Solicitor Raymundo Larraín Nesbitt takes us step-by-step through the legal procedure to buy property in Spain from a private vendor, also known as For Sale By Owner (FSBO).

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21st of February 2017

Photo credit: Spanish Property Insight

Introduction

The purpose of this article is to provide a general overview on the full legal procedure when you buy resale property from a private individual. I leave for another article the procedure to buy property from developers (known as off-plan or new-build property).

The following article provides a sweeping outline on the procedure. If you are looking for concrete advice on a given matter, I highly advise you read my listed articles below which focus on specifics. Just scroll down the page to the bottom section which headline is “Related articles.”

I have simplified the procedure on purpose for ease of comprehension. If you are looking for more detail, I advise reading my article How to Buy Property in Spain Safely which gives an in-depth account of the full buying procedure.

If you are buying rural property, make sure you hire a lawyer before you sign any document! Be advised rural property is a minefield in Spain.

It is strongly advised you read this article in tandem with my article Buying Resale Property in Spain.

First Stage: The Reservation Contract

After making enquiries and looking around for a resale property you may have taken a liking to one. Properties are normally listed by real estate agencies. The real estate agency that has the property listed in its books will prod you to sign what is known as a reservation contract (or holding deposit) which strikes the property off the market for a pre-agreed period of time; normally spanning 30 days.

The deposit normally amounts from €3,000 to €6,000 depending on the property. The deposit contract is a succinct document that is normally only one page long. It has very few details, amongst them the property and seller´s details and the asking price.

Pro-Tips:

• It is strongly advised you hire an independent conveyance lawyer from the outset (prior to signing a deposit contract). On following this simple yet essential advice buyers stand to sidestep most blunders on buying property in Spain.
• Reservation deposits are normally non-refundable unless expressly stated otherwise.
• You need to apply for a NIE number (Tax Identification Number for Foreigners). More details in my article: NIE Number Explained.
  
• You should open a non-resident bank account.
• An agency´s reservation deposit should at no time list who pays what taxes and set out other conditions. This is agreed by the parties in stage two (Private Purchase Contract).
• Request an Energy Performance Certificate from the estate agency. Properties with high energy efficiency ratings qualify for tax rebates of up to 20% on their local tax (IBI tax).
• It is strongly recommended you hire a chartered surveyor to carry out a snagging list of the property; this is particularly true of older properties. If you are buying rural property commissioning a surveyor's report beforehand is simply essential. This will avoid countless problems.
• Your lawyer will run a Due Diligence on the title to verify all is in order before moving onto the second stage.

Second Stage: Signing a Private Purchase Contract

Before the 30 days are up you will be expected to sign what is known as a Private Purchase Contract (or PPC for short). In Spanish, this is known as Contrato Privado de Compraventa. In the United Kingdom this second stage is known as exchanges. The PPC will be a long legal contract which will list the buyer and seller´s personal details, a full property description, the agreed sales price, the buying terms and the time frame to complete before a Notary Public.

Your lawyer will have normally already supplied you with a report on title so you are perfectly aware of the legal situation of the property you want to buy before signing the private agreement.

Normally on signing a PPC you are expected to make a down payment equivalent to 10% of the purchase price which will be deducted upon completion (stage three). This amount of money is non-refundable. If you need a mortgage loan to complete on the property, it is highly advisable you negotiate a reasonable time frame to secure it i.e. 45 to 60 days. This is particularly true if the borrower is non-resident. A borrower requires an Offer in Principle (or Agreement in Principle) from his lender known as Oferta Vinculante in Spanish.

If movables are being sold along the property it is highly advisable an inventory is added to the PPC. This inventory should be drawn up in great detail to avoid misunderstandings. This inventory will likewise be added to the Title Deed at the Notary Public on completion. It is regarded as a contractual element which binds both parties. If the seller does not include something from within, it will be regarded as a breach of contract. The inventory is normally drafted by the estate agency.

Pro-Tips:

• Failure to secure a mortgage loan in time may result in the loss of the 10% deposit.
• It movables are being sold along the property, it is crucial the inventory is detailed and accurate. You may even consider adding photographs of the items listed.

Third Stage: Completion

Completion is the term used to sign the Title Deed which is witnessed by a Notary Public. Additionally, if mortgage finance is required a second deed is signed called a Mortgage Deed.

You should read carefully through the deeds before you sign anything. This is particularly true of a Mortgage Deed. Your lawyer should ensure you do not sign abusive mortgage clauses.

