Mexico Real Estate Buyer’s Guide

Step 01

Your Agent

The first decision is the one that shapes every decision after it. Mexico has no federal regulatory body overseeing the legal and ethical conduct of real estate agents, so the credential that matters most is AMPI membership. AMPI is the Mexican Association of Professional Realtors, affiliated with NAR, and the local Banderas Bay chapters are among the most active in the country in membership standards and continuing education.

You will depend on your agent to cover a great deal of ground on your behalf between the offer and the closing. Choose accordingly.

Step 02

The Purchase Agreement

Purchase agreements in Puerto Vallarta have become fairly standardized over the years, but they remain custom documents. Expect a bilingual, double column instrument in English and Spanish, roughly 12 pages, covering the parties, the price, the deposit and payment terms, due diligence, boilerplate clauses, default provisions, the closing date, and the signature block.

The question we are asked most: what should you offer relative to the asking price? It depends on the current state of the market and on how the property is priced today. The local AMPI chapter owns and manages a FLEXMLS system that generates statistical data your agent can pull and share with you, so your offer is informed rather than guessed. Priced on data, not guesswork.

Step 03

The Deposit

Once your offer is accepted, the agreement becomes bilateral and binding. You then have a window of roughly one to four days to place the escrow deposit, and before that can happen an escrow agreement must be completed and signed by buyer, seller, and escrow agent.

The customary deposit in this market is 10 percent of the agreed purchase price. That is higher than most North American markets, and it reflects a long-standing Mexican convention that a meaningful portion of the price is committed at signing. The deposit is normally refundable until every due diligence item has been satisfied, typically 10 to 20 days or longer, after which it becomes non-refundable.

Step 04

The Escrow

Your deposit is held by an independent third party escrow or title company. Escrow protects every party to the transaction and removes the possibility that an interested party, an agent, or any other entity holds your funds. This is fundamental to a properly written real estate agreement in Mexico, and anywhere else.

Deposits can accrue interest at the option of the parties. If a default or a disagreement arises, the wording of the contract governs. Failing that, and failing a negotiated resolution between the parties, the matter becomes the subject of a lawsuit, which happens only in the rarest of cases.

Escrow fees vary by company and generally range from about $450 to $800 USD. Coldwell Banker La Costa takes the position that this cost should be split between buyer and seller, since both benefit equally from the protection. In practice it is often treated as a buyer expense.

Step 05

The Due Diligence

Due diligence ranges from boilerplate items, a copy of the deed and copies of the tax and HOA receipts, through to a full engineering inspection. Every item must carry a clear time frame in the agreement, and the agreement must either stipulate the method of repair or provide for cancellation in the event of a catastrophic discovery.

Once the due diligence items are signed off, the agreement becomes unconditionally binding on both parties and the closing process begins.

Step 06

The Closing Costs

At this point your agent will provide a closing cost estimate. It is an estimate because the exchange rate moves, and that movement affects both the fees and the value of the property, which is often marketed in US dollars but always registered in Mexican pesos.

You will be asked to advance roughly half of the estimated costs to the notary to cover out-of-pocket expenses. The balance is normally paid by personal check to the notary at the closing, or deposited into escrow and disbursed directly to the notary’s account at closing.

Closing costs in Mexico generally total between 4 and 6 percent of the purchase price, higher when a mortgage is involved, and they are always the responsibility of the buyer. The seller carries the real estate fees and any capital gains tax.

Step 07

The Closing

There is a saying in Mexico that next to God, the notaries are the most important people in the country. Some would debate the order.

A notario público is not the notary you know from the United States or Canada. Notaries in Mexico pass the equivalent of the bar exam, complete two years of intensive study while practicing inside a notary office, sit a three day examination program, and are then appointed by the state to one of a strictly limited number of notarías. They are the only entities recognized by the Commercial and Land Registry and by the tax authority, and they are empowered to collect taxes for all three levels of government.

At the appointed time, buyer, seller, and their respective agents meet to close, or as it is known here, to formalize the transaction, in the notary’s office.

