Guide to the Buying and Purchase Process
Purchasing Costs in Spain
In addition to the purchase price of a property, the following costs must also be budgeted for
- Legal Fees – from Around 1000euros+ IVA depending on price of property and if rustic or urban there can be some difference
- Property purchase tax (Resale property)
- Currently 10% - Resales in Alicante
- Currently 8% - Resales in Murcia
- IVA (New Build property)Currently 10%
- Stamp duty (New Build Property) in addition – 1.5%
- Notary Fees – dependant on the Notary, type of property, size and value of property (average 1500euros) can be more if a loan is required
- Additional costs including utility transfers into your names, SUMA registration, Catastral registration, community registration etc. – average 500euros
- If Spanish finance is required we recommend budgeting an additional minimum 5000euros to cover finance set up fees from the bank.
To give a general idea add 13 to 14% to the price of the property if the property is over 100,000 (with property under the value of 100.000euros the cost can increase)
A reservation deposit contract is normally the first document you will sign when reserving a property and reserves the property taking it off the market and acts as a signed receipt for any monies paid with respect to that contract. This document is generally referred to as a 'Formulario Reserva' and confirms your commitment to purchase the property. This holds a property whilst all checks are made. Always ensure that this document includes the clause 'Subject to Legal status' that will ensure that your deposit that has been paid will be fully refundable if there are issues or debts on the property that cannot be resolved.
As a general rule we at Livespainforlife work only with one contract which covers all of the above and to the point of sale and works in the same way looking after your interest as a buyer and the lawyer yours or ours will prepare this. With resale’s and or unless we are dealing with builders for new property where the builder sometimes prepares the contract to be checked by your lawyer.
Legal Issues when buying a property in Spain
The Lawyer of your choice will take care and assist you in all the different steps involved in the transaction with our guidance as and when necessary.
There are many excellent English speaking Lawyers in Spain. Choosing the right Lawyer is your guarantee that Spanish legal requirements are met, the property is registered in the vendor's name and that it is free of any mortgages, charges, encumbrances, debts or other liabilities. Clear everything with your Lawyer because that is what you are paying him for, however we are here to help when needed. Your lawyer can help,agree, negotiate and discuss the purchase terms with the seller's solicitor. The terms should include in detail all your requirements like the completion date, the form of payment, etc and be agreed by both parts, it’s important to know that as long as both buyer and seller agree, almost anything can be added to the contract.
NIE number Foreign Identification Number
Foreigner's Identification Number. All non-residents require a NIE. You need to obtain this in person at the foreigners department at the National Police headquarters. We as agents can assist you with the procedure, however if using our lawyers they can with Power of Attorney apply for this on your behalf to save you the bother as it can be a whole day wasted of your valuable time property hunting! The number is required before the purchase of any property in Spain, you also need this to buy a car whether it be new or resale!
This is the Public official appointed by the Spanish government to witness the signing of all legal public documents and you cannot legally buy a property in Spain without going through a notary. The Notary Put on the public record the fact that the title deed recording the sale/purchase has been signed in their presence and understood by all parties concerned, which is why you need a translator which your lawyer or his assistant takes care of. Then the Escritura (the Deeds) are signed in front of the notary either the purchase price is handed over to the person selling the house or the seller confirms that the money has already been handed over or the bank are there to hand over the mortgage cheque. The original signed document is retained by the notary who will apply for a formal change in the land registry. The Notary also ensures that the work of both the buyer and seller's lawyer has been carried out correctly prior to the title deed changes. You will be given a copy of the deeds a Copia Simple which you will need for the bank maybe and or obtaining a padrón which is to be entered on the municipal register in the town where your property is. It’s important to do this as you need copies of this for car purchase even rental contracts and the town in which you will reside benefits from each individual that is entered onto this list, therefor being able to provide more for its town and inhabitants.
Urbanisation and Community Fees if applicable
Controlled by the committee of owners and covering the running and maintenance costs of shared facilities which can include private roads, drains, lighting, private water supplies, gardens, swimming pools etc. This can be as little as 60 euros per year or as high as 2000 euros, dependent on the facilities within the urbanisation your property is located. There are many properties that do not belong to an urbanisation, such as many country properties or property in towns in which case the community fees do not exist.
