How to formalize the payment of a house?
The presentation of the offer, the deposit contract and the search for financing are some of the steps that must be taken to close the purchase of a property
Buying a home is undoubtedly one of the most important decisions a person makes throughout their life. It requires an exhaustive search among all the available offers and, in all probability, many headaches. And when the doubts are cleared and the big decision is made, all the bureaucracy and the management of a process that is not always simple remains ahead. What steps must be taken? How is the purchase formalized? This article shows the process step by step.
Once the decision has been made, an offer must be made that can be the same or different from the sale price. At that moment, a negotiation process begins that ends, if there is an agreement, in the formalization of a deposit contract.
After the negotiation, it is necessary to clearly determine the final price and the way in which the house will be paid.
Documentation of the home
Before signing the contract, it is essential to know the administrative status of the home to ensure that it is free of charges. In this sense, it is convenient to make sure that the owner who is going to get rid of the house is up to date with the payments of taxes and consumption, if he has passed the corresponding inspections and even if there are any mortgage defaults or if there are liens on the House. An information note can be requested directly from the Land Registry or through a notary’s office. Sometimes you have to ask the city council for a certificate of urban legality in case there is some kind of affectation that does not appear in the Property Registry.
Earnest money contract
This contract is signed in order to ensure the operation. With the signing of the contract, the buyer advances a part of the total price as a ‘signal’, which usually represents 10% of the total price. If the buyer cancels the purchase, he will lose the money advanced. If, on the other hand, it is the seller who backs down the operation, he will have to return double the amount received, as established by the Civil Code. In addition, this contract includes the purchase and sale expenses agreement and the deadline for bringing the operation to the public, which is usually around 30-40 days so that the buyer has enough time to seek financing.
Once the deposit contract is signed, the search for financing begins, one of the most important steps in the process. Although it is true that many buyers consider financing as one of the first steps in buying a home and even choose to do a solvency study to be able to select the options that are available to them later. One way or another, it is necessary to close the financing before signing the transaction before a notary.
Sale and public deed
Once all the previous steps have been taken, it is time to formalize the purchase with the signature before a notary public. First of the mortgage if there is one, and after the public deed of the house. If you have to sign a mortgage, the bank will also have to attend the appointment. The deed will then have to be submitted to the Property Registry to notify the change of ownership.
How to make the payments
As explained above, the best way to make the final payments of the sale to the vendor is directly from a bank account in your name in Spain. For this, previously you had to open a bank account on one of the Spanish banks. Before completion, you need to transfer from your country of residence, the necessary amounts to your Spanish bank account in order to cover:
– The rest of the final price to the vendor
– The expenses and taxes of the transaction (notary and land registry fees, taxes, legal fees, etc.).
The most common practice to make the final payment of the price to the vendor is by a Bankers Draft issued in the name of the vendor. So, make sure that you, or your Solicitor (should you have agreed to route the payment through the Solicitor’s client account, specially when he will act with the power of attorney), have enough provision of funds in the Spanish bank account to attend this payment at least one week before the day agreed in the Notary.
The other expenses, such as the Transfer Tax, Notary and Land Registry fees, etc., can be agreed separately, and paid to your Lawyer, or to your mortgage bank, if is the case.
Please bear in mind that if the Vendor is non-resident, you have to retain a determinate amount of the price to pay to the vendor (the 3%), and deposit it to the Spanish Tax office (called “Hacienda”) on account of the vendor’s capital gains tax liability. This is done using the model 211. Your Solicitor will instruct you how to proceed with this point and will guide you through the complex regulations of the fiscal retentions.
Payment of taxes
There are different tax figures involved in the sale of homes. Some taxes are borne by the one who sells the property and others by the one who acquires it. These operations are taxed by the Value Added Tax (VAT) in the case of new housing or by the Property Transfer Tax (ITP) in that of second-hand, with a tax rate that varies between 6% and 10%, depending on the autonomous community in which the settlement is carried out. Large families enjoy a lower ITP, but it also depends on the autonomous community. In addition, you have to pay the Tax on Documented Legal Acts (AJD) related to the mortgage, often paid by the bank that grants the financing, and the Municipal Capital Gain which, unless otherwise agreed, is borne by the seller. This tax is levied on the increase in the value of the land since the previous transfer. In the future, the buyer must also take charge each year of the Real Estate Tax (IBI) of the new property.
After completion of the transaction, the contracts inherited from the previous owner in connection with the supply of household appliances such as water or electricity will be required. The new owner must decide whether to change ownership or terminate existing contracts and enter into new ones. In the case of a new home, you have to hire them from scratch.
Documentation and invoices
Once the operation is completed, it is important to keep the original documents, supporting documents, guarantees and invoices regarding the acquisition in case they are necessary in the future.
The effect of COVID-19
The truth is that buying a house is always a difficult decision, but in the current context it has been further complicated by the change that has occurred in the sector, derived from the COVID-19 crisis. The confinement meant the total stoppage of operations. For two months, citizens were unable to visit real estate, properties were not appraised, mortgages were not granted, transactions were paralyzed and some previous sales agreements were even broken. This had a strong impact on the real estate market, which registered a collapse of operations of almost 25% in the first half and a drop in prices of 4.9%. However, the coup in the sector has become, at the same time, an opportunity for all those citizens who have spent years saving to buy a home and who see in this drop in demand and prices an opportunity to acquire a better property at the same time. they could afford it before the crisis.