:: BUYER'S GUIDE TO BUYING PROPERY IN SPAIN
PREPARATIONS PRIOR TO PROPERTY PURCHASE.
Internet- first introduction to the market.
Internet is for most potential property buyers the first introduction to the market. The amount of information that is available through internet is overwhelming. Many real estate agents have web sites where property in Spain is being marketed, though with varying quality.
One of the benefits of searching for property on internet is that you easily can do a search at home and pick a selection of certain properties that you would like to have a closer look at when you come to Spain. You should ask your real estate agent if the properties you have selected actually are available in case the web site is not completely updated.
Location: where in Spain do you want to buy?
The prices are naturally highest along the coast line, particular expensive are first line beach properties. Also keep in mind that the inland climate is different from the coastal climate. Inland climate has cooler winters and warmer summers. You might also experience that inland areas might have less developed infrastructure compared to central and coastal areas. But on the other side, there is a rising number of people that seek rural homes where they can find tranquillity and peace. Some would even say that it is only in the rural areas one can experience “real Spain” today.
Property: Choose property type.
Analyze your own needs, look ahead and be conscious that the property will be suited for your use in the time period that you are planning for. Would you like a house for a more permanent settlement or an apartment for shorter holiday visits. An unsuitable property you can always sell, but buying and selling implies significant costs.
Discuss your intended use of the property with your real estate agent, and let him assist you in choosing the best property type for you.
Use of real estate agent.
If you want to buy property in Spain it is essential to have good knowledge of the market. The immense majority of property sales go through a real estate agent who knows the market well. Remember, the more information you can give to your real estate agent about your property requirement – the better can he assist you.
In many other European countries, the real estate agent can only sell his direct listings. In Spain however, most agents share properties with a wide range of other real estate agencies, and they just share the commission if there is a sale. We would therefore recommend you to pick one real estate agent, which you feel is providing you with the service you want – and stick to him. In principle every agent has access to any property that is up for sale. It will be easier for you to handle the information, and there is not a big chance that the “right” property will not be presented to you..
Be careful with random acquaintances who want to help you buying property.
Legal assistance.
Foreigners who want to buy property in Spain are rarely familiar with Spanish law. Thus they can easily commit formal mistakes when they operate on their own. Even if you should have a good case after Spanish law, a process can become costly and it can take a long time to settle.
Very few foreigners will have an assumption to consider risks and potential problems in connection with property purchase in Spain. Buying property in Spain will probably be quite different from your experience of buying property in your own country.
We strongly recommend you to let a lawyer advise you through the legal process of buying. For most people, buying property is one of the most important investments ever. Using a lawyer will then be a kind of insurance that nothing goes wrong.
Your lawyer should check the following for you: that the vendor really has the title to the property. That the property doesn’t have encumbrances. That all the taxes and fees are paid for. If not, can you as a new owner be held responsible for sellers unpaid bills. That all licenses are in accordance with regulations. That method of settlement is in accordance with normal practice.
A lawyer will be sceptical towards everything that has not been documented and not least know how information on the property can be controlled. So my advise is to use a local lawyer, ie a lawyer who is familiar with Spanish rules for property sales and who has knowledge of local conditions.
Don’t use vendors lawyer even if it is just assistance regarding technical issues.
Choosing a lawyer is not easy. Like in all countries there are significant differences regarding professional skills, the ability to work quickly and efficiently and not least language skills. Regarding professional challenges most property transactions are a mere formality. Then the ability to work efficiently and to priority the case sufficiently be of much greater importance.
Financing the purchase
Don’t enter in to contract unless you are certain that you can pay the whole amount in accordance with the contract. This does not just mean that you have to be absolutely certain that you can pay the whole purchase price (including expenses), but also that you are certain that you can pay within the time limit that has been agreed.
Calculate with wide margins for money transfer.
Ideally you should have the amount you intend to use on the property purchase in an account in a Spanish bank already before you sign the contract. If you apply for a mortgage in a Spanish bank you will not know the exact amount of the mortage before the process of buying has started, ie that the doposit has been paid. The bank will after you have signed the contract send a representative to decide what they consider to be the right value of the property. Based on this price the bank will grant a mortage of around 80 % if you are resident in Spain, and between 50 and 70 if you are non-resident in Spain. However, a loan sertificate can be granted from some foreign banks, f. ex the Danish bank Nykredit (read more about their terms and conditions at their web site www.nykredit.com). This loan sertificate confirmes that the bank will grant you a loan and specifies the loan amount before you even come to Spain to have a look at properties.
