Buying Property in Spain

An Overview

First contact: Real Estate Agents

The majority of property purchasers in Spain do so through a Real Estate Agent but a buyer should be extremely cautious when appointing one, regardless of whether they have a large or small portfolio. A large R eal E state A gent can claim to have thousands of properties on their books but lack the knack of matching the needs of the customer with the right property or being totally au fait with Spanish law regarding property purchase.

Formalising an offer

It is recommended that a lawyer be engaged before an offer is made. Once an offer on a property is accepted it becomes a legally binding contract, so it makes sense to engage the services of a lawyer at this stage in order to ensure that the terms and conditions of the offer are correct and favourable to the buyer. The lawyer will also help the buyer find out what the ongoing taxes are on the property if the real estate agent fails to do so.

Once the terms of the purchase have been discussed, the offer is submitted to the real estate agent who in turn will inform the vendor of the details of the offer. If the vendor accepts the offer, this becomes a legally binding contract . It is normal practice in Spain to pay a deposit with the offer to reserve the property, prior to the exchange of private purchase contracts, in order to show the vendor that there is a real intention to purchase.

Exchange of private purchase contracts

If both parties lawyers deem it necessary a private purchase contract will be exchanged; this is normally accompanied by a payment of 10% of the purchase price. This document sets out the agreed terms and conditions of the transaction and the date for final completion before the Notary Public.

Any debt or charge attached to the property will be reflected in the private purchase document. These will have to fully paid by the vendor prior to completion. If not, the buyer will be entitled to withdraw from the proposed deal.

Completion

The purchase is formally completed when the public title deeds of purchase / sale are signed before a Notary Public, the agreed price is paid to the vendor and the possession given to the buyer. Unless agreed otherwise, the public deed always stipulates that the property is sold free from tenants, occupants, charges and encumbrances and that all associated payments are up to date.

After completion, the title deed is collected from the Notary´s office, the relevant transfer taxes paid at the appropriate tax office and then the deed is taken to the Land Registry office for formal registration of the title to the property. This is highly recommended, although not mandatory, so that you are protected from anyone else claiming ownership.

Registration can take from 15 days to 3 months, depending on the Land Registry office involved. The Land Registry office will then give notice to the lawyer that the registration has been completed and the deeds are available for collection upon payment of Land Registry fees.

Whilst registration is taking place , the purchaser can request a copy of the records, a ´copia simple´, from the Notary Public as the lawyer will need a couple of copies in order to complete all the legal formalities.

Purchase costs

Taxes

Before a title deed can be registered in a new owner´s name, or a deed issued for a newly constructed building, transfer tax has to be paid by the buyer. There are two types of tax: Transfer Tax (ITP) at 7% for resale properties, or Value Added Tax (IVA) at 7% plus Stamp duty (AJD) at 1% when buying from a developer or promoter. These two taxes are calculated on the declared purchase price on the title deeds.

Also, the local municipalities charge a tax on the increase in value of the land since the previous sale. It is not based on the seller´s capital gains tax but on a number of calculations and values set by the Town Hall. This tax is called 'Plusvalia' , and according to the law it is the seller´s responsibility, although it is commonly stipulated in the contract that the buyer pays it. It is a point which can be negotiated between buyer and seller. As an example : on a property worth 150.000 Euros bought ten years ago, you could expect to pay a plusvalia amount of 900 €

Fees

Notary Fees: The scale is fixed by law and may range from 250 € for lower priced properties to more than 1.000 €. for higher priced properties.

Land Registry Fees: The scale is also fixed by law and is about 30% lower than the Notary Fees.

Legal Fees: Normally charged at 1% - 2% of the purchase value plus VAT, which is currently 16% for legal services.