The property buying process in Mallorca
We recommend that you have a lawyer on-board before any offer is made. It shows the vendor you are serious and makes the offer sound more substantial and tempting. Depending on the property, your lawyer may also raise points that will be pertinent to the offer and they may on occasion advise getting further information before an offer is made (e.g. if there are concerns over boundaries or the like).
We strongly recommend you choose an independent local practice as they have the right contacts and are there to deal with matters at first-hand. Our preferred legal partners are Bufete Morell who are one of the most well-reputed legal firms in Mallorca.
We would be very happy to introduce you to Bufete Morell without any commitment on your side. They will discuss your requirements and take you through the legal considerations in more detail. Bufete Morell have kindly offered to conduct this meeting free of charge for clients of MPP. Please email us for further information.
Once a price is agreed your lawyer should complete the appropriate searches in the Land Register and other checks on the property to ensure it is unencumbered e.g. possible charges, debts etc. The next step is usually to confirm the terms of the purchase in writing and this would usually be processed between your lawyer and the vendor's lawyer.
The reservation payment is a gesture of intent, usually non-refundable if the purchaser withdraws from the sale.
It used to be commonplace to include a down payment to reserve the property until the completion of the Option Contract (see below). A reservation payment is usually between Euro 5.000 and Euros 25.000 depending on the price of the property. The reservation period is usually 1 to 4 weeks while the Option Contract is prepared.
However, contrary to what some might say, the reservation payment is not essential. They were more common when buying new properties off-plan and in practice are of less use with resale purchases as they are not a 100% guarantee that the vendor will not sell to someone else.
The need for a reservation payment should therefore be discussed and agreed as part of the offer negotiations. E.g. if there is another seriously interested party it might be sensible to agree a reservation payment. This is something that we would advise on in more detail according to the individual situation.
The first formal legal step is for your lawyer to prepare the Option Contract. This usually takes 2 to 3 weeks but may take longer depending on the complexity of the sale. The Option Contract details all the agreed terms of the offer and sale and states the date for final completion at the Notary.
It is usual practice at this stage to pay 10% of the purchase price which is non-refundable should the purchaser not complete (unless the reason for non completion is that the vendor has not fulfilled their obligations as per the Option Contract). Should the vendor not complete or properly fulfil the contract he has to pay the 10% back plus another 10% in compensation.
If a reservation payment has been made this will be off-set against the Option Contract payment.
The following is a checklist of points to discuss with your lawyers prior to signing the option contract. NB. Not all of these points will have necessarily been confirmed / finalised at this stage. Any outstanding checks, certificates, permissions or other information required would be detailed in the Option Contract as being required prior to completion at the notary.
Moving to Mallorca - information on relocating
Mallorca lawyers and solicitors
Bufete Morell - a leading Mallorca lawyers practice
Financial advisors and accountants in Mallorca
Becoming a resident in Mallorca
A sale is formally completed in Spain when the public title deeds of purchase are signed in front of a Notary, the final payment has been made, and possession is given to the buyer. The title deeds are called the "Escritura" and specify the name of the owner as well as giving a detailed description of the property.
Under Spanish law it is necessary for the "Escritura" to be signed in the presence of a Spanish Public Notary. The purchaser may attend the signing of the deed in the presence of the Notary or grant a Power of Attorney to a representative to attend on their behalf (normally your lawyer).
Once signed, the Notary will fax a note of the title deed to local Land Register, and your Lawyer should arrange:
As a rule-of thumb it is sensible to allow 10% for resale properties to 12% for properties bought from a developer. This is on top of the asking price of the property for purchase costs. These are detailed below.
Depending on whether it is the first sale of the property or a resale, the taxes are either ...
Impuesto sobre transmisiones patrimoniales (ITP): Transfer tax payable when you purchase land, house, apartment or a building plot from a private owner. This tax is 7% of the declared value of the property as expressed in the "Escritura de Compraventa" (Deed of conveyance).
Or ...
Impuesto sobre el valor anadido (IVA): This is the Spanish equivalent of VAT. It is paid instead of I.T.P. when you buy a new property from a developer rather than a resale from a private individual. It is charged at the rate of 8% on the construction of a house and any associated buildings. It is also charged at the rate of 8% on both the plot and the house if you purchase an off-plan property and the plot as a finished package.Purchases of new properties also require payment of JD (Stamp Duty), a document tax or stamp duty which can be up to 1% of the purchase price.
(NB. Currently the IVA rate has been revised to 4% as a temporary measure to help stimulate the property market in Spain. This measure is in force until 31.12.11. This is relevant only to new properties. I.e. properties that are for sale off plan or new from the developer.)
If you are taking a mortgage you should allow for the arrangement costs which are higher than in the UK. They vary but you should allow a total of 3% of the amount you are borrowing to cover the bank valuation fee, the banks arrangement fee and other associated costs. The bank should confirm the mortgage arrangement costs prior to agreeing the mortgage.
Many people do not realise that you can off-set all of these buying costs against any capital gains tax payable when you come to sell the property. It is also possible to offset any home improvement costs (substantial alterations, not just redecoration).
In order to do this it is essential that you keep invoices and receipts for all payments. It is also another reason to have good tax advisor as they will be able to tell you exactly which costs you can offset and which you cannot. They will stand far more chance of saving you money if you speak to them at the outset when you purchase your property rather than as an afterthought when you come to sell it.
Remember your property search should be an enjoyable process. To a large degree, success in your search and purchase is reliant on meeting and dealing with the right people. MPP works for you, not the property vendor. An important part of our service is to make sure that you meet the right people at the right time and always receive professional and impartial advice.
Please feel free to email us for further information or with questions on any aspect of the above.