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How to Sell Your Home in Mexico in an Overbuilt Market

View of an office in Puerto Vallarta
Credit: Harriet Murray

Real estate markets go through cycles and when construction outpaces demand, we end up in an overbuilt market. Today, I want to discuss how to sell your home in Mexico in an overbuilt market.

The first thing you need to do is create a demand for your property.

Traditional ways in the U.S, Canada and countries with mortgages include a process with resales to help get rid of inventory. Developer inventory can be absorbed with attractive mortgages that the developer buys to make his product competitive.

Mortgage companies and banks handle absorption by renegotiating the terms of the mortgage. When they have to take the property back, they release the inventory slowly to not flood the market. In this system, selling for less than tax value does not create additional taxes for the buyer. Some municipalities adjust tax values to reflect the decrease in values in the marketplace.

Resort areas and foreign countries have fewer mortgages. In these resort areas, fewer properties are used for mortgage collateral, so inventory may be absorbed more slowly. There are no third parties taking back inventory. These third parties (lenders) typically can control the amount of supply in the market as they do workouts.

Resales compete with all other resales and the best price usually wins if there is any demand. A buyer’s market is not a good time to sell unless the seller is really motivated. Resale price discounts are not according to a formula. Sellers need to be realistic or suffer the consequences. Realtors don’t help by letting the seller set the price unless the seller is realistic.

In Mexico, a long history of “low deeds” has caused the government to enact tax laws currently costing the buyer an extra tax if they are buying below tax value. This extra cost puts a limit on what the buyer will pay for the property because closing costs and taxes can be substantial.

Good information for sellers but In an overbuilt market, what should buyers know?

Each sale is individual and a buyer will most likely deal only with a seller, not a lender. Buyers should be patient and do their homework. Keep two or three properties on the favorite list. Be prepared to make offers and face rejection. Don’t fall in love with only one property, like a few very much.

All cash is the best position to be in to make an offer. A foreigner cannot close “tomorrow.” He/she must wait on the paperwork of the trust. A Mexican can sell quickly to another Mexican because no trust is required. I have seen a quicker close take priority over an all cash foreign buyer who needs a trust.

So, what can the seller do?

First, be sure the buyer is motivated. Do not take it personally if a low offer is made. Stay in the game. Continue communication back and forth with the buyer. Determine if incentives can keep the price higher. If there is no washer and dryer, offer to put them in or give a cash payment or price deduction. Pay some of the buyer’s closing costs. Consider seller financing. Offer a buyer a 3-5-year term on an amortization of 30 years. Require a balloon payment of the entire mortgage at the end of the agreed-upon term. Or really reconsider a negotiated cash price both buyer and seller can accept.

Recently I noticed a small detail, which because of the competition, could eliminate my clients considering a specific property. There were a number of exemptions in the furnishings. We were told the owners would replace this furniture with other pieces. My advice: Get this taken care of ASAP. Take the furniture not included in the sale out right now. Competition is so fierce that any difference, any extra work or issue for the buyer, can disqualify the seller who creates any uncertainness.

Sellers, put your best foot forward. It takes as many showings as possible to find the buyer. Don’t waste even one showing with a poor presentation.

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 of Mexican real estate conduct his’her own due diligence and review.