Once during our lives, we arrive at this point: we buy or sell a property. And this moment involves, without any doubt, a set of legal steps that you should carefully consider; as a simple contract between buyer and seller is not enough. In this post, we want to state which are the 3 legal steps you will need to go through when buying a property of any real estate asset in Spain during 2020, whether you are an expat or not.
Here you have a short video that will go over the main steps of the purchasing real estate process:
But, if you still need some more information…
THE PURCHASING PROCESS OF A SPANISH PROPERTY
We can simply group in three big blocks all the legal steps that characterize the purchase of a property in the Spanish territory, using a temporal criterion:
- Procedures or diligence that arise prior to the purchasing of the property (down payment)
- The purchasing contract (public deed)
- Formalities and procedures that come after the purchasing moment
How long does this process take? Well, it depends. There are cases in which you can complete all the steps in just one or two weeks, provided that everything works smoothly between buyer, seller, and agency. But it can be longer.
Let’s analyze the property purchasing process in a more detailed way for this 2020:
0. BEFORE STARTING ANY LEGAL PROCEDURE IN THE COUNTRY
As a foreigner, in order to embark in any kind of legal procedure in the country, you will need first to embark on a legal procedure. Don’t worry, it is really simple (if not, we can help you out).
What are we talking about?
Well, if you are an expat in Spain willing to buy a property, the first thing you should do is to get your NIE number. It is the basic identification number that all foreigners must obtain once entering the country.
Furthermore, we must make a distinction here.
IF YOU ARE FROM A EUROPEAN UNION COUNTRY…
If you are from a European Union country, there are two types of NIEs:
- The temporary NIE number, for those individuals who do not want to live in Spain
- Conversely, a Resident NIE (a permanent one) for those who actually want to
IF YOU ARE A NON-EU CITIZEN…
On the other hand, let’s say that you are a non-EU citizen. In that case:
- You can apply for the Resident NIE number if you are a Spanish resident (you live int he country more than 183 days per year)
- Non-resident NIE, if you are not living in Spain but would like to buy a property either way
1. LEGAL PROCEDURES PRIOR TO PURCHASE
In this section, a series of diligence prior to the signing of the binding contract between both parties is born: the so-called diligence of the property.
What does this process consist of? Basically, it consists of a review and verification of all the documentation of the property in the registry, as well as the validity of those papers.
We will first analyze the documents you will need here, and afterwards explain, step by step, how should you manage this first part of the purchasing process.
DOCUMENTS YOU WILL NEED BEFORE BUYING A HOUSE OR A FLAT IN SPAIN
You have your NIE Number, and you already found the flat our house you would like to acquire. There are now 3 documents you will have to sign until you buy the flat.
- The reservation contract. It normally is 1% of the property price. This percentage represents a tiny amount that you should pay in order to officially make the offer to the seller of the house.
- If the seller accepts the offer, you need to pay the pre-sales agreement, which is 10% of the amount of the price.
- Deposit contract
STEP BY STEP
Once we have a copy of the notarial deed containing information regarding the registration of the property (for example, who is the owner of the property), we can go to the register and request a simple note, a document by which we can see that the property is free of duties and charges (such as mortgages).
In addition, on a large number of occasions, before signing the public deed on the notary, a prior contract is signed, pre-sales agreement or “contrato de arras”, which is not mandatory.
This pre-contract between buyer and seller has the purpose of formalizing the transaction between both parties: the buyer shows his clear intention to acquire the property, and the seller her intent to sell.
As we have said, it represents 10% of the total price. Once paid, the seller is obliged to sell the property. But what happens if she doesn’t? Good news. She then has to give you back the double of the amount you paid (20% of the total price).
But be careful. If you, as a buyer, don’t want to buy afterwards, then you will lose that money.
After the pre-sales agreement is made and paid, there is usually a 3-month period in which you can find financing from a bank, or just wait. Once that period is over, you will go to the notary to pay the remaining 90%.
The payments conditions will be defined in the deposit contract. In it, the purchase price will be established, the payment method defined (whether it will be fully paid in advance or it will be paid in installments), and the deposit (for practical purposes, a common down payment).
However, this document, unlike the public deed (as we will see right now), can not be used for registration to the property registry in Spain.
