PROCESS OF BUYING REAL ESTATE IN MEXICO

PROCESS OF BUYING REAL ESTATE IN MEXICO
REAL ESTATE PURCHASE IN MEXICO /MAY 2020

 

Most real estate transactions are “opened” after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required by the broker to transmit the offer to the seller. 

If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or a lawyer be consulted before signing any papers or handing over any money. In some areas, it is common practice to deliver to the seller, as an advance payment, the equivalent to a 20-50% (including the initial deposit) of the total price upon signing the purchase-sale agreement which should contain a penalty clause applicable in case there is a breach of contract by any of the parties.
Normally, when signing the “scripture” or official deed (which needs to be certified by a notario publico or notary public), the balance is paid and the property is delivered. This should not take more than 45 days. In certain resort areas, the custom of using “escrows” is being implemented.

 

WHO IS A NOTARIO PUBLICO?
The notario publico is a government-appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer, furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the official office of the notario publico. The notario publico is also responsible to the government for the collection of all taxes involved. 

 

In connection to real estate transactions, the notario publico, upon request, receives the following official documents, which, by law, are required for any transfer: 

  • A non-lien certificate from the public property registry based on a complete title search.
  • A statement from the treasury or municipality regarding proper assessments, water bills, and other pertinent taxes that might be due. 
  • An appraisal of the property for tax purposes. 

 

What are the closing costs?

It is common practice that the buyer pays the transfer or acquisition tax as well as all other closing costs including the notario fees and expenses, and the seller pays his capital gains text and the broker’s commission.
Since January 1, 1996, the federal law regarding the real estate transfer tax, which was 2% for all the republic of Mexico, was modified to allow each of the Mexican states to determine its tax. The range may be from 1-4% of the tax appraisal value (generally less than the sales value).

The rest of the closing costs, which exclude the transfer cost mentioned above, may vary from 3-5% of the appraisal tax value or more, depending on the particular state. Their percentages are applied to the highest value of the following:

  • The amount for which the property is sold.
  • The value of the official tax appraisal.
  • The value designated by the property assessment authorities. 

 

COSTS OF THE FIDEICOMISO

Based on a present tariff, the bank charges the person desiring the fideicomiso an initial fee for drawing up the agreement and establishment of the trust, plus a percentage according to the value of the property. Also, the bank charges an annual fee (depending on the value of the property)to cover its services as a trustee. 

 

REAL ESTATE BROKER’S COMMISSION

Most real estate companies in Mexico charge a 5-7% commission based on the actual sale price of the property. However, different area broker rates reflecting higher broker expenses may be found such as the resort areas. 

 

CAPITAL GAINS TAX

In Mexico, the concept of capital gains tax does not apply in the sense in which it is determined in the United States. Here, the gain from the sale of the property is considered as normal income at a tax rate of up to 35% to determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold;

  • The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes.
  • Auditions, modifications, and improvement, but not maintenance, made on the property (construction) adjusted as above.
  • Commissions paid to real estate brokers by the seller.
  • The closing costs, including all expenses, taxes, and fees paid by the seller.

 

The notario will retain the calculated gain after deductions forwarding it to the Mexican tax authorities. The seller will then deduct the amount against his/her annual tax return, which becomes an adjustable tax credit in the U.S. 

On the other hand, there is no capital gains tax in Mexico if there is conclusive proof that the seller has had the property as his primary residence for the previous two years.

 

ARE YOU INTERESTED IN LEASING?

This is what you need to know when leasing is in your options 

 

LEASING BACKGROUND

Historically, in Mexico, the law favored the tenant making it harder for the landlord to increase the rents and/or evict the tenants upon the termination of the contract. Consequently, contracts were designed to protect the landlord as much as possible. In 1993, the law regarding leases was modified, in Mexico City, to expedite the lawsuits against tenants with the resulting benefits for all, as each state in Mexico has different laws regarding leases, a lawyer or a reputable real estate broker should be consulted before signing any agreement. 

Some years ago the housing lease market, in areas such as Mexico City, had a very high demand with minimum supply. Therefore, rents, in general, were relatively high. Presently, the situation has reverted because property owners are unwilling to sell (due to the economic situation) and are choosing to lease as an alternative to selling. As a result, markets reflect a tendency for lower rents.

TERMS
The normal and basic terms of a lease agreement are:

  • One year contracts are common, particularly in housing. Commercial and industrial properties are normally leased for longer terms with predetermined formulas to adjust the rent annually.
  • In some cases, a co-signer or bond is necessary.
  • A deposit equivalent to 1-2 months’ rent is normally required. 
  • Generally, refurbishing is the responsibility of the tenant.
  • All utilities as well as condo maintenance fees, telephone, cable vision, and other optional services, such as special area security, are usually paid by the tenant.

 

You may also want to read: The real estate industry in Mexico, How foreigners can own properties in Mexico.

 

If you’re interested in buying, selling, or renting a property in Mexico, please call the Laguna Shores office at 638-383-0210 ext. 502 from the united states, call 1800-513-1426 

 


 

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