An Informative Guide to Purchasing Spanish Property from Essential Estates

Buyer's Guide

Before you view a property

Before arriving in Spain you should make sure that you have at your disposal sufficient funds to cover the Reservation Deposit on a property. If you do not have the means to lodge a Reservation Deposit immediately, you risk losing the property to another party who does have the reservation sum available. The minimum required is normally 3,000 euros, but may be up to 12,000 euros for higher priced properties. Our experiences have shown that the usual amount is 6,000 euros which may be paid with a credit card or bank transfer. A cheque, if drawn on a foreign bank account, may take up to ten days to clear by Spanish banks. Most reservation deposits to Vendors are non-refundable so it's important to be sure of your financing for purchase before reserving a property.

The Reservation Deposit can be kept in the solicitor's client acocunt or directly with the Vendor's solicitor or with the Developer. When a Reservation Deposit is lodged against the property, the Sales Price is fixed and the Vendor knows that the buyer is serious about purchasing the property and the unit is taken off the market and reserved in the buyer's name.

Choosing a property

It's best to choose an agent and stick with them throughout the property search. Using multiple agents will simply cause confusion and will become a chore for you as you constantly will need to educate each additional agent as to your requirements and what you've already seen. An Essential Estates Property Consultant can show you exactly what you are looking for and will carefully plan your viewing according to your personal requirements. Consider the frequency with which you will use the property, think about the distances from airports, rental potential and long term investment - establish a budget and remember to add ten percent to the purchase price to cover fees associated with the buying process. Acquiring the home of your dreams shouldn't cause a headache providing the research is thorough. If unobstructed views are a priority, consider homes which are beachfront, frontline golf or in elevated positions and always ask if further development is planned for the area.

The Costa del Sol offers world class golf courses, superb build quality and much improved infrastructure - not to mention the best climate in Europe.

The Costa de Almeria and Costa Calida are up & coming areas with an excellent climate and huge governmental infrastructure improvements ongoing. Property is cheaper and the potential return on your investment may be higher. Start searching for property in all areas here.

Negotiating the purchase

Once a suitable property has been chosen, the first step is to make a verbal offer. The purchase terms and price may need to be negotiated with the seller and working in consultation with you, Essential Estates will proceed on your behalf until a price is agreed. You may wish to make your offer subject to mortgage approval, or vary final completion dates, or the terms of payment. At this stage, it is beneficial to bring into the buying process a lawyer to assist further in the negotiation making sure that any offer meets all necessary legal criteria.

Appointing a lawyer

Essential Estates can recommend several trusted lawyers on the Costa del Sol & Costa Calida who are fluent in your language. A lawyer will provide the legal guarantees for the purchase of the property ensuring that Spanish legal requirements are met and that the property is bought free of encumbrances, charges, liens or debt and is up to date in all its payments of local contributions and community charges etc. The lawyer may also assist the estate agent in difficult and complex negotiations with the owner. Lawyers will tell you in advance what their fee will be - in almost all cases, 1% of the purchase price. Using a lawyer from your home country will substantially increase your legal costs and most certainly delay the sales process.

Formalizing the offer:
The Reservation Deposit

Once there is a verbal agreement between parties, the next step will be to formalize the terms of the offer in writing. It is normal practice in Spain to include with the offer a reservation or holding deposit until the exchange of private contracts. Paying the Reservation Deposit guarantees that the property is taken off the market and is reserved for you at the agreed, fixed price. This initial reservation deposit will be held in your appointed lawyer's client account or directly with the developer. It is important to realize the Reservation Deposit is usually non-refundable, unless it is specifically agreed to be conditional upon certain factors happening e.g. raising finance or even actually viewing the property, if reserved unseen.

Exchange of Private Contracts

Upon acceptance of the offer by the owner the next step in the process is to exchange private contracts of sale or to sign an option to purchase. This normally takes place within two weeks following formal acceptance of the offer. Your lawyer will have completed his searches and investigations of the property and will have arranged with the owner the procedure for the cancellation of any outstanding debts. The private contract of sale or option will reflect all the agreed terms of the offer and sale and set out the date for final completion at the notary. At this stage it is usual for the buyer to pay a fifteen - thirty percent deposit of the purchase price which is non refundable. The amount of the Reservation Deposit is subtracted from this first installment payment on the purchase price.