Closing coordinators

Over the past decade, paralegal closing coordinator offices have opened, typically owned and operated by former employees of notary offices. Several of the larger agencies, Coldwell Banker La Costa among them, keep closing coordinators in house. They are fully bilingual, which most notary office staff are not, and they prepare the required documentation, review the draft trust deed for approval by the trustee bank, and explain each moving part to buyer, seller, and agents.

At the closing table, your coordinator will walk through and translate the trust deed, which typically runs past 40 pages, and answer questions as they arise. Once names have been verified in the document, official identification has been checked, and all taxes have been collected from both sides, the notary appears in person to observe execution of the deed, then thanks everyone and excuses him or herself from the room while keys are passed and congratulations are in order.

After the signature

Once the notary has stamped the trust deed, the notary’s office sends it, together with copies of the certificate of non-encumbrance and the preventative notice, to the escrow company. Escrow will already hold a Letter of Disbursements signed by buyer and seller setting out exactly who is paid, how much, and by what route. On receipt, escrow executes the disbursements, and funds are generally received by bank transfer the same day.

The trust deed itself will not be presented to the Land Registry Office for several days. Everyone is protected in the interim by the certificate of non-encumbrance and the preventative notice, both generated by the registry at the same time. The preventative notice freezes title for 45 days and is generally renewed once for a further 45 days, which gives everyone sufficient time to close and present the deed for registration. Registration takes between 30 and 90 days, and your agent will let you know when the deed can be collected from the notary’s office.

Step 08

What Did I Buy?

You now own the beneficial rights of a trust, and the body of that trust is the property. Think of a glass of water. The glass is the trust, the water is the property, and you have complete control of the glass. You can sell the property, rent it, gift it, or lend it, so long as what you are doing is legal. You are equally obliged to maintain it and to pay property tax.

The fideicomiso

The trust runs for 50 years. Unlike a lease, at the end of that term it is renewable for a filing fee of approximately $1,000 USD, and renewable again in the same manner for subsequent 50 year periods in perpetuity. A Mexican bank acts as trustee, most banks here maintain trust departments, and the annual trustee fee is roughly $550 USD depending on the institution. Trusts are held off the bank’s balance sheet. In the event a bank were dissolved, the trusts are not considered assets of that bank and would be reassigned to another institution under the auspices of the Bank of Mexico.

Property tax

Property tax, the predial, is assessed on the cadastral value established at the time of purchase through the tax assessment appraisal registered with the Catastro. Rates in Mexico are a small fraction of one percent of assessed value and are dramatically lower than most North American markets, because predial is not a significant source of government revenue.

When you sell

On resale you become subject to capital gains tax, known in Mexico as Impuesto Sobre la Renta, or ISR. The notario público calculates it two ways and applies the lower result. All calculations are performed in Mexican pesos, against the peso cost base recorded in your deed, which is your actual purchase price at that day’s exchange rate.

• Method A. 25 percent of the gross sale price, with no deductions. This is the default for foreign sellers without a Mexican RFC.
• Method B. Up to 35 percent of the net gain, on a progressive scale running from 1.92 to 35 percent. Net gain is the sale price less the inflation-adjusted purchase price, less documented improvements supported by valid facturas con IVA, less deductible selling costs including the real estate commission.

The notario withholds the tax at closing and remits it to SAT. If you hold Mexican tax residency, temporary or permanent, an RFC registered to the property address, and proof that the property was your primary residence, you may qualify for the primary residence exemption. It can be claimed once every three years and is capped at roughly 700,000 UDIs of gain, approximately 5 million pesos. Gain above the cap is taxable.

This is the single strongest argument for keeping your facturas from day one. See our seller FAQs for the full ISR breakdown, and confirm your position with the notario and a licensed Mexican accountant well before you list.

Step 09

Critical Documents

Your registered escritura will be available for pick-up from the notary’s office approximately 90 days after closing. Collect these three items alongside it.

1. El Boleto de Registro. The registration letter from the registrar, confirming the deed was registered on a specific date at a specific time.
2. A factura for the purchase price. A tax receipt in XML digital format, by email or on a thumb drive, showing the registered purchase price in Mexican pesos.
3. A factura for your closing costs. Also in XML format, showing the itemized breakdown.