Local Rates – Patrimonia
All non-residents have to pay wealth tax, 'Patrimonia', based on the amount on the Escritura Publica or the Valor Catastral, which ever is the highest value. Vary. 0.2% is typical. Our lawyer can assist also with this.
Property Taxes in Spain
The local town hall charge IBI on owned Property (tax Impuesto sobre Bienes Inmuebles), which is an annual real estate tax on property owners. This local tax varies from town to town and is based on the Catastral value of the property.
Fire insurance is compulsory by law when taking out a mortgage. Comprehensive household insurance is available to protect your home and contents. Life insurance can be taken out to guarantee payment of the loan in the case of death.
You can also obtain health insurance as well as car and pet insurance where applicable...ask us we can assist with contact details of our personal broker.
There are many different companies offering landline and mobile telephone systems in Spain, however, many people now rely on mobile networks and Wifi which are available in pay as you go and contract options. We can assist with this information too just ask...
Water and Electricity
Utilities have a standing charge and the charges for consumption are in addition to this. These will generally be set up by your/our lawyer on a standing order when you purchase the property.
A local tax, normally paid by the vendor, calculated as a percentage of the difference in the increased (ratable) value of a property since it was last sold, yes even if it hasn’t increased there is normally something to pay.
Tax on Rental Income
Britain and Ireland as well as other countries such as Belgium (check with your own) have a double taxation treaty with Spain. Tax is paid on the declared income from the property and your rental income must also be declared to the inspector of taxes in Britain or Ireland. You may need a valuation from us to provide them just ask us!
More detailed information about the Purchase Process
The Contract and Deposit
Once Live Spain for Life and your lawyer have discussed and agreed an your behalf the purchasing terms and conditions with the seller and an agreement has been reached, the next step is to formalise this verbal understanding through the written contract. This document is known as the Reservation Contract (Contrato de Reserva) and should be signed by both you or your representative and the seller. It might also include details about payment terms, estimated dates for exchange of contracts and completion. If both parties accept the terms in the contract a binding agreement has been created.
It is standard practice in Spain for a Contract to be accompanied by a sum of money which is paid by the buyer to demonstrate to the seller that there is a real intention to purchase the property. This deposit is known as a Reservation Deposit (Señal de Reserva) and usually amounts from €3,000 euros upwards and can be anything up to 10% agreed by both parts, the norm is 3000 - 6000 euros!
Once this deposit has been paid, the property is taken off the market and the price is frozen for a specified period of time, time enough for the lawyer to do the due diligence. Allow 30 days but town halls are all different some prompt, slow and some slower!!
It is very important to remember that this deposit is usually non-refundable if you just change your mind unless there are any legal issues that cannot be overcome. In other words, if you do not exercise the purchase within the period of time established in the Reservation Contract and the property is 100% legal the seller is under no obligation to return your money. However, if the seller backs out of the deal he will have to return your deposit as minimum, Spanish law can demand the double.
Exchange of Private Purchase Contracts (Contrato Privado de Compraventa)
A private purchase contract is essentially the same as contracts which is why we at LSFL only work with one contract, much like the one you will have signed as part of the transaction to buy property in your home country. This contract creates a binding agreement between you and the seller, establishes a completion date and sets out the terms and conditions of the sale.
Some terms may not be explicitly mentioned in the contract because they are implied by the law governing transactions of this kind. You can also add any clause agreed by all parties. The Private Purchase Contract is usually signed around two weeks after the Reservation Contract if the builders are working with reservation contracts as well.
In the period before the date the contract states a further deposit is made and all searches are complete your lawyer should have completed the major part of the legal searches that you need before proceeding to completion. He will have obtained a certificate (nota simple) from the Property Registry (Registro de la Propiedad), where information such as the owner of the property, encumbrances on the land and mortgages are registered.
Your lawyer will also have been involved in negotiating the terms and conditions contained in the contract. In particular, he will have established a schedule for the payment of any outstanding debts connected with the property. It is essential that a formal agreement is established on the cancellation of these debts before proceeding to completion. This safeguards you as a buyer because if the seller reneges on the agreement you are entitled to withdraw from the sale and claim for damages incurred or deduct the debts from the sale price together with any related expenses, in some cases.