Completion of sale at the Notary

A sale is formally completed in Spain when the public title deeds of purchase are signed before a notary, the final payment made, and possession given to the buyer. On the assigned day, the buyer and the seller (or their authorized representatives) will attend the notary's office to sign the title deed 'Escritura de Compraventa'. At this point the payment of the remaining balance is made and possession passes to the buyer with the handing over of the keys.

Registration

Once signed, the notary will fax a note of the title deeds to the local land registry. Your lawyer will also arrange payment of all the relevant transfer taxes associated with the purchase and will handle the formalities of registration of your title deeds. Final registration of the deed may take up to two months. Similarly, your lawyer will arrange for the transfer of accounts with local suppliers of utility services, such as water and electricity, and organize their payment through a local bank.

Costs involved in purchasing a property

There are, in principal, three fees and two taxes to pay when purchasing a property in Spain. As a rule of thumb, you should estimate that the combined total of these amounts be between 10% and 11% of the purchase price.

Fees

Legal fees: 1% of the purchase price, plus value added tax (IVA) currently charged at 16% on the fee amount. (for off-plan purchases, 1/2 is usually required at Private Contract and 1/2 on completion.)
Notary & Land Registry Fees: approximately 2% of the purchase price, payable on completion.

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Taxes

VAT (IVA) or transfer tax (ITP): ITP applies to resale properties only. IVA applies to Off-Plan properties. Both are currently at 7%. Stamp duty (AJD) of 1% is payable when purchasing Off Plan and is due on completion.

'Plus Valia' is an 'added value' tax based upon the increase of the Town Hall index value of the land only, from the prior (vendor's) purchase to the present sale. The tax corresponds in principle to the seller, but, in common practice, is often paid by the purchaser. As there are several variable factors used in calculating this tax (area of land, location, building volume permitted, period of ownership of the vendor), the amount payable can vary substantially and should be verified before proceeding with the purchase.

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Bank Accounts

One of the first things you need to do when you have decided to buy in Spain is to open a Spanish bank account. Developers will usually require stage payments to be made through a Spanish bank account and, on completion, the utility companies will require payment of their bills by direct debit.

You should be aware that some Spanish banks charge a commission to receive funds from overseas, sometimes up to 0.5% of the money being transferred. We're happy to assist you in setting up bank accounts and can recommend the better banks in the area.

It's also imperative to obtain an N.I.E. (Spanish tax idenity number) when purchasing property. An Essential Estates Property Consultant can explain the process involved as required.

Mortgages

If you need to raise finance to purchase your property, there are several different options available to you, both in Spain and abroad. The main difference between securing finance abroad and in Spain is that whereas the former can be arranged to finance stage payments, the latter in only available on completion.

If you decide to raise the funds abroad, you can do so by either re-mortgaging an existing property or, by taking out a personal loan. In either case, you will need to transfer the funds from a bank account abroad to your bank account in Spain.

Alternatively, you may wish to consider raising the funds for completion through a Spanish mortgage. Spanish banks offer competitive mortgages with low rates of interest, to both non-residents and residents of Spain. Typically, the banks will grant up to 80% of their valuation of the property for a term of up to 30 years.

Spain offers several kinds of mortgages including fixed and variable rates or a combination of both. Endowment or pension-backed mortgages are not available, although interest-only mortgages are now being offered by some lenders.

The Bank will need documentation from you to be able to consider your mortgage application including a bank reference, copy bank statements, copy income tax returns, copy salary slips or, copy accounts if you are self employed.

If you are buying Off-Plan the developer may already have a mortgage in place, which you can simply take-over on completion, subject to your financial status.

The mortgage arrangement fees for securing a mortgage offer from a Spanish bank amount to approximately 2% of the mortgage advance. The fees include Stamp Duty, bank's commission, legal, notary and land registry fees.

Essential Estates works closely with a select group of financial advisors & local banks that can assist you in securing Spanish mortgages at competitive rates.

Currency Exchange

Essential Estates recommends International Money Solutions Exchange (IMS FX) www.imsfx.org which offers competitive exchange rates on all major currencies. All funds are kept in a client account and are transferred through their primary banking partner, Schneider.