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.
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 less than $1,000. Many pay no more than $500.
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 in Ecuador with a copy sent to your
representative in the U.S.