If you’re thinking about buying either a resale or a pre-construction property in Mexico, you should know that the process is a bit different. Here are a few things you should know about each:
Resale Purchase Process
First, the buyer makes the offer with the terms and price he/she wants the seller to accept. The offer will have a time limit on how long the offer is valid.
The offer includes conditions that need to be checked first before removing contingencies. These commonly are inspection of the property and review of legal documents of the existing home or condo.
This period of due diligence is defined typically by when the documents requested are received by the buyer side and when the appointment for the inspection can be confirmed.
The next step is an agreement to the offer in which a third party will hold escrow funds of typically 10 percent. This payment indicates the removal of due diligence concerns and signifies that both parties are committed legally to moving forward for the sale to be accomplished.
Once that step is completed, the buyer applies for a trust (fideicomiso), if a foreigner and the property is within the restricted zone, and funds are paid to the notary to start the closing process.
At closing, 100 percent of the funds in escrow is disbursed among the persons performing jobs for the seller and the seller receives the net amount. The buyer pays for closing costs in Mexican pesos, and estimated 7-9 percent of the purchase price.
Funds are disbursed after the buyer and the seller sign the disbursement (consolidated closing statement) document, and the notary sends important signed documents to the third party. The notary knows in advance what is required for the third party to disburse funds, confident that the important documents have been executed properly, and the buyer and the seller agree. Bank holidays and weekends can delay funds. Once funds are received by the seller, they keys are turned over to the buyer who can now legally occupy the property.
Pre-construction Purchase Process
For this type of purchase, the seller requires a deposit at reservation to hold a unit for consideration to purchase. The seller requires the buyer to provide personal information to enable the seller to write up an offer agreement as this stage of the process.
The buyer and seller negotiate a payment plan for the buyer to pay directly to the seller as a percentage of the sales price and then a payment plan for the time the construction of the project is to occur.
Typically, the seller is offering discounts for buying in pre-construction and the buyers pay more up front for a bigger discount off the retail price. The seller chooses what he/she wants to use for the asking price, which will be the price from which different discounts can be offered. The payment plan can be 18-24 months (an estimate) and within this time frame, most funds are paid to the seller. All funds go to the developer or seller account.
The buyer needs to negotiate an understanding of how long he/she needs for due diligence before signing the purchase contract and wiring the first payment of the payout agreement.
In this case the due diligence needs to be that the seller, developer, builder and the purchase agreement are checked out. The buyer and his/her real estate agent should have already interviewed a short list of bilingual real estate attorneys of whom one will become the advocate for the buyer. This due diligence is for the buyer to know if he/she wants to take the risk and go forward with the purchase.
If the buyer agrees with the report from his/her attorney, she can sign the agreement with the seller.
Once the construction has reached the point when the authorities agree the building is habitable, the buyers may take occupancy, normally by paying all or most of the price to the seller. Actual closing may be months after occupancy.
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.
