Buying property in Spain

Articles:
The steps to buying a house in Spain

FAQs:
What are some pitfalls in buying a property in Spain?
How can I find out the market price of a property?
The seller wants the declared price to be less than what I'm actually going to pay. Should I do this?
If I'm buying a property, can I save on taxes by creating a company?
What information should I get from my real estate agent?
Are real estate agencies regulated?
When I sell my house, are there any required inspections?
What is the trend in property prices in Spain?

Once you have decided on the property that you want to buy, the process is as follows:

Preliminary check on the property (Learn More)
With a nota simple from the Property Registry (Registro de la Propiedad), you'll find out if the property is free of debt, if it really belongs to the seller, and if the description of the property matches what the buyer has been told (to avoid surprises about missing square meters). You should get this document from the real estate agent before giving any downpayment.

The mortgage: part I (Learn More)
In the process of buying an existing property in Spain, the mortgage is going to take the most time, so start work immediately. First, you go about retrieving all the documents that the bank asks for. Then they can pre-approve you, and you can safely sign the pre-agreement and pay the downpayment, knowing that you can cover the money required, and be ready for the closing on the date stipulated in the pre-agreement.

The pre-agreement
Between the seller and the buyer there has to be a contract in place until the public deed of purchase is ready. It's usually a simple document in which the seller expresses their intent to transfer the property to the buyer, and the buyer expresses their intent to buy at the price and conditions agreed upon. At this time, the buyer also gives to the seller a percentage of the agreed-upon price. The typical agreement in Spain (called contrato de arras) is if the buyer backs out of the contract, they lose the deposit; if the seller backs out, they have to pay double. Of course, the buyer and seller may choose another type of agreement if they prefer.

The mortgage: part II (Learn More)
Once the bank has a copy of the pre-agreement, they hire an appraiser (tasador). The bank requires an appraiser to ensure that their loan to you is safe. The bank will only give you a loan equal to a determined percentage of the appraised value of the house. Note that the seller or broker need to be available so that the appraiser can get in to see the property. At the closing, you will be charged for the appraiser's work, usually between 300-500 euros. Note that the tasador is by law a licensed architect, so even if you don't need a mortgage, but have doubts about the structural integrity of the house, you might want to order an appraisal.

The closing
The property transfer must be certified by a notary. The deed of purchase will be given to the buyer after the notary reads it and the parties present agree to the contents of the deed. The following must then be presented: proof of identity (or power of attorney) of both parties, the seller's title of property (a form that reports the investment to the Central Register), and the buyer's payment. The buyer and seller sign the contract; beneath their signature, the notary signs using his firma protocolizada and the deed is ready for taxes.

Taxes
For the buyer: transfer tax(impuesto de transmisiones patrimoniales) and stamp tax(impuesto de actos jurídicos documentados).
If the seller is an individual, the buyer pays a tax of 6% (7% in some regions) of the price specified in the deed. If the seller is a real estate developer and the building or land to be built on represents a first-time transfer, then the buyer pays VAT tax instead, meaning 7% for housing, 16% otherwise. If for housing, you have to add a stamp tax, in this case reduced to 0.5%, depending on the region (for Madrid it's 1.5%). Some special conditions apply for the Canary Islands.

For the seller: a local tax called the plusvalia.
With a copy of the deed in hand, the seller must go to the City Hall (or wherever local taxes are paid). After filling out the form, the seller will receive in the mail a notice of how much they have to pay. This amount is calculated based on the number of years the property was held, and on the property's valor catastral. Be aware that each town has a different procedure regarding payment of this plusvalia. It's best to ask at the notary's office about this payment.

Property Registry
If you want to be sure that your rights to the property are fully protected, you must register your deed at the local office. (Some small towns don't have an office, some big cities have many -- check the original deed of the seller to find out which office corresponds to you). You will be charged a standard fee (about .4% of the first 6010 euros, going down to .02% for over 6,010,121 euros).

Extended example
Bob and Judy found an apartment in Barcelona and negotiated a price of 340.000€. The seller, Jordi, did not use a real estate agent. Bob and Judy signed a contrato de arras. The seller asked for a downpayment of 40.000€, a bit more than the usual 10%, but Bob and Judy didn't want to argue this point. They then went to a bank for a mortgage of 260.000. The bank offered them a variable-rate mortgage for Euribor + .50%, with no opening fee, no cancellation fee, and a first-year rate of 3.50%. Since Euribor was currently 2.31%, they saw that this would cost them an additional 1300€ the first year. They asked the bank to give them Euribor + .50% for the first year also, which the bank agreed to.

The bank requested the following documents from Jordi:

• A copy of his DNI.
• Receipts showing he was paid up on his property tax (IBI), building fees (pagos de comunidad, and mortgage (certificado de la deuda pendiente).

