The Purchase Process
The process of purchasing a property in Mexico is complex and often lengthy. Newcomers may be used to thinking about this process as a relatively straightforward and impersonal business transaction, and may not appreciate the extent to which non-business considerations come into play in the Mexican context. Complications, such a difficulty obtaining financing or required documentation, can arise at any stage of the process and can significantly extend the agreed upon timeline.
Once a property has been found, an informal offer is made to the seller. This must be done in writing. The offer must include the offered price, and the details of payment, in particular the deposit or down-payment to be paid at the signing of the contrato de promesa de compraventa (agreement or “promise” to sell and purchase – this is distinct from the contrato de compraventa). The offer may also specify its time validity, so as to get an answer from the seller within a certain amount of days. This preliminary offer is not binding, and even if a seller accepts the offer, either party may withdraw at any time. Offers may also specify certain repairs to be undertaken by the owner, although the norm is that property is sold “as is.” Owners will often – but not always – accept an offer that involves financing of the purchase price.
Once an offer is accepted, the price is considered to have been established, and if the buyer discovers a defect in the property, owners are just as likely to call off the agreement as they are to negotiate a reduced price. Prospective buyers should consider bringing architects or engineers with them to evaluate the state of the property before an offer is made.
If the offer is accepted, the parties sign a preliminary purchase agreement (contrato de promesa de compraventa). This document is an agreement to sell/purchase the property at an agreed upon price. Prices may be agreed to in foreign currency, but must be paid in Mexican pesos when the actual purchase agreement (contrato de compraventa) is signed. The agreement also specifies a closing date that could be within a month if it is a cash transaction or may take several months if financing is required. At this time, the deposit is paid to the owner according to the terms laid out in the offer.
The contrato de promesa de compraventa does not complete the transfer of property, and should be understood simply as a mutual commitment to do so, and it is binding. If either party decides not to proceed with the purchase, they should expect to pay a penalty of a certain percentage of the deposit (usually up to 100%) – this amount is somewhat negotiable, and should be explicitly stated in the contrato de promesa de compraventa. If financing is required for the purchase, buyers should also seek to include a clause that waives or reduces the penalty if buyers are not able to secure a mortgage. Similarly, a clause should be included that commits the parties to renegotiate a closing date if financing is delayed or if the notary has not yet completed the necessary paperwork by the original closing date. In some deals, the parties may agree to skip this step and go directly to the notary public for the signing of the deed.
Agents function as mediators in the transaction, bringing the parties together. They also should advise their clients about the requirements and documents that the notary will request and may help them understand the contrato de compraventa. However, the final contrato de compraventa (the deed) is the sole responsibility of the notary With the signing of the deed, the agent’s job is done, although individual agents may continue to support their clients through the remainder of the process. Agents’ fees are payable by the seller at this point.
Regulations governing both contracts (the contrato de promesa de compraventa and the contrato de compraventa) are found in each state’s civil code, and may vary. However, in general the obligations regarding the contrato de compraventa for each party are as follows:
The seller is obliged to:
*Surrender the property to the buyer on the day and under the conditions specified in the contract, once the full payment has been given to the seller
*Guarantee that the property is kept in a good condition until it is surrendered to the buyer
*Pay all taxes and contributions associated with the sell, and surrender the property free of debts, liens and without tenants
The buyer is obliged to:
*Pay the price settled in the contract plus the fees for the notary (usually around 6% of the value of the property). Depending on the value of the property and the nationality of the buyer, some tax benefits may apply, therefore it is important to ask the notary about them
*Pay taxes and contributions associated with the purchase
Examples of contracts in Spanish can be found online, but it is advisable to have a Lawyer review any contract before signing. The contrato de compraventa may be signed in front of a notary public, but this is not compulsory. However, the standard in Mexico is to have a notary involved in the signing since they perform a due diligence process before the signing and they share the liability for any legal inconsistency with the contract.
The process of buying, selling or renting any type of property or land is regulated at a state level in Mexico. While some procedures in the property purchase process may be identical in all states, others may differ. This page gives an overview of what is involved in buying a property in Mexico, prepared by certified real estate agents who are experts in the Mexico City property market. It contains advice that should not be considered a legal document nor should it imply any liability for its authors in case there are some discrepancies with the processes involved for the sale or rental of a property. It should also be noted that for particular practices and requirements in areas other than Mexico City, advice should be sought from professionals familiar with the property market in that state.
Information provided by Carmella Peters-Romero, Vanessa Kerr and Hector Romero of Peters & Romero Bienes Raíces, Tel: 55 3713 0985 / 55 6708 4772 / 55 4341 3131