A difficult question is whether you should raise a mortgage in a Spanish bank or a bank in your country if euro not is the currency there. If the interest rates are lower than in the country you are from it can be tempting with a mortgage in euro. But if you will pay your mortgage with income or pension from the country in which you are currently resident you will run a currency risk regarding the exchange rate between euro and another currency. You should not expose you private economy to an uncontrolled risk which is out of proportion to your economy. The currency risk is also related to the term of the mortgage. The risk is in general larger when the payment time is long.
You should keep in mind that around 10% of your net capital will be used to pay the transaction costs.
Transaction costs:
The expenses of property transferring are significant. These are the expenses you have to take into account:
Sales tax.
The quantity depends on whether it is a newly built house or if building is older. If it is a new construction, there is a 7% VAT (Value added tax) on the purchase price. If it is a resale, there is a 7% transfer tax.
For sale of plot or commercial properties, there is a 16% VAT plus document fee of 0,5%.
Lawyer’s fee.
You should calculate a fee of around 0,75 to 1% of the purchase price (plus 16% VAT) . There are some few lawyers who charges 1,25% to 1,5%, normally there should be no need to enter into such an agreement.
You will also find lawyers who work on a fixed price principle (independent of purchase price)
The expenses the lawyer has, will normally be covered in addition to the fee. This is normally not a large amount, but should be specifically agreed.
Fee to Notario
Notario is a public servant who confirms the entering into contract and also that settlement has taken place. Notario sends the deed of conveyance to registration.
The fee to Notario is related to the purchase price, typically a few hundred euros and is stipulated after certain rules.
Registration fee.
This expense is related to the purchase price and is a small amount.
THE PURCHASE PROCESS
The purchase process normally consists of three steps.
- You have found your home and decided to make an offer on the property. When you agree on a price for the property you will normally have to pay a “deposit” in order to have the vendor withdraw the property from the market. The amount is depending on the price of the property in question, but anything from 1-2% is normal.
- Next step is to do a “private purchase contract”. This is normally 3-6 weeks after deposit. The time frame is given in order for the purchaser to make necessary arrangement related to the finance and settlement. If you have all finance cleared – there is no reason for this delay.
- Last step is Title Deed Exchange – which take place at the Notario. This can take place some few days or several weeks after Private Purchase Contract, all depending on what is agreed between vendor and buyer. At the Notario the total amount of the agreed purchase price has to be paid (minus amount already paid for)
Step1-establishing contact with seller.
In Spain there are normally individual viewings, ie only the real estate agent showing the property to one potential buyer.
When you decide to make an offer on the property it is common to make an offer below asking price. Almost all properties are sold for a lower price than asking price. Your first offer should be somewhat lower than the price you are actually willing to pay. To get an impression on what is a reasonable price to pay you could try to find out if similar properties have been sold in the same area and compare prices. Maybe your real estate agent can give you information on this.
Some general guidelines can also be stated regarding price level in different area. Price per m2 is for the vast majority of properties between 3000 and 4000 euros. Though, the price level is severely higher for properties first line beach, first line golf and properties with view. Prices per m2 are also above average in Marbella, Puerto Banus and Sotogrande. On the other hand, the price level is below avarage from Malaga to Calahonda and west of Estepona to La Duquesa.
When you have agreed on a price you will normally have to pay a smaller deposit. It should be specifically agreed what the consequences of the payment is. A practical solution is that seller withdraws the property from the market for a short time of period in order to give buyer time to make necessary arrangements related to financing the purchase.
If you choose to go further and buy, and vendor still goes along with this, it is natural that your deposit counts as a part of the purchase contract. But also this should appear clearly from the agreement.
On the other hand if you don’t end up buying the property, the question is whether you have a claim on refund of your deposit. The question has to be answered based on the agreement which regulates the payment of your deposit.
What kind of documentation should you have before you even pay anything at all?
The actual need for documentation your lawyer will take a stand on. Probably he will state as an absolute demand that vendor submits registered deed of conveyance (escritura publica) that confirmes seller position as owner. The official deed of conveyance, escritura publica, is registered in the so called Registro de la Propiedad. It may have been a long time since the registration and vendors deed of conveyance, therefore your lawyer will probably suggest that he/she obtains a mortgage certificate, nota simple, which is a fresh perspective of encumbrances and that also confirms that vendor still is the owner. The purchase contract can then be formulated with the actual situation in mind. F.ex. can the purchase contract have a proviso that says that the property will be taken over without encumbrances, or that a part of the purchase price is settled up through taking over responsibility of mortgage pending on the property.
