Buying a Home – Procedure, and Stages
Before you start your search - keep closing costs in mind.
Closing Costs In Mexico Explained
Closing Costs in Mexico are very different from what the US or Canadian citizens would pay when purchasing a property in their home country. In Mexico, the closing costs associated with purchasing property are assessed to the buyer. They are not a shared cost between buyer and seller and the fees are not negotiable. You will need to factor this into your budget.
The Closing Costs in Mexico consist of various fees and expenses and generally total between 4% to 6% of the actual purchase price (higher if there is a mortgage involved). These costs are always the responsibility of the buyer. (The seller will bear the cost of the real estate fees and his capital gains taxes, as applicable).
Closing Costs are generally as follows: (these fees – in USD – are to be used as a guideline only and are approximate. They will vary according to the size of the transaction and the exchange rate at the time).
Transfer tax – 2% State Tax.
Appraisal Fee - $550 (NB: This is not a commercial appraisal and does not meet or provide comparative market information or analysis. It is solely for determining the value for tax purposes).
Trustee Bank Acceptance Fee - $550 Wherever the Trust Division of the Trustee Bank is located in Mexico.
Trustee Bank First Year’s Trust Fee - $550 Wherever the Trust Division of the Trustee Bank is located in Mexico.
Non-Encumbrance Certificate – The Non-Encumbrance Certificate from the Land Registry Office (LRO) in Jalisco or Nayarit is about $15.
Registration Fees in the LRO – Registration Fees in the Land Registry Office vary from .5% to 1.0% (Jalisco/Nayarit).
Notary’s Fee – The Notary’s Fee in Mexico varies from .5% to 1% depending upon transaction size.
Making An Offer
When you decide that it is the right time, I will help you prepare an offer. Our offers are prepared in a double-column format in both English and Spanish so that you are not signing something you do not understand. Our standard offers will establish price and terms, a list of contingency items that must be satisfied in order to close, and will set the closing date for the transaction, generally 30-45 days following the acceptance of the Offer. If you are not physically in Puerto Vallarta, the signed offer may be scanned and emailed to us and we will then present the offer to the agent that represents the Seller of the property.
If you receive a counteroffer to the original offer, it may contain, among other things, a request for a new price and terms, an answer to the information you might have requested, and other items. We will consult with you on whether or not to respond with another counteroffer, not responding at all (and letting the deal expire) or accepting the counteroffer as written and thus accepting the offer! Congratulations! This can all be done via email with digital signatures using DocuSign.
You and the seller have reached an agreement – what great news! Before we can proceed with the closing process, we need to review the contingency and due diligence items that we have requested in the initial offer and see which have been satisfied. Listed below is a standard list of documents we request in all offers; certain items would not apply in certain situations:
Escritura* (Deed of Title) – We need to know that the Seller is the owner (either fee simple or in fideicomiso) of the property.
Current Property Tax Bill* and if possible, its corresponding payment. - It is important to see how much the property taxes will be each year. Property taxes are notoriously low here. Figure on paying around $100 USD for each increment of $100,000.00 USD of the value of the property, i.e., a condo that is valued at $300,000.00 will pay around $300 USD per year in property tax.
Inventory/Exclusion List – Resale properties typically include all major furniture but do not usually include art, art objects, and personal effects. Brand new developments will typically include some kind of appliances but not furnishings. You need to know what the property includes for the price you are paying.
ID Requirements Format – This is a new format required under Mexican law which is basically a summary of the documents and information required by the Notary to close a transaction. We provide this to our clients at the beginning so that they know what to expect.
Privacy Statement – Again, a new requirement under Mexican law, and we provide a privacy statement to each of our clients in an easy-to-read bilingual format.
Copies of Utility Bills (recent) – We will need to see the services on the property to show you, The Buyer as well as to prepare the transfer document to transfer the utilities to you, The Buyer at closing since utilities are never turned off and then on again but instead simply transferred to the new owner.
Condominium Documents (in Spanish):
1) Condominium Regime – The Notary will need this document to close and it is also important to review as it usually includes the Bylaws. The Spanish recorded version is the binding version, so it is more important to see that version rather than an English translation.
2) Bylaws – The document will show the Buyer whatever restrictions may exist against pets, noise, etc.
3) Copies of Minutes of the Meetings for the Last 2 Years – This is important to see how the condominium is run, any issues that might be pending, any modifications to bylaws, etc.
4) Condominium Financial Statements for the past 2 years – Important to see the finances of the condominium, how are the maintenance fees used, who is paying and who is not, and if there is a reserve account established. Current Budget – All Buyers want to know what to expect insofar as monthly maintenance.
Closing Cost Estimate – We will obtain an estimate for closing costs from the Notary office once we have an accepted price. Closing costs are anywhere from 3-8% of the price. In Mexico, the Buyer pays for all closing costs while the Seller pays the real estate commissions and selling capital gains tax.
THE CLOSING COORDINATOR Here in PV all the agencies use a closing coordinator. They are lawyers who work for you, the buyer, to ensure that all of the documentation required is gathered and submitted to the notaria prior to closing. The notaria is also a specialized lawyer, in Mexico notaria are the legal experts in real estate and are the only legal entities able to close a transaction. Here is an example of what a closing coordinator does for you.
During the Due Diligence Period
During the time you are reviewing these and other documents on the property, you will also have a chance to make construction inspections, obtain financing if that is a contingency and otherwise determine whether or not you feel comfortable going forward with the transaction. We usually allow for a period of 15 days for due diligence (longer if the property is commercial or more complicated). At the end of the due diligence period, you will either make the determination to go forward or you will decide against the purchase with no obligation or penalty.
It is the standard here in Mexico for the Buyer to make a good faith deposit into escrow in an amount equivalent to 10% of the agreed-upon price. We use well-recognized title companies to hold escrow and the cost is usually about $750.00 USD. A few days prior to the closing, the Buyer will deposit the balance of the purchase funds into escrow where funds will be held until the closing date when Seller transfers title to Buyer.
The Closing Process
Escrow is open, and contingencies are removed! What does this mean? This generally means that the Buyer has deposited the required 10% good faith deposit into the escrow account and is satisfied with the due diligence and has removed the contractual contingencies. This means we are going forward to closing. We work closely with the Notary to coordinate all closing aspects of the transaction.
Do I need to be present for the closing? As the Buyer, you may or may not need to be present at the closing. If your presence is required, you can be here personally or grant a power of attorney to someone that you trust to sign documents at closing on your behalf.
What else do I need to do for closing? You will need to prepare to take ownership of the property and anything that might entail; preparing to assume the payment of the bills that correspond to the property once closing has taken place. We will provide you with a proration statement prior to closing to show what expenses were prepaid and must be reimbursed by you to the Seller at closing if any.
The closing date is here! Finally! The closing date is here. The Notary office will set the time of closing according to the schedules of both Buyer and Seller and based on the Notary office workload and availability. Generally, closings take place after 10 am and before 5 pm. Up to three days prior to going to the Notary, the Buyer will usually do a walk-through of the property just to make sure everything is in place.