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Purchase process, the reservation contract and deposit
Once the estate agent and lawyer have discussed the purchasing terms and conditions with the seller and an agreement have been reached, the next step is to formalise this verbal understanding through a written contract.
This document is known as the reservation contract (contrato de reserva) and should be signed by both you or your representative and the seller. It might also include details about payment terms, estimated dates for exchange of contracts and completion.
If both parties accept the terms in the contract a binding agreement is created. It is standard practice in Spain for this reservation contract to be accompanied by a sum of money, which is paid by the buyer to demonstrate to the seller that there is a real intention to purchase.
This money is known as a reservation deposit (señal de reserva) and usually amounts € 5,000,-
Once this deposit has been paid, the property is taken off the market and the price is frozen for a specified period of time.
It is very important to remember that this deposit is usually non-refundable. In other words, if you do not exercise the purchase within the period of time established in the reservation contract, the seller is under no obligation to return your money.
However, if the seller backs out of the deal he will have to return your deposit.
Exchange of private purchase contracts (contrato privado de compraventa)
A private purchase contract is essentially the same as contracts you will have signed as part of the transaction to buy property at home.
It creates a binding agreement between you and the seller, establishes a completion date and sets out the terms and conditions of the sale.
Some terms may not be explicitly mentioned in the contract because they are implied by the law governing transactions of this kind.
The private purchase contract is usually signed around two weeks after the reservation contract.
In the period before you sign the contract the lawyer will have completed the major part of the legal searches that you need before proceeding to completion.
The lawyer will have obtained a certificate (nota simple) from the property registry (registro de la propiedad), where information such as the owner of the property, encumbrances on the land and mortgages are registered.
The lawyer will also have been involved in negotiating the terms and conditions contained in the contract. In particular, he or she will have established a schedule for the payment of any outstanding debts connected with the property. It is essential that a formal agreement is established on the cancellation of these debts before proceeding to completion.
This safeguards you as a buyer because if the seller reneges on the agreement you are entitled to withdraw from the sale and claim for damages incurred or deduct the debts from the sale price together with any related expenses, in some cases.
At this stage it is customary to pay a percentage of the purchase price. If you are buying a resale property 10% of the purchase price is usually paid, if you are buying off-plan you will probably pay between 20% and 50%.
A property purchase reaches formal completion when the sales contract (escritura de compraventa) is signed by both the purchaser and the seller in the presence of a notary (notario).
A notary is a public official who certifies that contracts are legal by checking that all the formalities involved in the transaction have been complied with.
At this point the agreed sum is paid and possession of the property is handed over to the buyer.
Unless the parties have agreed to vary the terms beforehand, the sales contract always states that the property is free from all charges and encumbrances, that there are no outstanding debts connected to the property and that the seller is handing over vacant possession i.e. there are no tenants or other occupants.
If it is not possible for you to be present at this final appointment with the notary there are two methods which allow your lawyer to sign on your behalf:
Granting a power of attorney (poder). This formally allows another person (either your lawyer or somebody else that you trust) to sign on your behalf. You can have this document prepared while you are in Spain by making an appointment with the notary who will oversee all the formalities. Alternatively, a power of attorney can be prepared by a notary in your home country. This power of attorney will have to be legalised for use in Spain by having an apostille certificate attached to it under the terms of the hague convention.
Granting an informal verbal mandate to your lawyer. It is important to remember that if you choose this option you must ratify the contract as soon as possible after completion. This can be done by appearing before a notary, either in Spain or your home country. If ratification takes place in your home country, however, it will be necessary to obtain an apostille certificate before it is legally recognised in Spain. Ratification is simply a matter of confirming the purchase and providing a sample signature, which will be kept on file at the property ( This cannot be used when purchasing with a mortgage )
Registry registration of the title deeds
Once the Title Deeds has been signed, the notary will send a fax to the relevant property registry to begin the formal procedure for registration of the new title deeds and to avoid that the property is sold twice, to safeguard and warrant your interest.
Although this process is not compulsory it is strongly recommended.
The whole process usually takes between one and three months, depending on the workload in each particular property registry. In the interim you can request a copy of the records (copia simple) from the notary or your lawyer.
When registration has been completed the property registry will get in touch with your lawyer to inform him that the title deed (escritura pública) is ready for collection.
Finally, as well as overseeing the registration of your title deeds, your lawyer will also arrange payment of the various taxes arising from your purchase. In addition, he or she can help you to make contracts with suppliers of utility services like water and electricity and arrange for your bills to be paid by standing order from your Spanish bank account.
Purchasing costs in Spain
Apart from the actual cost of a property, you will need to allow 13% of the purchase price, depending on the price of the property, whether it is new or a resale and whether a mortgage is needed or not, to cover the various fees and costs of acquiring a property. IVA (VAT) on all property purchases at 10% of the contract price and (21% on land). Legal fees from 1% to 2% approximately, again depending on the price of the property, notary and land registry fees are approximately 1%, title deed tax at 0.5% of the declared value.
Both us and our lawyer will accompany you through this whole process !