The escritura will give a description of the location and limits of the property, normally also the buildings. But be aware of the fact that the escritura only is an agreement between vendor and buyer. Neighbours are not part of this agreement and will not be bound by it. The decisive is the limits which are winded up in another property register, the catastral register.
In the escritura there will be a reference to an identification number of the property. In addition to the registration of the limits of the property the register you will also find the tax value of the property, valor catastral. This is important because current tax payment is based on that.
Step 2- Contracting
The next stage is that you enter into an purchase agreement with vendor, with the rights and details which you agreed on. This is a private deal, and in principle there is also freedom of contract.
A practical question is in which language the contract should be written. Your Spanish lawyers will probably recommend a contract in Spanish, perhaps with an English translation. The Spanish contract is then decisive if it later turns out that the translation to English is not perfect.
The last option is to be recommended, you will be better off with a contract as simple as possible.
You should point out in the contract that the property is taken over free of encumbrances, possibly that the payment to vendor is reduced with mortgages that you take over. If the vendor states that the mortgage remains with an amount which is lower than face value of the mortgage, demand a confirmation from creditor. The confirmation should include both the exact amount of the outstanding debt, and that you are accepted as a new debtor for the outstanding debt.
The contract should also say something about what happens if encumbrances pending on the property are not deleted as agreed on the time of taking over.
The freedom of contract also includes the question of who will cover the transaction costs, and taxes that is set off from the sale.
Often the contract of purchase is formulated as a time limited right to buy, ie a purchase option, where you by paying the remaining part of the purchase price, get a deed of conveyance to the property.
This solution implies that you can choose not to go further with the buy also after the first instalment is payed. But then your payment of the 10% will as a rule not be refunded.
When you pay the first instalment, your right to the property will be dependent upon of the fact that you pay the remaining part of the purchase price within the limit that follows from the agreement. If you are not able to pay the rest of the purchase price, whatever the reason is, you will normally loose the right both to buying the property and the right to the money you already paid.
The formulation of the purchase contract is critical. Then your expectations should follow unambiguously of the agreement. Your expectations are first and foremost that you get a deed of conveyance for registration when you take over the property. At the same time mortgages should be deleted if nothing else is agreed. If vendor has not deleted mortgages (or paid old taxes) the purchase contract should give you the right to withhold a part of purchase price.
The time for taking over the property should happen no later than the payment of the last instalment of the purchase price. The possibility of delay from vendor should be regulated in the contract. It should follow from the contract whether you can demand a price reduction, annul etc.
To the extent that the property encumbers for vendors obligations arised before your taking over, the cash part of the purchase price will either be reduced, or vendor has to document that the obligations really are settled up.
Step 3 - Settlement
Now you have made the contract, and paid the first instalment.
The next step is to pay the rest of the purchase price against taking over the property and have legal protection for the buy.
On the day of taking over you and vendor , accompanied by your lawyers, go to Notario with the document you want to register, a escritura de compraventa. If you are not accompanied by a lawyer you should absolutely bring someone who is fluent in spanish to translate for you. The Notario registers the document after you have both confirmed that you acknowledge the content. Notario also confirmes that payment, normally a bank draft, is handed over from the buyer to the vendor.
Vendor may want that only a part of the purchase price is reflected in the deed of conveyance. If you agree to pay a part of the purchase price in B-money this price will follow you to the day you might want to sell the property yourself. Besides, you can of course not cite the actual purchase price in case of a dispute between you and the seller, f.ex. if you want to annul the contract. So even though this is quite common practice it is not recommendable and you should by no means accept more than 20% in B-money.
Vendor and buyer do not have to be present at Notario, they can both be represented by an agent, normally their lawyer. But in order to be represented by an agent it is necessary to have a power of attorney from Notario. This costs normally around 50 euros.
Notario does not evaluate the validity or reasonableness of the individual proviso of the agreement. Nor does Notario function as commercial counsellor for any of the parties.
As soon as the escritura de compraventa is confirmed by the Notario, he will make sure that it is registered in the Registro de la Propiedad. The document is now escritura publica, and you are the official owner of the property.
Make sure to change the lock to the property unless you have been able to get documentation that there are no copies of the keys to the property.
