Important Information

The Real Estate Industry in Puerto Vallarta

 

The following information offers a simple and concise summary about owning real estate in México. It is supplied courtesy of Bahia Realty and has been slightly revised by our editorial staff to focus primarily on selling real estate in the Vallarta area.

The real estate industry in México is similar in many ways to that of the United States, which is probably the most advanced in the world. It is developing quickly, taking advantage of today’s technology; however, it seems to be paralleling the system as it exists in the U.S.A.
The only national professional real estate organization in México, is the Asociacion Mexicana de Profesionales Inmobiliarios (Mexican Association of Real Estate Professionals) or A.M.P.I. with 24 chapters in 38 cities. This organization is somewhat similar to the National Association of Realtors (NAR) in the United States.

Licensing

At this time, there are no government license laws regulating real estate broker-age and sales in México. Anybody can, in effect, offer properties for sale. Therefore, caution should be taken to select an established and reputable real estate company. A potential buyer may want to check with the local Chamber of Commerce associations or a prominent law firm.

Multiple Listing Service

A couple of electronic multiple listing services (MLS) are now operating in México. Producciones Viva, the company that publishes the Real Estate Guide, has been offering MLS service to Vallarta for the past 12 years, available in a print catalog and online at mlsvallarta.com.

Escrow, Title insurance and Home Insurance

It is the Public Notary who, in effect, acts as a Holding Agent for the involved parties, so there are few escrow companies in México. At the present time there is no general use of title insurance in México, although some American companies are providing coverage in some resort areas of the country. On the other hand, insurance companies do provide full home coverage throughout México. The most commonly used title insurance company in Vallarta is Stewart Title.

Purchase – Sale

Process

Most real estate transactions are opened after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required by the broker to transmit the offer to the seller. (If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or lawyer be consulted before signing any papers or handing over any money).
In some areas it is common practice to deliver tot he seller, as an advance payment, the equivalent of 10-30% (including the initial deposit) of the total price upon signing the purchase-sale agreement, which should contain a penalty clause applicable in case there is a breach of contract by any of the parties.
Normally, when signing the escritura or official deed, which needs to be certified by a Public Notary, the balance is paid and the property is delivered. This should not take more than 45 days. It is recommended that an escrow account be used for all real estate transactions.

The Public Notary

A Public Notary is a government-appointed lawyer who process and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer. Furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the office of the Public Notary, who also is responsible to the government for the collection of all taxes involved. In connection with real estate transactions, the Public Notary, upon request, receives the following official documents, which, by law, are required for any transfer:

A non-lien certificate from the public property registry, based on a complete title search; A statement from the treasury or municipality regarding property assessments, water bills and other pertinent taxes that  might be due; An appraisal of the property for tax purposes.

Closing costs

It is common practice that the buyer pays the transfer of acquisition tax and all other closing costs, including the Notary’s fees and expenses, while the seller pays his capital gains tax and the broker’s commission. Since January 1, 1996, the federal law regarding the real estate transfer tax, which was 2% for all the Republic of México, was modified to allow each of the Mexican states to determine its own tax. The range now may be from 1-4% of the tax appraisal value, which is generally less than the sales value.

The rest of the closing costs, which exclude the transfer cost mentioned above, vary from 3-5% or more of the appraisal tax value, depending on the particular state. These percentages are applied to the highest value of the following:

• The amount for which the property is sold;
• The value of the official tax appraisal,
• The value designated by the property assessment authorities.

Trust cost

Based on current rates, the Bank charges a fee of approximately $ 500.00 dollars for the acceptance of the new trust agreement, plus a percentage based on the value of the property. In addition, the bank charges an annual fee for its services as trustee, which is equal to the initial rate.

Real estate Broker’s commission

Most real estate companies in Mexico charge a 6-8% commission based on the actual sale price of the property. However, in resort areas broker rates are usually higher because of increased broker expenses.  This amount will pay by the seller.

Capital Gains Tax

In Mexico, the concept of capital gains tax does not apply in the same way it is determined in the United States. Here, the gain from the sale of property is treated as normal income as a tax rate of up to 35%. To determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:

The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes;  Additions, modifications and improvements, but not maintenance, made on the property (construction), adjusted as above; Commissions paid to real estate brokers by the seller;

The closing costs, including all expenses, taxes and fees paid by the seller.  The Notary will retain the calculated gain after deductions, forwarding it to the Mexican tax authorities. The seller will then deduct this amount against his annual tax return, which becomes an adjustable tax credit in the U.S.A. On the other hand, there is no capital gains tax in México if there is conclusive proof the seller has used the property as his primary residence.