GUIDE TO BUYING PROPERTY IN SPAIN
PREPARATIONS PRIOR TO PROPERTY PURCHASE
Internet: first point of access to the market
These days the Internet is for most potential property buyers the first point of access to the market. The amount of information that is available through this medium is overwhelming. Many, many real estate agents have web sites offering Spanish property, though these are of varying standards.
One of the benefits of searching for property on the 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 own agent, if you have one, to check that 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
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 coastal areas. But on the other side, there is a rising number of people that seek rural homes where they can find peace and tranquillity. Some would even say that it is only in the rural areas one can experience the “real Spain” today.
Property: Choose property type
Analyse your own needs, look ahead and be sure that the property will be suitable 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 can usually be changed for another, but there may be current market constraints as well as the significant costs of selling and buying again.
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.
Using a 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 for sale and with a single point of contact it will be easier for you to obtain and digest the necessary information. It is very unlikely that you will miss your dream property this way and you will have more security and hopefully a much easier process.
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. Therefore they can easily make mistakes and fall into traps when they operate on their own. Even if you have a good legal case in Spanish law, the process can become costly and it can take years to settle - so it is better to do everything one can to avoid recourse to the Law in the beginning.
Buying property in Spain will probably be quite different from your experience of buying property in your own country and people can become so carried away by the prospect of owning their own "house in the sun" that they become less cautious and more gullible.
We strongly recommend you to have 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 any encumbrances (mortgages or other charges)
- that all taxes and fees are paid for (if not you as a new owner can be held responsible for the seller's unpaid bills)
- that all licenses are in accordance with regulations
- that the method of settlement is legal 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 checked. It is therefore higly recommended to use a local lawyer, i.e. a lawyer who is familiar with Spanish laws governing property transactions and who has knowledge of local conditions.
Never use the Vendor's lawyer even if it is just assistance regarding technical issues.
Choosing a lawyer is not easy. As in all countries there are significant differences regarding professional skills, the ability to work quickly and efficiently and not least language skills. Property transactions are, in most cases, a mere formality able to be dealt with competently by any lawyer. In that case the ability to work quickly and efficiently, with the right priorities, will be a more important quality. Therefore the advice of your agent can be useful in choosing the right lawyer based on reputation for these other skills and also as a backup source of knowledge of local affairs affecting property.
Financing the purchase
Never enter into a purchase contract unless you are certain that you can pay the whole amount in accordance with that 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 for 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 you will be granted before you have to pay the deposit. After you have signed the contract the bank will send a representative to value 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 certificate can be granted from some foreign banks such as the Danish bank Nykredit (read more about their terms and conditions at their web site www.nykredit.com). This loan certificate confirms 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 the Euro is not your home currency. If Spanish interest rates are lower than in the country you are from it can be tempting to take 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 the Euro and another currency. You should not expose your private finances to an uncontrolled risk which is out of proportion to your means. The currency risk is also related to the term of the mortgage. The risk is, in general, greater when the re-payment period is long.
Transaction costs:
You should also keep in mind that the purchase transaction will additionally attract taxes and fees of around 10% on top of the agreed purchase price of the property.
These are the expenses you have to take into account:
Sales tax
The tax payable depends on whether it is a newly built house or if the building is older. If it is a new construction, being acquiered from the developer, there is a 7% IVA (Value added tax) on the purchase price. If it is a resale, there is a 7% transfer tax. As of September 2011 there is a proposal being discussed by the Government to reduce the IVA on new sales to stimulate this sector.
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% IVA) . There are a few lawyers who charge 1.25% to 1.5% but normally there should be no need to pay this.
You will also find lawyers who work on a fixed price principle (independent of purchase price)
The expenses the lawyer has, such as Notarial fees below, will normally be in addition to his or her fee. This is normally not a large amount but it should be specifically agreed in advance.
Fee to Notario
The Notario is a public servant who confirms the entering into of contract and also that settlement has taken place. The Notario then sends the deed of conveyance to properties registry.
The fee to the Notario is related to the purchase price, typically a few hundred euros and is calculated in accordance with specified rules.
Registration fee
This expense is also 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 new 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 depends on the price of the property in question, but anything from 1-2% is normal.
The next step is to make a “private purchase contract”. This is normally 3-6 weeks after deposit. The time frame is so as to allow the purchaser to make the necessary arrangements related to the finance and settlement. If you have all financial aspects in order – there is no reason for this delay.
