Things you should know about buying property

Understanding foreign real estate transactions.

It is important that the foreign real estate buyer have a working understanding of the process of buying real estate in Ecuador. We recommend that potential buyers purchase a copy of the Ecuador Owner's Manual, published by International Living (Go to http://www.internationalliving.com/ to order). The book provides an excellent overview of buying property in Ecuador as well as overviews of the visa process and relocating from another country to Ecuador. The Manual was written by U.S. citizen and Cuenca resident Lee Harrison.

Unlike the U.S., Canada and most Western European countries, there is no multiple listing service (MLS) of properties for sale in Ecuador. It is not uncommon for a real estate agent in one part of the country to have no information on properties for sale in another part. Since many properties are offered directly by the seller, it is not even uncommon for agents in one part of a city to have no knowledge of properties for sale across town. Like many real estate agents in Ecuador, Ecuador Properties operates as a "buyer's agent." As a buyer's agent, we are able to assemble a larger offering of properties for the prospective buyer.

Most buyers will find that buying property in Ecuador is simpler than in their home country. This simplicity, however, comes with the burden of due diligence to assure clear title and properly executed documents. We will make certain proper procedures are followed and that the attorney and notary we work with protect the interests of our clients. It is a requirement of Ecuadorian law that that purchasers of real estate fully understand all aspects of the closing. A translator will be provided for non-Spanish speakers.

The Process

Once an agreement to purchase has been negotiated but the buyer is not yet ready to pay the seller the full price, the buyer's attorney will prepare a Promesa de Compra-Venta, or promise to buy. The Promesa de Compra-Venta document is similar to the sales contract in North America, although it is more formal and much more binding on the buyer. It is customary that the buyer delivers 10% of the purchase price at the signing of the Promesa de Compra-Venta. The Promesa de Compra-Venta, which is a notarized document, states the sales price, the closing date and lays out penalties for default. Unlike a North American contract, there are fewer avenues for opting out of the deal and getting the 10% binder back. It is important that the buyer complete all inspections of the property and negotiate any price adjustment prior to signing the Promesa de Compra-Venta.

If both parties are ready to close the sale at the time the price is negotiated, the Promesa de Compra-Venta can be eliminated, and the Compra-Venta, the final closing document, can be executed. This saves time and legal fees. The Compra-Venta is also signed in the office of a notary and all outstanding money due the seller is turned over. A brief point of explanation: in Ecuador, as in much of Latin America, a notary is an attorney with advanced training. Generally, you pay the notary at the conclusion of the notarization. The fee generally runs between $50 and $100.

The buyer's attorney is responsible for researching the title of the property, making tax payments from funds the buyer has provided and, after the signing of the Compra-Venta, registering the property with the Office of Land Registry. The attorney will present two notarized copies of the Compra-Venta to the Land Registry. One will be filed at the Land Registry Office, the other returned to the buyer and serves as the property deed.

If the buyer is unable to be in Ecuador at the signing of documents, he or she can sign over Power of Attorney to an attorney or representative.

Closing Costs and Taxes

Closing costs and fees and taxes are a fraction of what a real estate buyer will pay in the United States for similarly priced property. A buyer should expect to pay about 1.5% of the purchase price for these costs.

Taxes are based on an assessed municipal value, generally 2% to 2.5% of the purchase price. The value will vary by area of the country and by such factors as whether the property is located in a rural or urban area. In other words, an urban house costing $170,000 has a tax value of $4,250. The buyer will pay a registration tax of 1% of the municipal value of the property and a transfer tax of between 10% and 38% of the municipal value.

Property taxes are very low in Ecuador. The owner of the $170,000 house mentioned above pays about $110 annually.

The majority of buyers of real estate in Ecuador will find that all fees, taxes and legal fees for a real estate purchase will amount to about $1,500. Many pay no more than $1,000.

Explanation of our fees

Fellow Adventurers,
I am including this as an explanation to costs and fees for the real estate market down here in Ecuador.

As some of you might know there is no MLS (multiple listing service) here and there are no Century 21 signs anywhere to be found. As buyer representative we/I have to go and seek every listing we show, make numerous phone calls (you never reach the owner on the first call...sometimes, but few and far between), have the buyer give us a realistic selling price they expect, and spend many hours driving from province to province in search of the requests we receive.

Once you are here you will better understand our quest to find your “place in paradise”. We are trying to educate the Ecuadorian seller, but at this point they do not understand paying our commission for selling their property. The buyer pays for our services and time. I myself was a little put off by this when I first bought here, but soon understood the time and effort that it takes to put together a buyer and seller and have everything go smoothly.

If you think about it, the buyer always pays the commission even in the states. The seller builds that commission into their price and so we end up paying it in the long run. Here you know that if we can negotiate down the price you only pay the % on the final selling price.

The culture here is a bit different and the typical Ecuadorian doesn’t understand paying someone to help them sell their property. It also helps you save money because we negotiate price with my partner that is from Argentina. If a gringo shows up by themself...guess what...the price goes up like a skyrocket. My original purchase here was in Vilcabamba and the house I wanted had a starting price (gringo price) of $85k. I found that I needed a little help from a friend here (Ecuadorian) and ended up paying $58k and everyone was happy in the end.

The selling fee we charge is 5% of the final agreed upon price. Considering all the time, effort, and knowing the system here I am sure you will be quite satisfied with the cost that really equates as savings in the end.

Traveling is also a bit different here since we are usually covering a region not just a city. If we go looking on the coast for property, that means we might travel 400 kilometers looking for your new home/property here since it stretches for miles. We also suggest taking as many days as you can afford to see the many incredible places there are to see. We don’t suggest that to make money, but to insure you get a chance to view the incredible variances in coastal areas or places inland.

Our daily rate includes myself and my partner and a car/van for travel. Our daily rate is $150.00 plus expenses and fuel (diesel at a dollar a gallon). I know in the states you get to use a realtor for no cost, but as I mentioned above, once you are here I feel you will appreciate our services and feel they are well earned. Our primary concern is to help you find a wonderful place to call home or vacation at. If we do not meet that goal or you feel we haven’t been worth the expense, we will do whatever it takes to remedy that. If you do purchase a property through us we deduct any travel/tour expense you have paid us from the commission up to five days (or $750).

If you have other questions or concerns please feel free to write or call with them. I understand the initial shock of paying for a realtor, but I also know now the benefit it brings here in Ecuador. Let the adventure begin
We look forward to meeting you and helping in whatever way we can.

A Final Word

If you own real estate in Ecuador you should have an Ecuadorian will. Although it is very possible that your Ecuadorian assets will go to your heirs without an Ecuadorian will, this can be a long and painful legal process. You will pay less than $100 to have a simple will drawn up by an attorney and notarized. If you wish, you can write a "hybrid" will good in both the U.S. and Ecuador. Simply have the will notarized