If you’re thinking about investing in a home in this country, you should know that there are basic rules for selling your home in Mexico. Here are a few of the most important:
First Law of Real Estate
It doesn’t matter what your neighbor’s home sold for in the past. And it also doesn’t matter what your own home was worth in the past.
Primary or second home prices are dynamic. They rise and fall and change daily, seemingly on a whim. What a home was worth five years ago, last month or yesterday has no bearing on what it is worth today. You did not sell your home two years ago when you could have gotten twice what you’ll get today, so getting upset about what it sells for today simply is a waste of energy.
Second Law of Real Estate
A home is worth what a ready, willing and able buyer will pay for it. The ultimate limitation is the amount of money the buyer has, either cash or a mortgage. In Mexico, most purchases are cash and not mortgage-based, although that option does exist.
Your real estate agent can’t tell you what your home is worth. Zillow and other automated valuation models (AVMs) certainly can’t tell you what a home is worth. A home appraiser can’t even tell you.
A real estate agent can give you a general idea of what a home may sell for. Software valuations are fun to play with and are reasonable ways to look at pricing trends, but they should never be relied upon to price a home. And appraisers do very good work at drilling down into a home’s value.
The bottom line is, unless you find a buyer that is ready, willing and able to buy your home at the price they decide is appropriate, it’s not going to sell, ever.
So, it doesn’t matter what you think your home is worth. And it certainly doesn’t matter what you wish your home was worth. What matters is what a buyer thinks it’s worth. And there will be no sale if a lender will not approve a loan at that amount or the seller wants or can spend all cash for a purchase.
Third law of Real Estate
Your home improvements will not make your home value increase in an amount equal to or greater than what you paid for the improvements. Money spent on maintaining your home adds zero to the home’s value, although maintenance will help keep your home value from decreasing. This is critical for you to understand.
If you have a US$30,000 swimming pool installed, your home value is not aautomatically increased by that amount. Depending on the pool, location and nearby amenities, it may add some value to your property. Kitchen and bathroom improvements tend to have higher rates of payback than others. But there is no improvement that adds equal or more value to a home than what it cost.
That shiny new water heater you added, the pretty new roof or that US$3,000 air conditioner compressor that you installed add zero dollars to your home’s value. The fact that the water heater, AC and/or roof are newish may appeal to some buyers and may influence their decision to buy your home versus another one, but they don’t make the home intrinsically more valuable.
You may have to discount the price of the home at a far greater amount than repairs would cost in order to sell a home missing such basic functionality. And you’ll cut your potential buyer pool significantly without expected features such as hot water, cold air, water pressure and Internet/WIFI service. If you need to make fundamental repairs, you need to realize you will lose buyers if you fail to repair, even if you cannot recoup the money for repairs.
(My thanks to Jay Thompson for his straightforward advice on this subject.)
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his/her own due diligence and review.