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Buying Process
Closing Costs
Public Notary
Cost of the Fideicomiso
Real Estate Broker's Commission
Capital Gains Tax |
| Buying Process Buying 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 present 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 to the 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 60 days
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| It is common practice that the buyer pays the transfer of acquisition tax, bank trust set up and all other closing costs, including 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 Mexico, was modified to allow each of the Mexican states to determine its own tax. The range now may be from 2-4% 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 appraised 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.
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| The public notary |
| A Public Notary is a government-appointed lawyer who processes 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 and electricity bill and other pertinent taxes that might be due.
- An appraisal of the property for tax purposes.
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| Based on the present tariff, the bank charges the person desiring the Fideicomiso an initial fee (approx. $500.00 USD) for drawing up the agreement and establishing the trust plus a fee for getting the permits from the exterior relations department that allows a foreigner to own property in the restricted coastal zone. In addition, the bank charges an annual fee (minimum) fee $500 US plus 10% tax to cover its services as a trustee.
The Fideicomiso can be established for a maximum term of 50 years and can be automatically renewed for another 50-year period. During these periods you have the right to transfer the title to any other party, including a member of your family.
The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary, who has all the benefits of a direct owner, including the possibility of leasing or transferring his rights to the property to a third party or pre-appointed heir.
The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust, according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary. Fideicomisos are not held by the trustee as an asset of the bank.
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| 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. |
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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 at 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. On the other hand, there is no capital gains tax in Mexico if there is conclusive proof the seller has used the property as his primary residence. |
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