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Choices When Buying or Selling Mexico Real Estate

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Harriet Murray Blogs for Expats In Mexico on Real Estate
Harriet Murray

We make choices every day. My strong belief is that we need to make informed ones, especially when it comes to Mexico real estate. One of my favorite quotes is attributed to President Kennedy: “We choose to stay with the comfort of opinion rather than the discomfort of thought.”

It is certainly different to purchase property outside of our area of experience, and we all want to make good decisions.

In the Mexico real estate market, there are both nationals and foreigners who are registered to do business and pay tax to Hacienda, or the Mexican IRS. There are also people working in real estate in Mexico who choose not to be registered with Hacienda. Foreigners must also be registered with Immigration to work in specific jobs in Mexico. It also is illegal to not report earned income here.

What does this have to do with buying or selling Mexico real estate? Because you want the agent you work with to be legal and professional. You need to know if he/she has the knowledge and experience to properly assist you.

Selling real estate is a job that all nationals can do, whether or not they have any expertise in the area. A foreigner must have written permission from Immigration to sell real estate here.

If either a national or foreigner does not have a cédula with an RFC number, there is a good chance they are not registered in the country to pay taxes. Unregistered aliens (foreigners) and untrained nationals may be called “coyotes.” They roam on their own, looking for prey.

Let’s assume you work with a professional listing agent who is paying his/her taxes, but another person you meet wants to give you a buyer referral for your home. This person may expect a fee. Unlike other North American countries and elsewhere, this person does not have to have a real estate license to receive compensation.

You have to make a choice if you want to work with him/her, knowing that any fee you or your agent pays them will be a cost to you or the agent and will not be deductible. We are not talking about a small amount of tax. The IVA, or state sales tax, is 16 percent. Our income tax rate is 20-35 percent, after deductions applicable to our type of job.

When an agent from the U.S. requests a referral fee, we explain that we pay a certain percentage and must withhold tax. It is rare if a referring agent outside of Mexico is able to give a Mexican tax receipt. The professional referring agent usually understands and accepts a deduction for tax before receiving his/her net amount. These professional agents are aware of real estate rules and ethics. We are very appreciative of their referral and their professional understanding of the cost of doing business.

A coyote may be your neighbor who lives here part-time or is retired. Why should the person who can’t get a referral fee in the U.S. or Canada because he/she is not a real estate agent, charge a fee in Mexico and pocket it without paying any tax? He/she is working illegally and can be deported.

It is your choice whether to work with this type of person. Please make a wise choice.

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 own due diligence and review.

4 COMMENTS

  1. Gringos have driven up the prices in Mexico in any area they live in. They over pay. Plus all these Mexican houses are sold in US dollars. That should not be. The real estate industry has very little rules and regulations as compared to the US. Agents have zero formal training. When people are flipping housing and driving up the prices the agents say nothing. Real estate agent is the highest paid part time job for expats. Plus in Ajijic the commission rates are too high.

    • Mexico currently allows any citizens to sell real estate and has to approve visas for foreigners to sell real estate.

      We do give our agents training in Ampi Vallarta, Nayarit and Compostela.

      Foreigners earn dollars in these tourists markets selling time share or real estate.

  2. 16% is iva or sales tax.for professional services and goods. It is not charged for a residential home sale.

    If you sell your home, you may owe ISR or capital gains tax which is a different tax rate and not IVA.

    If you pay a real estate commission and IVA on only that amount, you can deduct the commission amount against your capital gains tax.

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