Are you interested in buying a property in Spain?
Buying a property: What do I need?
Before any pre agreement contract signature, the seller has to provide several documents to the buyer (depending on the region where the property is), to make sure the purchase is possible. If any one of those certificates is missing, the notary will refuse to sign the purchase deed.
The first of them is the “Cédula de Habitabilidad”, which allows the owner to use the property as a living place, but if it’s expired the notary will accept the renewal application with the town hall stamp, attached to an architect report. However, if the property is a storefront, then it’s not necessary.
The next certificate is the “Certificado de Eficiencia Energética”, which basically shows the level of energy consumption of the property.
It’s necessary also a certificate issued from the building manager (Certificado de deuda de la Comunidad de Propietarios) Stating that the property has no outstanding debts related to the building management, and has paid all the bills. Otherwise, the buyer would be obligated to pay them after the purchase.
Last IBI tax: The IBI is the urban tax issued by the Town Hall that must be paid yearly or quarterly. It’s necessary too because it includes useful information about the property, like the right address in order for you to check the land registry, and the “Catastro” code number, in order for you to check the property size and location. The seller has to show the payment receipts of this tax to make sure the property doesn’t owe any tax to the City Council.
Pre Agreement contract (Contrato de Arras)
In Spain is very common to sign a pre agreement contract between the Real Estate Agent and the buyer or between the seller and the buyer in order to make sure the property is out of the market during at least one month, while the purchase process is in course. A ten per cent of the purchase price payment is required for this contract, which obviously will be deducted from the purchase price, when both parties sign the final deed.
A pre agreement is not required always as a first stage before the purchase signature, but it is necessary sometimes when the seller has to cancel any debts or seizures on the property, or the heirs has to accept it, in order to keep the property available for the seller while those steps are in course.
In the event the seller finally refuses to sign the deed, the buyer has to receive the ten per cent previously paid, or the double of this amount (depending on the Arras Contract clauses), but if the buyer refuses to sign the purchase, then he/she loses the paid amount.
In several cases, the Real Estate Agent offers to sign a simplified deposit contract to keep the property off the market for one or two weeks. The required amount is less than ten percent, actually around 2.000 – 5.000 Euros and it works the same way in the event the parties sign the purchase or not.
Purchase Costs (Transfer tax, Notary and Land Registry bill).
A property purchase in Spain involves some expenses that must be covered in advance in order to register the property as soon as possible, to avoid any tax office fine, or a double sale from the same seller.
The buyer has the obligation to pay the transfer tax, which rate is between 6%-10% of the purchase price, depending on the region where the property is. This tax (Impuesto de Transmisiones Patrimoniales) has to be paid within the deadline of a month since the purchase deed is signed in the notary, and it’s required before the purchase deed registration. Otherwise, we won’t be able to register the new ownership. In the event of lack of funds, a postponement application can be submitted in order to pay the tax later in installments, and depending on the tax amount and the guarantees the buyer shows (pay slips, bank statements, personal income taxes…).
The tax rate has to be calculated on the purchase price, which has to be “the market price”. If the tax office finds that the price is too low, they will send a tax requirement to the buyer, in order to pay the difference.
The notary and registry bill depend on the purchase price too. The notary has the right to set their fees, so it can be different depending on the notary you choose, but to get a rough idea, a 300.000 Euros property purchase, would be taxed for 900 Euros. The registry fees are less for the regulation, but in the same example, it would be around 600 Euros.
The “Plusvalía” is tax which is based on the rise of the property price since the last transmission, has to be paid by the seller and it’s managed by the town hall.
As we receive your request, we check the land registry to confirm the property ownership as well as all the registry records like seizures or mortgages. If there are any mortgages on property, we contact the seller to find out if it is still in force or, if it has been fully paid already, which is usually the case.
In Spain there’re two kinds of mortgage cancellation: the first and most important one, which is carried out internally by the bank when the debtor pays the loan back, and it’s called “Cancelación Administrativa”. After the loan repayment, the debtor receives a receipt which makes useless the mortgage record in the land registry.
The second mortgage cancellation is called “Cancelación registral”, and it’s about signing a deed in a notary, stating that the debt has been paid and registering it in the land registry. After the loan is repaid by the debtor, the bank has to sign a deed stating that the loan has been refunded, and has to register it in order to erase the mortgage record in the land registry. The cost of this mortgage (notary and land registry bill), has to be paid by the seller.
If there is any mortgage on your property, we contact the bank to find out the outstanding debt amount, and deduct it from the purchase price, in order to pay the bank and cancel the mortgage. Since it is the sole responsibility of the bank to sign the cancellation deed, the signing takes a bit longer depending on the bank, so we would contact the notary and the bank periodically to pressure them to sign.
The first thing that a bank needs to know before considering your application for a mortgage grant, is the property price, so they hire an architect in order to get an appraisal. Afterwards, they ask for any documents that prove the buyer’s solvency like tax statements, pay slips, shares, and properties. Everything has to be translated to Spanish. After collecting all those documents the bank manager sends everything to the risk department who gives an answer within a couple of weeks depending on the bank. So if you will need to apply for a mortgage grant, it is very necessary to think ahead of time that you will need to fill a clause in the pre agreement contract, stating that if the mortgage application is rejected, the deposit must be refunded. If the risk department considers giving the loan, then we arrange the signature date and place with you the buyer and the seller, in order to sign both deeds.
We’ll check the mortgage conditions in the private contract before the deed signature, and make sure they’re the same, even though they’re standard clauses.
