Napa Valley Address

Purchasing Real Estate South of the Border by Valarie Brown-Coon

Posted by Curtis Van Carter on July 27th, 2008 filed in From Valarie, San Miguel de Allende

Series #2  Making An Offer

If you’ve journeyed with me to my second segment on purchasing real estate south of the border, you too must be a paradise seeker. If you’re like me, you have a million questions so let’s get right down to business?

How easy/or difficult is it to purchase and own property in Mexico?

Is your property/investment in any way at risk in this 3^rd world country?

What do you need to know before making an offer?

How do you get started?

First let me say that our leap into unchartered Mexican real estate waters–while somewhat intimating–was a positive experience. But that isn’t always the case. We’ve heard of friends purchasing homes with clouded titles resulting in endless legal fees and delayed construction. So it’s important you work with an experienced real estate agent or someone you know. Look for realtors who are certified members of the National Association of Realtors (NAR) or Mexican Association of Professional Realtors (AMPI).

In our case we asked for a referral from a fellow Napan who previously purchased property here and that referral served as one of our real estate agents. We had two; an English speaking Canadian gal named Trish and a bi-lingual Mexican hombre called Roberto who presented our offer to the seller and managed our transaction. We agreed on an opening purchase price of $100,000—not the best news for our real estate team–and set out in search of that perfect property.

Valarie and Michael discussing their purchase price

Because SMA has become such a popular holiday and vacation destination, prices vary significantly according to location. Properties near the jardin (our heart of the city) can range from $500,000 to several million US dollars. So given our budget, we began our search just outside of Centro in a neighborhood called Colonial San Antonio. Two hours and three properties later, we traveled to the end of a dead in street and fell in love with an artistically built Mexican home with good bones and good views. My husband and I knew this was the one because we were weak kneed, our hearts were racing and we were already considering how to get this done without even speaking a word to each other.

Valarie talking with her agent

Our agent was astonished that we didn’t want to look further. After all, this was the first day of our search and we’d only seen three properties. Not batting an eye, my husband simply said let’s find a coffee shop and discuss how to purchase a home in Mexico. We weren’t the first to make such an impetuous decision. Countless before us recounted similar experiences…you just know when a place is right.

Besides where else can you buy a home for $100,000.00 pesos or $93,000 USD? The 155.00 m2 (meters squared) 3 bedroom home we were interested in was part of a four parcel compound that was being divided among family members and sold off separately as each property gained a clear title. Adjacent to the 3 bedroom was a small 95.00 m2 parcel with a garden and several ruins. The other two properties were not yet ready for sale. We made an offer of $100,000.00 USD for the 3 bedroom home and the adjacent ruin and the offer was accepted. A meeting of the buyers and sellers was scheduled for 6pm that evening at a respected Notario’s (Mexican Lawyer) office where the contract would be signed and 10% of the purchase price or earnest money would be paid directly to the sellers. As buyers, we were then given 30 days to either rescind our offer and forfeit our deposit or come up with the remaining funds to ratify the contract. Bear in mind that at the time, home loans and mortgages were not available in SMA—and for the most part, still aren’t—so cash or wire transfers were our only option. Everything went according to plan until we told the Notario our purchase price. Between the time we made our offer and the time we arrived at the Notario’s office the sellers decided to up the price for the combined parcels. Instead of $100,000 USD they now wanted $111,000. We could have–and certainly wanted to–walk out the door, but we had come too far in the last 6 hours setting the financial wheels in motion and mentally designing our south of the border home to let the dream get away. Instead we accepted the fact that we were rookies and dove in.

Counting out the cash deposit at the Notario

At this juncture, there are a few things you need to know about what you can and cannot own in Mexico. As individuals, foreigners—with some exceptions–cannot directly own property within roughly 30 miles of the shoreline or 60 miles of the border. All other properties like those in SMA that are 100s of miles from the coast are fair game. As for those exceptions, you can legally own Mexican real estate in restricted coastline areas if it is set up through a bank trust or fideicomiso where the bank owns the property but you as trustee have total control of the real estate, or if you form a Mexican corporation. Bank trusts are good for 50 years and are renewable and transferable. Setup fees run around $500 and annual fees are about the same. Costs to form a Mexican corporation are several times higher than bank trusts and require corporate tax reports and the like.

Another thing you need to be prepared for is having cash for your earnest money deposit. If you are like my husband and I, we didn’t have $11,000.00 with us because we hadn’t planned on buying a home on our vacation. Fortunately for us, our real estate agent happily cashed our $11,000 check using our property as collateral until the funds cleared her bank.

When hiring a lawyer, make sure they are actually licensed to practice law in Mexico. Ask to see their cedula professional, an official license provided by the Ministry of Education. Your Notario will then check to see that the seller holds title and is legally able to sell the property. The seller must be able to provide a copy of the public deed (escritura publica) stating legal title of the property. Your Notario will also review all conditions, identify any problems, give advice and formalize the transaction. When making an offer, it should be in written form and is best when transcribed into both Spanish and English. This contract is known as a Promise to Buy (Oferta) and begins when the seller accepts the offer made by the buyer and both parties sign the contract. Once the seller accepts the offer, the buyer is expected to deposit 5-10% deposit of the purchase price and half the closing costs. Make sure that all deposits are made through the public notary or closing agent and not directly to the seller.

As I mentioned earlier, it typically takes 30-45 days to close the transaction. In the states we would call this our investigation period. But in our experience you simply have this amount of time to raise the rest of your funds or change your mind. If you do decide to bail regardless of the condition of the seller’s property, the seller keeps your deposit. If the seller on the other hand gets cold feet, he/she can terminate the contract but is required to return the buyers deposit.

Everything necessary for a successful negotiation

In our case, after 5 days in SMA we headed home a little poorer but a whole lot happier. Instead of returning to SMA 30 days later for our closing, we gave our Canadian real estate agent power of attorney to close for us. We decided since we had taken such a leap of faith in just 5 short days, why break with tradition. After all what could go wrong……?

Links for licensed realtors:  www.ampisanmigueldeallende.com