At completion, you take legal possession of the property which is symbolized by being handed over the house keys.

At completion, you may be surprised to find a great number of people:

1. The seller and/or his lawyer.
2. The bank representatives (if a mortgage loan is required).
3. The estate agent (this is the time when he earns his commission)
4. A translator.
5. And finally, the Notary himself.

Your lawyer will file and pay the buyer´s taxes and lodge under your name at the Land Registry your new Spanish property.

Congratulations, you are now the official owner of a Spanish property. Enjoy!

Pro-Tips:

• It goes against a buyer´s best interests to under-declare part of the sales price at completion (besides being illegal). More on why in my article Taxes on Selling Spanish Property.
• Never agree to a seller staying in the property post-completion even if it’s just for a “short time”. This can create massive legal problems for a buyer which will require a full eviction procedure.

Fourth Stage: Post-Completion

You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments so you should set at least all the following as a direct debit against your Spanish account:

• Utility bills (invoiced quarterly in the case of water and monthly with electricity).
• Rubbish collection tax. Paid twice or once a year depending on the town hall.
• IBI tax. Paid annually (akin to the UK’s Council tax). I strongly urge this tax is set up as a direct debit; failure to pay it may lead the authorities to auction off your property in a procedure which is surprisingly expedient – as in months. Whoever is the owner of a property on the 1st of January of the current year is liable to pay for this tax.

Pro-Tips:

• On owning property in Spain, it is strongly recommended you make a Spanish will. This avoids your heirs a number of problems down the line.
• You should set as a direct debit utilities and local taxes.
• On owning property, you should appoint fiscal representation to comply with your annual Non-Resident taxes.
• If you plan to rent out your property as a private holiday rental some regions have stringent laws on the matter – seek legal advice. Some regions require you to apply for a rental licence or that you register your holiday rental home. Non-compliance may attract humongous fines.
• Resale buyers should be mindful of La Complementaria or Bargain-Hunter tax.

Associated Buying Expenses

As a rule of thumb purchase costs add 10 – 15% over and above the purchase price. In some regions of Spain, particularly in Valencia, this figure may be higher. Please take thorough legal advice to budget your purchase before you commit. You can read my article Taxes on Buying Spanish Property for more details.

Besides paying taxes (explained below), a buyer is bound to pay the following fees:

1. Taxes

• Property Transfer Tax (or ITP in Spanish) which varies, depending on the Autonomous Community where the property is located, between 7 to 10%.

2. Fees & Charges

• Notary fees (for the formalization of the deeds): approx. 0.1 – 2 %
• Land Registry fees (for the inscription of the deeds): approx. 0.1 – 2 %
• Mortgage & Gestoría fees (if finance is required): 1 – 2 %
• Lawyer’s fees: 1 – 2 %
• Estate Agent’s fees: 5 % (these are paid for by the vendor unless agreed otherwise)

Conclusion

Hiring a seasoned lawyer, in my experience, pays for itself on all the money you stand to save on avoiding the most common pitfalls on buying a property in Spain.

Make sure you are assisted on your house-hunting by reputable experts (such as a long-established real estate agency, a reliable mortgage broker or a seasoned lawyer) to benefit most from the wide range of available bargains – you will be spoilt for choice.

It is important you avoid being pressurized into completing; take your time to fully assess the information you are being given and do not hesitate to ask any questions.

Because impartial legal advice is priceless.

“Buy land, they’re not making it anymore.”  – Mark Twain.

American writer, entrepreneur, publisher and lecturer. Among his novels are The Adventures of Tom Sawyer and its sequel, Adventures of Huckleberry Finn.

Also published at Spanish Property Insight: Buying Property in Spain from a Private Seller (Resale Property).

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal services Larraín Nesbitt Lawyers can offer you

• Conveyancing – Buying.
• Conveyancing – Selling.
• NIE Number (Tax Identification Number).
• Fiscal Representation (Non-Resident Income Tax).
• Will Service.

Property-related articles

• Buying Distressed Property in Spain  – 8th August 2011
• Buying Resale Property in Spain – 21st February 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• House Hunting in Spain – 17th June 2015. The New York Times
• Taxes on Buying Spanish Property – 8th July 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Energy Performance Certificate Explained – 7th November 2016
• Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
• Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
• Buying Property in Spain from a Developer (Off-Plan Property) – 8^th March 2017
• NIE Number Explained – 8th May 2017

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Voluntas omnia vincit.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.