At this stage it is customary to pay a percentage of the purchase price. If you are buying a resale property 10% of the purchase price is usually paid, if you are buying off-plan you will probably pay between 20% and 50% and so on...
A property purchase reaches formal completion when the Sales Contract (Escritura de Compraventa) is signed by both the purchaser and the seller in the presence of a Notary Public (Notario). A Notary is a public official who certifies that contracts are legal by checking that all the formalities involved in the transaction have been complied with. At this point the agreed sum is paid and possession of the property is handed over to the buyer.
Unless the parties have agreed to vary the terms beforehand, the Sales Contract always states that the property is free from all charges and encumbrances, that there are no outstanding debts connected to the property and that the seller is handing over vacant possession i.e. there are no tenants or other occupants.
If it is not possible for you to be present at this final appointment with the Notary there are two methods which allow your lawyer to sign on your behalf:
- Granting a Power of Attorney (Poder). This formally allows another person (either your lawyer or somebody else that you trust) to sign on your behalf. You can have this document prepared while you are in Spain by making an appointment with the Notary who will oversee all the formalities. We can assist you in taking care of this. Alternatively, a power of attorney can be prepared by a Notary Public in your home country. This power of attorney will have to be legalised for use in Spain by having an Apostille certificate attached to it under the terms of the Hague Convention so it is easier and more cost effective to do this in Spain when you are here as well the lawyer can obtain your NIE numbers on your behalf saving you hours of waiting around and in any case waiting times of late are long.
- Granting an informal verbal mandate to your lawyer. It is important to remember that if you choose this option you must ratify the contract as soon as possible after completion. This can be done by appearing before a Notary, either in Spain or your home country. If ratification takes place in your home country, however, it will be necessary to obtain an Apostille certificate before it is legally recognised in Spain. Ratification is simply a matter of confirming the purchase and providing a sample signature, which will be kept on file at the Property. When working with us and our lawyers it will also be necessary to give consent via email to each and every transaction the lawyer carries out for you just for the record and for your security and confidence.
Registration of the Title Deeds
Once the Title Deeds have been signed, the Notary will send a fax to the relevant Property Registry to begin the formal procedure for registration of the new title deeds and to avoid that the property is sold twice, to safeguard and warrant your interest. Although this process is not compulsory it is strongly recommended.
The whole process usually takes between one and three months, depending on the workload in each particular Property Registry. In the interim and or at notary on signature you can request a copy of the records (copia simple) from the Notary or your Lawyer.
When registration has been completed the Property Registry will get in touch with your lawyer to inform him that the title deed (Escritura Pública) is ready for collection.
Finally, as well as overseeing the registration of your title deeds, your lawyer will also arrange payment of the various taxes arising from your purchase. In addition, he can help you to make contracts or changeover with suppliers of utility services like water and electricity and arrange for your bills to be paid by standing order from your Spanish bank account. Check as there are often charges from the appropriate companies for this service.
Special Considerations when buying Off-Plan properties and or New Builds
If you are considering buying off-plan, in other words you want to purchase a villa or apartment that has not yet been built, you should be especially careful. In this kind of transaction you are required to make a series of payments, before construction begins and whilst it is in progress. Obviously, buyers need a guarantee that some or all of their money will be returned if the project stops or fails to complete on time or, in the worst case scenario, simply never gets off the ground. Most reputable developers will offer you a scheme whereby a bank guarantees that your money will be returned if anything goes wrong. Some of these schemes are offered free of charge; in other cases you will have to pay a small percentage. Please take your lawyers advice on each individual case.
When you complete the purchase of a new property you will be liable to pay VAT (IVA) at a rate of 10% and stamp duty at 1.5% on the purchase price.
It is standard practice in Spain for new-build properties to be handed over sometimes without utilities like water and electricity. You should include payment of a small fee for the connection of these services in your budget. You should also be aware that it can take some time, up to four weeks in many cases, for this to be carried out, so it is not advisable to make plans to use your new property during this time. Please check this with your lawyer and it it’s ok to proceed in individual cases especially If you are buying a property from a promoter or developer it is extremely important to have professional legal representation.
It is important that you are aware of the costs that are involved in buying a property in Spain. On average these expenses usually come to between 11% and 13% of the purchase price dependent upon if a mortgage/loan is required