After the Purchase
The ownership in the town hall and the “Catastro” is changed automatically since the property is registered in the Land Registry, so there’s no more paperwork left to be done there. However, the buyer has to manage all the utilities paperwork in order to change the contracts to reflect his name and this includes: electricity, water and gas. For this reason, it is advised that you get your hands on the last utility bills before signing, to ensure that you are not inheriting the seller’s unpaid bills. We recommend therefore that you negotiate this point beforehand with the seller to determine who pays the utility bills for the month during which the sale was made. As regards the property taxes like IBI or the garbage tax, the law states that the current year has to be paid by the seller.
1.- The Price Arrangement
The first stage of the property purchase is the price agreement with the seller or the real estate agent. This must be done even before you sign any deposit or pre agreement contract, because the first payment will depend on it.
2.- Property Investigation/ Document Verification
Once the purchase price is agreed by both parties, an investigation of the property must be carried out in the Land Registry, as well as in the Catastro to make sure the seller holds the ownership, and there’re no mortgages or seizures on the property. If there’s any mortgage in force, it is essential to clarify the outstanding debt with the bank. Otherwise there is a serious risk of buying a property whose mortgage debt could be higher than the actual purchase price, and this could be easily avoided. The next step would be the verification of the property documents (Cédula de Habitabilidad, Certificado de la Comunidad de Propietarios, Certificado de Eficiencia Energética, IBI…) which will lead up to the pre agreement contract.
3.- Pre Agreement (“Contrato de Arras”)
A pre agreement contract is often required by the real estate agents or the seller, in order to get some money (security deposit fee) in advance from the buyer and removing the property from the market thereafter. This is usually ten percent (10%) of the value of the entire property and has to be paid in advance after the pre agreement signature to the seller, who is then obligated to ensure that the purchase will take place in less than a month.
It is possible to avoid this contract completely and we advice that the buyer negotiates this with the seller. Therefore, we don’t recommend to sign this document unless it is absolutely necessary, because it is the obligation of the seller to cancel any seizure or mortgage by himself, and deal with any outstanding document, report or condition that must be dealt with or obtained before the purchase signature, and put the property out of the market, while doing this.
So if it is possible and both parties agree, we actually recommend going straight to the purchase deed signature in the Notary to simplify the process and avoid any risks.
4.- NIE application
Unless the buyer has the Spanish citizenship, a NIE number certificate is required for the purchase and must be in force. This certificate is a foreigner’s identification number that must be issued through the police station if the buyer is an E.U. citizen. And if this is not the case, through the Foreign Affairs Office. This number is an obligatory requirement for any person or company who owns property, shares or funds in Spain. They must be duly registered, even though they are non resident.
A letter from the notary, explaining the purpose is required, as well as a passport copy, a filled out form, and finally a Power of Attorney if another person applies for it on behalf the buyer.
The deadlines and the processing speed of the application varies from place to place, even though in big cities it normally goes faster.
5.- Transfer of funds.
The next step, after securing the NIE number, is to open a Spanish bank account to facilitate the transaction for the buyer. This makes it easier for him to have his foreign funds transferred into the new Spanish account so that the bank will issue him Spanish bank checks, which are the only acceptable form of payment by law in Spain for such a transaction. Using international money transfer is not a recommendable option, since it involves a lot of time and risks.
The transfer to your new Spanish account has to be as soon as possible since, if the amount is higher than normal, the bank usually asks for pay slips, tax statements and any other proof to check the money origin, so it’s better to do this a few days or even a week before the purchase.
6.- Mortgage certificates
If there is any outstanding mortgage in the Land Registry, it is essential to set an appointment in the notary for the purchase and quote it to the bank, so it has the right date to calculate the whole outstanding debt, including interests and commissions. When the bank has gotten the debt statement ready, it will be taken into consideration when preparing the checks, because one will be for the seller and another one (deducted from the purchase price) for the bank, so that we can make sure that the debt is covered. If the bank doesn’t commit to cancelling the mortgage in the Land Registry we discount around 1.000 Euros from the purchase price to cover the cancellation expenses.
7.- Purchase deed signature
Before this is signed all the property documents must be revised again (Land Registry, Catastro, Cédula de Habitabilidad, Certificado de Eficiencia Energética, Certificado de Comunidad de Propietarios, IBI…) by the notary manager to make sure everything is in order before the signature. A copy of both checks will be included in the deed, and if both parties agree they can add other issues like a list of the furniture that remains in the property or a tourist license if the property has one.
It is the responsibility of the notary to ensure that every one of the signing parties understands the content of the deed, and if need be, a translator must be invited to translate the deed verbally for them. The notary will read the deed before the signatories, and will give a warning about the property taxes (Transfer tax and annual Town Hall tax). The property deed has to be written in Spanish, otherwise the registry will not accept it.
8.- Transfer Tax Payment
Once the purchase deed is signed, and the keys passed on, the buyer becomes the new owner. The Notary sends a copy of the signed deed to the registry for temporary registration, until the tax is paid.
A tax form must be filled out and the fees paid before the property is permanently registered, within the deadline period of a month from the date the purchase deed was signed. The rates vary depending on the Spanish region where the property is, so it can be between 6 to 10% of the property value.
The final purchase stage is the registration of the new owner. After the payment of the transfer tax, the receipt is attached to the deed, and forwarded to the Land Registry so that it could be processed. This process will last for two or three weeks depending on the registry’s human resources and the deed gets delivered as long as the bills are paid.
The registration process is quite simple, however sometimes when there’s any kind of mistakes in the deed, which sometimes happens; the registry stops the procedure and sends back the deed to be amended by the notary. Once the deed is amended, the deed must be resent to the registry to continue the process until the registration is done. After the registration, a “nota simple” informing about the new ownership and the current mortgages on the property is attached to the purchase deed.