What you need to know about

Property In Spain
Selling a Property in Spain
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Legal Note - It should be remembered that the application of Spanish law varies considerably according to region and the circumstances of each individual and so this report can be treated as a general guide only and not as a substitute for qualified legal advice regarding any particular situation. Responsibility for acting on foot of this guide alone is entirely personal and no liability can be accepted by myAdvocate Spain. For a link to where you can get advice on your specific situation from expert legal practitioners in Spain please see the end of the guide.

Practical Issues when Selling a Property in Spain

How times have changed! Only a few years ago who would have thought that the property landscape would have changed so much. Instead of queues to get into promoters' sales cabins along the coast for the 'opportunity' to buy a 'dream-home in the sun', the reality now could have changed more. Many have found themselves in the unfortunate position of having overstretched themselves, perhaps having lost their job in Spain or in their home country and now unable to pay the mortgage on their Spanish property. That said, this is not the situation that everyone finds themselves in and depending on the location and the quality of the property, there is still demand, albeit less. It would seem that the appeal of living in the sun has not gone away but that the headiness of the recent boom is still in the process of working itself through. Should you be in the situation that you wish to sell your property in Spain this guide will cover the main points that you need to consider from estate agents to lawyers and from taxes to utility bills. The aim is to aid anyone starting from scratch who perhaps isn't sure where to start and isn't aware of the pitfalls to avoid.

Advertising the Property

Anyone who has spent any time in Spain will have seen the 'Se Vende' signs protruding at various angles from houses and apartment windows. These 'For Sale' signs signify a property that is for sale privately by the owner. Many local Spanish people tend to at least try this method in effort to avoid estate agency fees. That is the main benefit from going down this route but on the negative side only those that would pass the property will be aware that it is for sale. Another possibility that has proved popular in more recent times has been to advertise the property over the internet. Of course this has the potential to reach a much larger audience though you are depending upon the effectiveness of the website chosen to market the property. Some of these companies offer their services for free while others charge.

Of course another, more traditional method would be to contract a local estate agent to market the property. As previously mentioned the biggest downside of this is probably the fact that the agent will charge a fee though it is worth pointing-out that this will normally be a portion of the sales price and therefore they have to be successful in order to benefit. During the boom-time it was possible for estate agent to charge as much as 18% of the sales price! As a result of the current slowdown and competition from internet based marketing models mentioned previously, margins have come back down to earth and it is quite normal to be quoted a fee of anywhere between 3% and 5%. One thing to be careful about when dealing with an estate agent is the possibility that they will request that you sign an exclusivity contract i.e. that you will not contract any other estate agent or company to market your property. While you can, without doubt, negotiate a lower commission rate if they are given exclusive rights to market the property this has to be balanced against the benefit to be gained by being able to market the property across a number of agencies and internet sites. Any contract, be it exclusive or otherwise should clearly state the commission fee the agent will charge for successfully marketing the property. One of the main benefits of contracting a local estate agent is the possibility of them being available to show the property when you may be out of the country. They will also know the best forms of local marketing such as which papers to place adverts in. But you would be advised to ask them what forms of marketing they will be using to market your property to get a better idea.

The Closing & Payment

Once an offer has been made and accepted on the property then typically the buyer's lawyer will carryout due diligence checks on the property, and assuming no issues arise, the next step is to prepare and sign what is known as a 'deposit contract'. This involves a deposit being paid by the purchaser which effectively grants an exclusive right to purchase with a date being fixed for the purchase to be finalized. Should the sale not go through due to a change of heart on the part of the purchaser then their deposit, often 10% of the purchase price, is lost. Should the failure of the property transfer be caused by the vendor then they are obliged to pay the purchaser 20% i.e. double the amount of the deposit. Once again assuming that everything happens smoothly the next important date is 'the closing'. This is a meeting that will include any or all of the following: the purchaser, the vendor, their legal representatives, the bank representatives and the notary. The notary is required as the purchase deed is a public document and requires a notary to formally witness it. At the closing stage it will be necessary to sign the public deeds of ownership though it is sufficient for 2

your lawyer to be present if they have full power of attorney. Payment is made typically with a bank guaranteed cheque though it may be possible to use the notary's escrow account. The public deeds will contain a detailed description of the property as well as contain the details of the purchaser, vendor, the price, form of payment and any other relevant conditions. Your lawyer will advise you on all aspects of the process so as to be sure that you are not in danger of being defrauded or somehow losing the property or signing terms that are disadvantageous to you.