2. PURCHASING PUBLIC DEED
Once we sit down with the notary, we will proceed to draw up and sign the sales contract. That is the time in which we do the due diligence of the property. We request several documents to the seller in order to see that they are the real owners, that there is an actual agreement to sell, no inheritance or tax problems with the property, no debt with neighbors…
We do a full check regarding any legal issue that could affect the house or flat that is being sold.
What is our piece of advice here? To hire an architect to do an architect report about the flat situation, in order to determine that no damage to the building is present.
Once the transaction is completed and contracts signed, the house can be registered in the Property Registry under the ownership of the buyer (now the new owner).
Of course, each of these legal steps will have additional costs. How much, exactly, will those be? You can learn here about all the total costs when buying a property.
This part of the process is undoubtedly one of the most important, since a meticulous analysis of the contract will be needed, so as to neither party gets harmed. Buying a property that has problems with the city hall for urbanistic reasons, and that is something you discover after the final payment… is for sure detrimental.
That is why we recommend you to receive help from our specialized property lawyers in Spain. Why? Because we will accompany you during the whole process of buying and/or selling the property from the beginning, and we will make sure that there is no clause that could go in your detriment.
Furthermore, we developed a checklist that will guide you during the procedure. The checklist contains all the issues you should consider before buying a property, and you can have access to it here.
3. LEGAL PROCEDURES SUBSEQUENT TO THE PURCHASE OF THE PROPERTY
Once the purchasing contract on the notary has been signed, 3 steps that we must follow in order to deal with all the diligence that arise will come into play:
First of all, we must register the property in the Property Registry identifying the new owner.
Then, we will fill in the corresponding forms referred to the payment of property transfer taxes: the Tax on Patrimonial Transmissions and Documented Legal Acts, to the Autonomous Community in which the property is registered. You have 30 days to realize that payment.
Finally, we must transfer the ownership of public services; such as gas, water, and electricity.
EXTRA: TAXES YOU NEED TO PAY AS A NON-RESIDENT WHEN SELLING YOUR PROPERTY IN SPAIN
Are you a non-resident in Spain who is selling his property (which is located in Spain) or is planning to do so?
Well, in that case considering related taxes will be a compulsory practice. How much will you need to pay?
CAPITAL GAINS TAX WHEN SELLING A HOUSE IN SPAIN
If you are the one selling the property, you will need to pay mainly between 19-24% (provided that you are a tax resident), depending on the case, on capital gains tax (there is a scale). That tax percentage will be applied to the benefit obtained from the property. This means, the difference between the selling price and the price you paid when acquiring the property.
And what happens if you rent the property? As that will be considered an income, capital gains tax will be also applied, at the same tax rate.
Can you deduct any expenses? As a non-resident, you will just be allowed to deduct the expenses from the real estate agency, from the lawyer, and from the notary. Anything else. Nevertheless, the list of things you can deduct is larger in the case of being a resident in Spain (more on how to determine if you are a resident or a non-resident in Spain in our tax post).
PROPERTY TRANSFER TAX
Let’s go to the other side.
What if you are the one buying the property? In that case, you will need to pay the property transfer tax. And the exact amount will depend on whether the flat or house is new or not.
If you are buying a second-hand house, the tax amount to be paid will be equal to 10%.
On the other hand, if we are talking about a new promotion, the VAT is 10%, and then you have an additional 1,5% that needs to be paid as a new registration. Therefore, buying a brand new flat in a brand new building implies paying a total amount of 11,5% in terms of taxes.
But if you are a young individual we have some good news for you. Because if you are under 32 and you declare that the house or flat which you are buying will be the place in which you are going to live, then that 10% turns into a 5%.
IF YOU HAVE MORE DOUBTS…
If you still have doubts, good news. We have gathered in an article the 9 most frequent questions that our clients do to us when trying to buy a new house in Spain. Would you like to go over them? You can have access to the real estate questions and answers here.
ARE YOU READY TO START?
And here are the 3 main legal steps to buy a property in Spain. The purchasing process can be long and complex, basically due to the fact that there is an urgent need to take into account many aspects related to the operation (many times small nuances), especially if we do not want to be harmed.
Thus, receiving the help of specialized lawyers is highly recommended. Getting the right legal advice as an expat is key.
When do you want to start?