Once all of Bob and Judy's documents were presented, it took one week for them to be pre-approved. It took another 1 1/2 weeks for the bank to get an appraisal (tasacion) done on the property (no delays on Jordi's side in letting the appraiser in), and another 3 days for the bank to hear back from the appraiser. The appraised value was 413.000€, so the bank approved the loan. Bob and Judy went to the bank to sign the mortgage contract. They were also required to get property insurance (118€/year) and life insurance (which they got on Judy, since it only came to 178€/year for her). Bob and Judy confirmed that after a year they could cancel both policies (since Bob, in fact, already had a life insurance policy). They were also required to domiciliar a few things in the bank account. They called the gas, electric company, and nursery to have automatic withdrawals done through this account. The bank then gave them an estimate of what the mortgage payments would be, as well as a listing of the various retainers (provisión de fondos) that they would need to pay. (Use our expenses calculator to calculate the total costs involved in your purchase.) The provisión de fondos appeared as follows:

The total at the bottom says 317.459,00. Bob and Judy already paid 40.000€. Did this mean they actually had to pay 357.459€ in total? Yes, at least initially. The 10.128€ and 6.989€ are the retainers for fees that will need to be paid to the notary, the property registry, to the tax office (Hacienda), and to the gestor. The property purchase, the new mortgage, and cancellation of the seller's mortgage all have to be notarized and registered. This bank contracts a gestor to manage this and make the various payments. The bank/gestor will send you the deed for the property three months after the closing (once the property has been registered). At this time, they should also send you all the notary, Hacienda, and Registry receipts. The bank must refund you the difference between these actual receipts and the retainer that was paid.

Then note the cancellation costs of 885€. Bob and Judy don't pay this. Their bank will charge this to Jordi. Jordi then complains to his own bank, "How come I have to pay this? You told me I had a 0% cancellation fee." His bank responds that this is not a cancellation fee. This is the cost to register the cancellation with the property registry (and all registry changes require a notary's signature).

The bank then charges 300€ to handle the life and property insurance forms. Jordi is a resident of Spain, so no 5% tax to non-residents is withheld ("5% NIE" in the provisión de fondos).

Bob and Judy transferred 57.459€ to the bank to pay the rest of what they owed. Four days later was the closing in Barcelona; 30 days in total from the day they presented the documents to the day of the closing. The closing went smoothly, though Jordi made a long face when he heard the property had been appraised at 413.000€. Jordi received the check from the bank rep and gave Bob and Judy the keys to the apartment.

It took a whopping ten months (instead of the usual three months) before Bob and Judy received the deed from the bank rep, receipts, and refunded amount from the retainers -- 19% of the 17,117€ that was retained.

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What are some pitfalls in buying a property in Spain?

• The property is not registered, most likely because it was illegally built. Many unregistered properties are being sold to foreigners, since foreigners are less likely to check the registration. If you find a bargain, chances are it's not registered. Solution: Get a registry listing (nota simple).
• Too many brokers are involved. We once had to speak to seven brokers to find out the actual facts about a house. Besides communication difficulties, each broker may be getting their percentage. Solution: Ask the broker for their contract with the owner.

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How can I find out the market price of a property?

The following sites can give you a good idea of the value of a property:

Sociedad de Tasacion This company certifies all appraisals done. Their site has the current price-per-square-meter of new properties sold in all the cities of Spain, as well as the change in price from the prior year.

idealista.com This large post-your-own-property site has begun to branch out beyond Madrid and Barcelona. Their reports gives detailed stats on used properties in these two cities.

Cambalache Another large listing of used properties for sale. No reports, but a good place to get an idea of prices.

For a detailed analysis of the property's value, you should hire an appraiser. They will charge you roughly 300 euros (depending on the value of the property). The appraiser uses two approaches to calculating the value of a property.
- They will measure the property to draw up a floor plan and calculate the square meters, then multiply this by the value per square meters in the area. This value then gets adjusted by a number of factors, such as whether the house can be moved into right away or needs renovation.
- They will find similar properties that have been sold in the area recently.

Regarding price per square meter for apartments, make sure whether you're dealing with m2 construido (constructed) or with m2 util (usable). Construido includes common space: stairs, air shafts, walls, etc. The difference between the two numbers can vary widely, but on average m2 construido is 27% more than m2 util.

If you're getting a mortgage, the bank will require you to pay for an appraisal, though they choose the appraiser. This step comes after you pay the downpayment on the property, though, so if your offer is significantly higher than the appraiser's value, you'll lose this downpayment if you back out now. For that reason, you might want to pay for your own appraisal before paying the downpayment. Some of the largest appraisers:

• Tinsa
• Sociedad de Tasacion
• TasaMadrid
• TecniTasa

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The seller wants the declared price to be less than what I'm actually going to pay. Should I do this?

And the broker tells you this is common practice, right? In truth, it's a known practice, but not so common. What is happening is that the seller wants to have less capital gains so they can pay less taxes. The problem for you as the buyer is that when you go to sell the property down the road, you will then have to pay more capital gains (unless you also find a buyer willing to make this deal). You will pay in taxes all that the current seller didn't pay. So why would anybody accept this? It's because some people in Spain have a sizeable amount of money tucked under their pillow that they never declared as earnings to the tax office. Giving this money as cash to the seller effectively launders it, and is therefore illegal. If this is not the case with you, then don't make a deal with the seller. In fact, this should be made clear in the pre-agreement, so the seller doesn't try to force in this provision a week before the closing.

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What information should I get from my real estate agent?

For a new construction, you should get:

• A registry listing (nota simple) of the full plot of land.
• The CIF and full name of the construction company.
• The construction permit (licencia de obra).

For an existing house, you should get:

• A registry listing (nota simple) of the property.
• A copy of the deed (escritura).

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Are real estate agencies regulated?

There is a national registry of real estate agents -- Agente de la Propiedad Inmobiliaria (API) -- but agencies are not required to become members. In fact, many large agencies are not members. With an API agency, there are more controls. For example, there are declared fee guidelines (between 3% and 5%).

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When I sell my house, are there any required inspections?

No. In Spain, there are no required inspections, such as for excessive radon levels or termite damage.

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What is the trend in property prices in Spain?

The following table lists the average rise in new property prices over recent years:

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