The final step is Title Deed Exchange – which take place at the Notario. This can take place a 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 (less any deposit already paid).
Step1 - establishing contact with seller
In Spain there are normally individual viewings where a real estate agent shows the property to only 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 a feeling for 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. Your real estate agent may be able to give you this information.
Some general guidelines can also be stated regarding price levels in different areas. Price per m2 is, for the vast majority of properties, between 3,000 and 4,000 euros. However, the price level is much higher for properties which are first-line beach, first-line golf and properties with view. Prices per m2 are also above average in and close to Marbella, Puerto Banús and Sotogrande. On the other hand, the price level is below average from Málaga to Calahonda and west of Estepona to La Duquesa.
When you have agreed on a price you will normally have to pay a small deposit. It should be specifically agreed what the consequences of the payment are. A practical solution is that seller withdraws the property from the market for a short time in order to give the buyer time to make the necessary arrangements relating to financing the purchase.
If you then decide to buy, and the vendor still wishes to sell, it is natural that your deposit counts as a part of the payment. But this should be made clear in the agreement.
On the other hand, if you don’t proceed to purchase the property, the question is whether or not you have a claim for a refund of your deposit. This 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 pay anything at all?
Your lawyer will specify what documentation he deems necessary at this stage. Probably he will state that, as an absolute minimum, the vendor submits a registered deed of conveyance ("Escritura Publica") that confirms he or she is the owner. This official deed of conveyance is registered in the so called "Registro de la Propiedad". It may have been a long time since the seller's registration as owner so your lawyer will probably suggest that he or she obtains a mortgage certificate, "Nota Simple", which is a fresh extract from the register which will show any encumbrances and confirm that the vendor still is the owner. The purchase contract can then be formulated with the actual situation in mind. For example, it may be agreed that the property will be taken over without encumbrances, or that a part of the purchase price is settled through taking over responsibility of an existing mortgage on the property.
The Escritura will give a description of the location and boundaries of the property and also the buildings normally. However, you should be aware of the fact that the Escritura is only an agreement between seller and buyer. Neighbours are not part of this agreement and will not be bound by it. The definitive location and boundaries of the property are as shown in another 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 boundaries of the property in the Catastral Register you will also find its tax value, the "Valor Catastral". This is important because the property tax payable is based on that.
Step 2- Contracting
The next step is that you enter into an purchase agreement with vendor, with the rights and details which you have mutually 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 lawyer will probably recommend a contract in Spanish, perhaps with an English or other translation. The Spanish contract is then decisive if it later turns out that the translation to English or other language is not perfect. This is what we would recommend as you will be better off with a contract as simple as possible.
It should be stated in the contract that the property is taken over free of encumbrances, or alternatively that the payment to the vendor will be reduced by the amount of mortgages that you take over, whichever is the case. If the vendor states that the balance of the current mortgage which will continue is lower than face value of the mortgage, then a confirmation from the lender should be obtaned. 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 at the time of taking over.
The freedom of contract also includes the question of who will cover the transaction costs, and any tax or withholding tax due as a result of the sale.
Often the purchase contract is formulated as a time limited right to buy, i.e. a purchase option, where, by paying the remaining part of the purchase price, you will get a deed of conveyance to the property. On signing of this contract a deposit/first instalment equal to 10% of the agreed price should be paid.
This solution implies that you can choose not to go further with the purchase even after the first instalment is paid. In that case your 10% will as a rule not be refunded.
After you pay the first instalment, your right to the property will be dependent upon on the fact that you must pay the remaining part of the purchase price within the time limit specified in 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 have already paid.
It is very important to get the terms of the purchase contract set down as you have agreed with the seller. Then there can be no confusion or misunderstandings. 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 the seller 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 consequences of a delay on the part of the seller should be set out in the contract. It should follow from the contract whether, in such an event, you can demand a price reduction, or cancel the purchase altogether etc.
Should any encumbrances be placed on the property before you finally take possession the cash part of the purchase price will either be reduced, or the seller will be obliged to prove that the obligations have been paid or settled.
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 obtaining legal protection for your purchase.
On the day of taking over you and the seller , accompanied by your lawyers, will 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 understand and acknowledge the contents. The Notario also confirms that payment, normally a bank draft, is handed over from the buyer to the seller.
The seller 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.