Buying a Property in Mexico

Buying a Property in Mexico

Buying Property in Mexico

At Tropicasa Realty, we understand that buying a vacation home in Puerto Vallarta can come with additional concerns for potential buyers as they navigate the real estate process in Mexico. We have created an easy reference guide on the different aspects of buying property in Mexico to assist you in understanding the process. Furthermore, through every step of your real estate experience, our team of professional Realtors and in-house legal counsel are here to support you, and our FAQ section of the website will answer most questions regarding owning property in the Puerto Vallarta and Riviera Nayarit region. It is our goal to see that any questions or concerns regarding the purchase of your new home are addressed completely and immediately.

Shopping Around

Many buyers or potential buyers are reluctant to “waste an agent’s time” if they feel that they are not quite ready to buy. Tropicasa understands that the process is different for each person and our goal is to always ensure your comfort, waiting until the time is right for you and that you are comfortable in your decision without pressure. This has always been the Tropicasa approach to ethical real estate.

Prior to starting your search, your Realtor will be able to pre-qualify you to show you the range of properties in the appropriate price range and advise you on options for home financing. Your Tropicasa agent will initially sit down with you or, if you are not in Puerto Vallarta, speak or correspond with you about what you might be interested in seeing, your current needs and needs for the future, property “must-haves” and any other special requirements. They will explain the process to you, answer questions about payments and financing and generally be there to answer any of your concerns. When you are here in Puerto Vallarta, your Realtor will take you on a tour, showing you the properties you have agreed fit your needs, and gaining your feedback on each potential property to refine the search criteria for your dream home.

Making an Offer

When the time is right, your Tropicasa agent will help you prepare an offer in a double-column format in both English and Spanish, so you are completely confident in what you are signing. Our standard offers will establish price and terms, a list of contingency items that must be satisfied, and set the closing date for the transaction, generally 30-45 days following the acceptance of the Offer. If you are not physically in Puerto Vallarta, the signed offer may be scanned and emailed to your Realtor who will then present the offer to the agent that represents the Seller of the property. (Note that the English translation is for courtesy purposes only, as the legal language in Mexico is Spanish.)

If you receive a counteroffer to the original offer, it may contain, among other things, a request for a new price and terms, an answer to the information you might have requested and other items. Your agent will consult with you on how you chose to respond with another counteroffer, either letting the deal expire, renegotiating terms or accepting the offer. This can all be done digitally with the original signatures required once we have the final accepted offer.

Once you and the Seller reach an agreement, before proceeding with the closing process, we will review the contingency and due diligence items requested in the initial offer. To follow is a standard list of documents we request in most offers, though some items may not apply in certain situations:

  • Escritura (Deed of Title) – We need to know that the Seller is the owner (either fee simple or in fideicomiso) of the property.
  • Current Property Tax Bill and if possible, its corresponding payment. - It is important to see how much the property taxes will be each year. Property taxes in Mexican are very low, generally around $100 USD for each increment of $100,000.00 USD of the value of the property, i.e., a condo that is valued at $300,000.00 will pay around $300 USD per year in property tax. This can vary depending on the area and what rules are in place at any given time. It is best to review the previous year’s property tax bill of any specific property to know what you can expect to pay the following year.
  • Inventory/Exclusion List – Resale properties typically include all major furniture but do not usually include art, art objects and personal effects. Brand new developments will typically include some appliances but not furnishings. You need to know exactly what the property includes in the purchase price.
  • Property Disclosure Statement and Statement of No Pending Litigation – Statements from the Seller as a disclosure on the property. These are not required by law, but Tropicasa requires these for the protection of all parties.
  • ID Requirements Format – This is a format required under Mexican law which is basically a summary of the documents and information required by the Notary to close a transaction. We provide this to our clients at the beginning so that they know what to expect. Note that 2 clear scanned (not photographed) color copies of ID´s (such as passport and driver’s license) will be required from all parties in a transaction.
  • Privacy Statement – Again, a requirement under Mexican law and we provide a privacy statement to each of our clients in an easy-to-read bilingual format.
  • Federal Zone Concession – This applies to oceanfront, riverfront and properties that are on Federal highway systems. If you are considering one of these types of properties, please discuss this important clause with your agent.
  • Copies of Utility Bills (recent) – We will need to see the services on the property to show the Buyer as well as to prepare the transfer document to transfer the utilities to the Buyer at closing. Utilities are never turned off and then on again but simply transferred to the new owner.
  • Rental Calendar and Income and Expense Statements – For those that rent and may be marketing the property as an investment property, this will be important. The calendar is also important in the event the property has been reserved for dates that will be post-closing, as the Buyer will be due those rentals and/or deposits pro-rata.