Taxes, Mortgages and Other Charges

A transfer of property in Spain can function differently from other jurisdictions and so it is important to be aware of the assumptions that the law makes with regards to responsibilities and liabilities for payments of taxes and charges relating to property ownership. The main taxes and charges connected with property ownership include the following: IVA or ITP (VAT on new or second-hand homes) Plusvala (Capital Gains Tax), IBI (Council Tax), Comunidad Charge (If in a shared building or urbanisation), utility bills and, of course, any mortgage on the property.

IVA and ITP

Both of these taxes are equivalent to VAT IVA (Impuesto de Valor Aadido) and ITP (Impuesto de Transmisin Patrimoniales) - and are payable upon the purchase of a property. Where the property is new and is being purchased from a company (typically a constructor or promoter) then the tax payable is IVA and is standardised at a rate of 8% across the country. If the property is second-hand then the tax payable is ITP and the rate is typically between 7% and 8% across the country as, differently from IVA, ITP is set by the regional government rather than at a state level and so varies a little as between each region. When buying a new property IVA is paid on the purchase price to the developer or promoter when buying the property. It is then the responsibility of the developer or promoter to make their IVA returns to Hacienda (Spanish Tax System) in the usual way. If a second-hand property is being purchased then it is the responsibility of the purchaser to pay this tax directly (using form 600) in the local tax offices within one month of signing the deeds.

Plusvala
This tax, similar to Capital Gains Tax is ordinarily the responsibility of the vendor as they have benefited from the increase in the value of the property since they previously bought it. This is not written in stone however and should the two parties come to an agreement it can become the responsibility of the purchaser to discharge this liability. In fact, where the vendor is a non-resident this liability actually shifts to the purchaser. Of course if the vendor is resident and reinvests the funds in another primary residence then there is no liability for plusvala. If however, the vendor is a non-resident then the purchaser is obliged to retain 3% of the purchase price and pay this to the tax office. Evidence of payment is demonstrated with a stamped copy of form 211 and the vendor can then deduct the same amount from the purchase price. IBI It may be the case that the vendor has already paid the local Council Tax or IBI (Impuesto de Bienes Inmuebles) for the full year, yet will only be in the property for a portion of that time. If this is the case then upon facilitation of receipts for payment of the tax, a vendor will be entitled to add this to the price of the property. In any case the purchaser will be anxious to see receipts for the previous and current years IBI as they are otherwise liable.

Discharge of the Mortgage

If the property was owned for a substantial period of time then it is fairly likely that upon sale, any mortgage can be discharged. However, even though the bank receives a cheque from the buyers that covers the full amount of the mortgage debt, this does not itself remove the mortgage charge from the property registry and this is the responsibility of the vendor (assuming that the purchaser is not going to take-over the mortgage). The process involves having the bank issue a certificate that the debt has been cancelled. Once the certificate is issued a notary will draft an 'escritura' or formal legal public document to evidence the said cancellation of the debt. Once presented to the local tax office (currently this process is exempt from tax but it must be presented) it then remains simply to inscribe the 'escritura' in the property registry at the town hall. The cost is normally in the region of several hundred Euros all told. 4

Utility Bills and La Comunidad Standard procedure requires the vendor to produce the latest utility bills that show that payment of these bills is up-to-date. The notary will usually request a certificate directly from the Community of Owners that payment of community fees is current and that there are no fees outstanding. In order to end your liability for the utility bills relating to the property it is necessary to transfer responsibility to the new owner. To do so it is simply necessary to contact the utility company and provide them with the new name and either NIE or passport number of the new owner. A bill with account number details etc will be necessary as well. In the worst case scenario the new owner will have to call in to the local offices of the relevant utility company with their identification and a bill to prove that it is a legitimate transfer though this is unlikely. Assuming that payments of the community fees are up-to-date then the next payment due will be sent to the new owners of the property. In all cases make sure to terminate all standing orders and it is probably a good idea to set-up a postal redirection which can be to any new address including outside Spain.

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