to purchase, regardless of the asking price. So, experience dictates that the intelligent seller should build a reasonable margin for negotiation into his asking price.
CHOOSING AN ADVERTISING MEDIUM FOR YOUR PROPERTY
There are many options available to you when it comes to selling your property.Consider the type of market your property will appeal to.Below are some of the options:
Estate Agents (immobilaris) - commission of 5% - 10% of property price
Classifed Ads - limited space and exposure to potential buyers
Web based property sites - advertising fees but NO commission
For Sale board - limited exposure to potential buyers
MARKETING YOUR PROPERTY
To achieve a quick sale at the price you would like you need to make your property stand out from the many others available on todays market.Below are some ideas to help you attain this:
• Price your property accordingly.
• If you are asking a high price ensure your property lives up to it.
• Concentrate on your propertys selling points.
• Make your property as appealing to as wide a market as possible.
• Keep decor neutral unless you have a flair for interior design.
• Ensure the property is clean,tidy and uncluttered (this makes the property look bigger).
• Make sure that the interior matches the exterior.
• If you are leaving fittings and furnishings make sure that they are in an excellent state of repair and are good quality.
• Offer buyers incentives to buy your property.
• Make sure that any photos taken of the property are of good quality, well lit and positioned with a good mix of interior and exterior shots( the pictures is often what draws potential buyers into making a viewing)
• If your property is empty for long periods of time, have someone go in and air it before a viewing so it doesn’t smell musty.
• Dont have too many personal effects in view although homely may appeal to some people the majority like a blank canvas.
• Get your main agent/advertiser to put up the "For Sale" sign. This always results in enquiries.
• Enable viewings on as short a notice as possible. If you leave your keys with a neighbour who plays golf three times a week, you are losing a vital chance to show the property at the client's convenience.
• Ensure that curtains and shutters are open and that lots of light floods the property when it is shown.
• If there are any small repairs or repainting that would enhance the overall appeal of the property, it's well worth getting this work done now to eliminate any small “objection factors” from buyers. Although it goes without saying, a clean house is a desirable house, and many buyers are put off if the property is grubby or untidy. Make sure the place is spotless and you will instantly create a favourable impression. Selling a property, in this sense, is like selling a second hand car: fix the dent and polish it up, and you will always facilitate the sale, and maybe at a better after-negotiation price!
NEGOTIATION
If you intend to sell your property with some furniture, it is most important to make an inventory right at the beginning. Many sales have been on the brink of falling through when a buyer thought, for instance, that the painting over the fireplace was included in the sales price and felt that the seller was “too mean” when he learned that it was not! Negative energy during a negotiation can be avoided by having a clear inventory in writing from the outset.
If you are frequently travelling, it often makes sense to leave a power of attorney with your lawyer enabling him or her to sign a private contract on your written instructions. You can negotiate the details of the sale with your lawyer by telephone and e-mail.The power of attorney allows the “first step” towards the sale, the signing of a private contract, to take place without delay.
Make sure that you are fully aware of your tax obligations when you put your property on the market. Meet with your lawyer and tax advisor, and find out the options open to you to ensure there are no surprises when you eventually enter into negotiations to sell your property.
Remember that selling a property in a resort area is not usually a rapid procedure, even in good market conditions. Properties can stay on the market from three months to well over a year depending on the market, the location, the condition and general desirability of the property, the effectiveness of your sales strategy and, of course, the asking price.
Points to consider when a negotiation is taking place: Is the buyer expecting a counter offer from you or has he or she given you a one-and-only, take-it-or-leave-it offer? Do they have other properties in mind if they don't buy yours? Is their offer a fair one? Are all details included in the offer – price, target contract date, deposit, completion date, precise understanding of what is included in the sale in the way of fixtures, fittings and furniture, etc.? These items should be agreed upon at the outset and before lawyers are instructed. To avoid unpleasant surprises, under no circumstances should these items be negotiated "piecemeal".
SALE
Don't allow yourself to be pressured in making up your mind to accept an offer! But once you make up your mind to proceed, and considering the “emotional factor” of many buyers of second or retirement homes where they can change their minds abruptly, make sure you move quickly (but surely) to close the deal.
BUYING A PROPERTY IN SPAIN?
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!
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