Condominium Documents (in Spanish):

  1. Condominium Regime – The Notary will need this document to close and it is also important to review as it usually includes the Bylaws. The Spanish recorded version is the binding version, so it is more important to see that version rather than an English translation.
  2. Bylaws – The document will show the Buyer whatever restrictions may exist regarding pets, rentals, noise, etc.
  3. Copies of Minutes of the Meetings for the Last 3 Years – This is important to see how the condominium is run, any issues that might be pending, any modifications to bylaws, past or future potential extraordinary assessments, etc.
  4. Condominium Financial Statements for the past 3 years – Important to see the finances of the condominium, how are the maintenance fees used, who is paying and who is not, and if there is a reserve account established.
  5. Current Budget – All Buyers want to know what to expect insofar as monthly maintenance.
  6. Survey – Pertains to lots particularly, but can also apply to private residences if abutting a Federal area (highway, waterfront, etc.)
  7. Proof of Service Letters – Generally, in the case of lots, we request letters from each utility company showing that service is (or is not) feasible on that lot.
  8. Feasibility of Construction and Zoning – Especially for lots, it is key to know what you can or cannot build on a certain property or what can be added to existing construction.
  9. Certificate of No Liens – To show that there are/are not liens against the property and if there are, the nature of the lien so that it can be satisfied prior to closing.
  10. Closing Cost Estimate – Your agent will obtain an estimate for closing costs from the Notary office once we have an accepted price. Closing costs are anywhere from 3-8% of the price. In Mexico, the Buyer pays for all purchase closing costs while the Seller pays the real estate commissions and selling capital gains tax. At the time that escrow is opened, you will also be required to pay a down payment of $3,000 USD or more, depending on the size of the transaction, toward anticipated closing costs to the Notary or Transaction Coordinator.

Due Diligence Period

During the time you are reviewing these and other documents on the property, you will also have a chance to make construction inspections, obtain financing if that is a contingency and otherwise determine whether you feel comfortable going forward with the transaction. We usually allow for a period of 10-20 days for due diligence (longer if the property is commercial or more complicated). At the end of the due diligence period, you will either make the determination to go forward or you will decide against the purchase and any escrow deposits you have made will be returned to you.

Opening Escrow

It is the standard here in Puerto Vallarta for the Buyer to make a good faith deposit into escrow in an amount equivalent to 10% of the agreed upon price. We use well-recognized title companies such as Armour Secure Escrow S. de R.L. de C.V and others to hold escrow and the cost is usually about $750.00 USD to establish the account. This is at the buyer’s expense. A few days prior to the closing, the Buyer will deposit the balance of the purchase funds into escrow where funds will be held until the closing date when Seller transfers title to Buyer.

The Closing Process

Escrow is open, and contingencies are removed, generally meaning that the Buyer has deposited the required 10% good faith deposit into the escrow account, is satisfied with the due diligence and has removed the contractual contingencies. This means we are going forward to closing. Tropicasa works closely with the Notary to coordinate all closing aspects of the transaction.

As the Buyer, you may or may not need to be present at the closing, and your agent will be able to advise you on this. If your presence is required, you can be here personally or grant a power of attorney to someone that you trust to sign documents at closing on your behalf. Your real estate agent cannot act as your representative in this aspect as it would be a conflict of interest. If you cannot be present, the power of attorney can be prepared for you to sign.

If you are in the United States, you MUST have the power of attorney notarized by a local U.S. Notary and then “apostilled” by the Secretary of State of the state in which you sign. If you Google “apostille + secretary of state + (the name of your state)”, information will come up on how to complete this simple process.

If you are Canadian, you will need the power of attorney signed in the Mexican Consulate nearest you and each consulate has its own format and rules. This link shows the information on the consulates in Canada.

To complete the closing, you will need to prepare to take ownership of the property and anything that that might entail: hiring staff or a property manager or preparing to assume the payment of the bills that correspond to the property once closing has taken place. Your agent will provide you with a proration statement prior to closing to show what expenses were prepaid and must be reimbursed by you to the Seller at closing, if any.

The Notary office will set the time of closing according to the schedules of both Buyer and Seller and based on the Notary office workload and availability. Generally, closings take place after 10 am and before 5 pm. Up to three days prior to going to the Notary, the Buyer will usually do a walk-through of the property to ensure everything is in place. Once the transaction closes in the Notary offices, the seller will not return to the property.

At the Notary office (or before, with the assistance of our in-house counsel), you will review the paperwork with the Notary and closing coordinator to make sure everything is in order. Aside from the deed transferring title from the Seller to you, you will be signing disbursement instructions to the escrow agent which instructs the escrow agent where to send funds. Once documents are signed, the Notary will send the escrow agent the disbursement and copies of the deed and funds will be released. You will get the keys from the Seller and the closing will be complete. You will receive your final recorded “Escritura” (deed) within about 6 months of the closing. In the meantime, the Notary will provide you with a copy of the deed for your records and a “Carta Constancia” to be able to make the utility service transfers. Again, through the full process, your Tropicasa real estate agent will be by your side to ensure you understand fully the process of purchasing a home in Mexico. (It is important to note that you will receive a digital file called a CFDI (digital fiscal certificate) and its .XML file sent to you by the Notary after the closing which must be kept in a safe place in the event you choose to sell the property in the future. This verifies the price you paid for the property and constitutes your basis. Without this digital file, your basis will be considered as ZERO for purposes of capital gains tax calculations. Therefore, it is crucial you maintain these files with your important property documents and files.)