First, it is essential to carry out a preliminary check on the property toward ensuring that all documentation is in order and avoid possible unwanted consequences (Due Diligence). This is usually done by examining the Land Registry Certificate and the Catastro. With this step, we ensure inter alia that the property belongs to the seller, that the description of the house matches reality, and that the estate is free of debts.
This is especially important if you are considering buying a rural property (i.e. it may be in terreno no urbanizable) where the regulation is not always clear and there is a fine line between what is considered legal and illegal. For years, a vast number of illegally built houses have been sold to foreigners in la Axarquia (Málaga); being notorious among other towns such as Viñuela, Alcaucín and Arenas.
Once we have confirmed that the property is in order, it is common practice to sign a private contract. This works as a preliminary safeguard for the rights of both the buyer and the seller and at this stage a percentage of the sale price is usually paid by the buyer to the seller as a deposit. (Pre-sales agreement/ Contrato de Arras) .The amount payable shall be determined between the parties, irrespective of the widely used benchmark of 10%. Once the agreed amount is paid both parties become legally bound to comply with the rights and obligations defined in the pre-sales contract. Not meeting their obligations will have financial consequences.
In other words, if the buyer changes his mind and decides not to go ahead with the purchase, he will lose the deposit, but if the seller refuses to sell the house to you, he will have to give you double your deposit back.
Also, this pre-sale contract usually sets out the paying conditions. The most common options are the following:
- One-off Payment: Paying outright the sale price. It is usually done by a cheque , which is handed over at the time of signing the public deed.
- Mortgage Loan: Getting a Mortgage. The type of mortgage offered to you will depend on various circumstances; such as age and income.
- Mortgage Subrogation: It is taking over the existing mortgage of the debtor and changing it to your own name. It has to be done with the same entity and with the same conditions and responsibilities; yet you will save all the costs of a new mortgage.
Then, we proceed to draw up the sale & purchase contract at the Notary. The deed must always include a description of the property, detail charges and mortgages on the house, all related expenses and taxes and the final sale price as well as payment method agreed .Once signed, the new owner can register the property in the Land registry on his name.
At this point, it is important to change all utility bills (and internet, telephone…) to your name and update the owner´s association about the change of owner.
It is worth noting that signing a pre-sales contract is just an option; indeed, it is possible to sign the public deed directly at the notary. Yet, this pre-sale contract is commonly used as a way to gain time to settle things; largely for finding financing or to process needed paperwork. However, there are many alternatives to the Contrato de Arras described above, such as reservation contract, promise of sale, lease with purchase option and so on. Thus, having a clear understanding of the implications of the rights of obligations of each alternative is paramount for not getting in a tight spot if things do not go as planned. Personal and financial circumstances have to be carefully weighted before taking any decision.
All the process set out above is just illustrative, given that there are no formal requirements as to how formalize the sale of an estate under the Spanish law, being sufficient a mere oral contract. Yet, the aforementioned procedure is common practice and the best way to elude setbacks.
As the Uk Government stresses in its Website, We strongly recommended that you choose an independent lawyer who specialises in Spanish land law.
Buying a property is a huge undertaking and the potential for financial loss is very real if due diligence is not carried out at every stage. This is why the expertise of an independent lawyer is crucial.
It is advisable to use a local English speaking lawyer. This is because a local lawyer will have a greater knowledge and awareness of any potential issues in the area such as urban plans and other problems that may directly or indirectly affect the property and its value.
Taxes & Expense
In total, it amounts to approximately 15% of the purchase price.
- ITP Transfer Tax : 8%(- 400.000€) 9%(between 400.000 & 700.000) 10% (+700,000€)
- Notary Fees: 0.5%-1% of purchase price
- Property Registration: 40% of Notary fees
- Lawyer Fees: 1-1.5% of purchase price
*ITP percentages given is in Andalucia. It can vary depending on the Autonomous Community.
The table above details all the one-off fees and expenses related to buying a property in Spain. Nonetheless, there are other ongoing costs related to owning a property in Spain such as IBI or the owner´s association.
If you own a property in Spain you are liable to pay IBI tax. It is tantamount to the the council tax paid in the UK every year to your town hall and the money goes toward the upkeep of your local community, services and infrastructure. The amount to be paid varies depending on the cadastral value of the property. You will face a heavy fine in default of payment.
Rubbish Collection Tax
It is the annual tax paid by all property owners to the local town hall.
In case you take out a mortgage, as a general rule you can expect an administrative fee of 1% of the mortgage value, but it changes depending the type of mortgage. Also, you will have to pay for a valuation of the estate and this usually costs around 500€.
Owner´s Association Fee
This fee is paid for common services. The fee varies depending on the community or condominium.