Here is an update of my Mexico real estate basics for first-time buyers that I refresh as often as I can. It’s a good refresher for sellers, also.
1. Buyer or seller beware. There is no compulsory licensing in Mexico of real estate agents. AMPI, which is the Mexican Association of Real Estate Professionals, is the closest organization to the National Association of Realtors in the U.S. and the Canadian counterpart. Members of AMPI work to regulate and elevate their degree of professionalism in the practice of real estate in Mexico. AMPI provides education and has a code of ethics.
2. Title insurance is available, through U.S.-based title companies. Currently, title insurance issued by a Mexican company does not exist.
Title insurance is expensive. It is important to understand that the research of the title company, before they will issue a commitment, is based on the notary-created documents of escritura (deeds and fideicomisos). So, the notary work is a part of the process. A title commitment will tell you what has to be done to satisfy the title company before they will issue insurance.
3. Sales contracts, to be legally binding, must be recorded before a notary public. To bind third parties to a contract, the contract must be filed with the public registry. Purchase contracts in Mexico are private agreements, based on good faith. Registering them, or also making sure the escrow agreement tracks with the private sales agreement, is the best way to have recourse when there is a dispute between the buyer and seller.
4. Oceanfront or riverfront properties are adjacent to the Federal Maritime Zone. If there is use of and/or construction in this zone, there is need for a concession, authorizing the use of this federal land.
A formal agreement has to be in place and annual payments made during the term of the concession agreement. If you are buying in front of the river or beach, you will want to be sure you have the concession, and not a third party, who can establish a business or have an activity in front of your property.
5. Market appraisals are not common, as most purchases are for cash. It is typically the lender who wants a market appraisal. Appraisals charged by the notary as part of buyer closing cost are tax appraisals for what is normally replacement cost.
The tax appraisal value shows up on predial, or the property tax statement. It is important to know the tax appraisal value is used as part of the capital gains tax appraisal for the seller, who will pay this tax at the closing of his/her sale.
6. There are Mexican and American companies offering real estate mortgages. Terms and conditions vary by lender. In this market, there are both peso and U.S. dollar loans.
7. Be sure to get an accurate estimate of closing costs before you decide what your overall expenses are going to be in purchasing real estate. The notary needs to know the state and location of the property, as well as the sales price. Then he provides an estimate in pesos based on the conversion date the day of the report. So, the amount owed for a buyer will depend on the rate at the day or day before closing. These estimates stay in pesos.
8. Determining how and where to send money into Mexico is not simple. In order to have escrow or hold purchase funds, a company or individual should be properly licensed and empowered by the law to hold and disburse these funds. But this part of the law is weak. These types of companies or individuals are not the norm. There is very little notary law concerning escrow, since the country does not require escrow as a part of any transaction. Therefore, be very strict about what company is holding escrow and understand that your terms of the offer need to be in the escrow agreement, as well.
9. Purchasing real estate within the coastal areas of Mexico is not simple. It is not like buying in the United States or Canada. Do not assume anything. Ask questions, and then more questions.
This article is based upon legal opinions, current practices and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his/her own due diligence and review.