The property buying process in Mallorca and associated costs

This page covers the key steps that you should be aware of in the property buying process in Mallorca. Following this there are notes of the puchasing costs that you should allow for.

The property buying process in Mallorca

1) Choose a lawyer

As stated in our section on Lawyers in Mallorca, you should never buy a property without a lawyer. Our recommendation is that you work with an independent local practice. You will find that things move more quickly as they have the right contacts and are there to deal with matters at first-hand. They will give you comfort in making your offer and the agent/vendor will take your approach more seriously if you already have a lawyer.

We will assist you in your choice of lawyer whoever you choose. Our preferred legal partners are Bufete Morell who are one of the most well-reputed legal firms in Mallorca. We work closely with Bufete Morell to ensure things go as smoothly as possible, that you are kept informed, up-to-date and clear on all the important steps along the way.

2) Reservation payment

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.

It is common practice at this stage to include a down payment to reserve the property until the completion of the Option Contract (see below). A reservation amount is usually between Euro 5.000 and Euros 25.000 depending on the price of the property. The reservation period is usually 1 to 3 weeks while the Option Contract is prepared.

The reservation payment is a gesture of intent. As such it is usually non-refundable if the purchaser withdraws from the sale. This is why it is important to have the basic legal checks completed prior to making the payment. The payment should also be accompanied by a contract clearly stating it will be repaid should any unforeseen problems exist with the property. The property should be taken off the market at this stage so the reservation agreement should also make it clear that, should the vendor withdraw from the sale or sell it to a different purchaser, the full amount will be refunded.

NB. It is sometimes possible to go straight to an Option Contract without the need for a reservation payment. This is perfectly OK provided all the necessary checks have been properly completed prior to signing the Option Contract. Alternatively the Option Contract include conditions to void the contract should anything be discovered that is a serious problem in the above respects.

Seek advice from your lawyer on these points. Don't be pressed by anyone to hand over a reservation payment or sign any contract until you fully understand the conditions and are comfortable with them.

3) Exchange of private contracts – the “Option Contract”

The next 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 terms. The option will reflect all the agreed terms of the offer and sale and will include the date for final completion at the Notary.

The signing of the Option Contract is, in many respects, the equivalent of the Exchange of Contracts in the UK. 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% as a payment of damages.

The reservation payment made in Step 1 above is usually off-set against the Option Contract payment.

The following checklist is a useful reference of points to discuss with your lawyers prior to signing the option contract.

• The original or complete copy of the deed of sale (escritura pública) in the property register.
• Extract from the property register showing the situation of the property, charges and encumbrances (Nota Informativa Simple).
• The statement should bear a recent date.
• Contracts with the water, electricity and gas companies as well as confirmation that payments are up-to-date.
• Presentation of receipts for payment of land tax (IBI) for the last five years.
• Application for calculation of Municipal Tax of Plusvalia (Impuesto Municipal sobre el
• Incremento del Valor de los Terrenos Urbanos de Naturaleza Urbana) at the local authority offices.
• Statutes of the owners' association (only if the property is part of a community).
• This should include: a) the Statement of the payment of common costs and proportional payments of the present owner; b) a written statement that the owners' association has no debts to third parties.
• Presentation of an accurate inventory, signed by the vendor, of the furniture, equipment, fittings etc.

4) Final completion at the Notary

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 public official who is responsible for recording the sale on the public record and for stipulating the title deed has been signed in his presence and understood by the parties concerned.

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).

5) Registration

Once signed, the Notary will fax a note of the title deed to local Land Register, and your Lawyer will arrange:

• Payment of the relevant transfer taxes associated with the purchase
• Registration of your title deeds (which may take up to 3 or 4 months)
• Transfer of accounts with the local utility suppliers and arranging payments through your bank account

6) Other important points

• NIE number: As a foreign national you will require an NIE number; this is similar to an NI number in the UK and takes about 6 to 8 weeks to obtain. Please click here for further information: More about NIE numbers.
• Local bank account: You will also need a local bank account for payment of bills, as utilities and the like must be paid via direct debit. Your lawyer should advise on this and may also arrange it for you.

Purchasing costs associated with buying a property in Mallorca

As a rule-of thumb it is sensible to allow 10% on top of the asking price of the property for purchase costs. These are detailed below.

Fees

1. Notary fees: They vary depending on the value of the property and various other factors.
2. Land Registry Fees: These vary according the locality, type and value of the property. These are basically administrative fees and are not significant but worth mentioning for the sake of completeness.
3. Lawyers fees: Your lawyer's fees will also be covered within this 10% allowance unless it is an unusually complex conveyance.

Taxes

1. 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).
2. 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 7% on the construction of a house and any associated buildings. It is also charged at the rate of 7% on both the plot and the house if you purchase both at the same time.
3. JD (Stamp Duty): In addition to IVA you will also have to pay a document tax or stamp duty which can be up to 1% of the purchase price.

Other costs to consider

1. Mortgage arrangement fees Remember that is you are taking out a mortgage on the the property there will be an arrangement fee. These 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.