So you’ve reached a point in your life where you think you’ve learned a little bit about business, finance, contract negotiation, real estate, etc. and at least have legal knowledge relating to each. Being that smart, you might as well be aware of the incredible location and value of the pension just south of the border; Additionally, you might even consider Mexico as your retirement destination. If so, you’d better forget everything you’ve learned and leave your law degree at home!
Mexico, as beautiful as it is, has a slightly different way of doing business and an entirely different set of laws. In addition, all legal transactions, including real estate transactions, are conducted in Spanish. Therefore, for those of you who might be considering a location in Mexico as a possible retirement destination, the following information will give you some insight into how the Mexican real estate industry works, list some of the possible pitfalls, and most importantly, give you the guidance you need to ensure pleasant and safe experience.
In 1984, we made our first real estate purchase in Puerto Vallarta; a condo in Mismaloya, about seven miles south of town. Our second purchase, two years later, was an adjacent condo. A year later, we removed the wall between the two condos and remodeled it into one very spacious three bedroom condo. For thirteen years, while still working in Houston, we have enjoyed visiting Vallarta two or three times a year.
Sometime after the purchase of the two condos, we noticed that our original escrituras (legal property documentation similar to a title or deed held in a fidecomiso or bank trust) showed the property value to be about a third of what we actually paid for them. When we inquired about the difference, we were told that the lower value was used to deduct our annual property tax.
It wasn’t until many years later, when we decided to sell the condo, that we learned that the capital gains tax was caused by the large difference between the selling price and the documented purchase price. Alas, we owe huge taxes on paper profits; when in fact, there are very few real advantages! We later learned that the condominium developer put a very low selling price on all escrituras in the condominium complex to avoid paying the hefty capital gains tax. As we later learned, a developer could simply plug the selling price, appraised value, construction cost, or just about anything imaginable into the escritura, and we, as naive Americans as we used to be, are at his mercy!
After the condominium sale, we purchased a new villa on a beautiful mountainside with panoramic views of the Bay of Banderas, El Centro and Sierra Madres. We saw a new villa advertised in one of the local magazines and asked our realtor friend to show us the property. He showed us what every property in town looked like, before reluctantly taking us to look at the villas in magazines. Some time after purchasing the villa, we learned that our realtor friend only received 10% of the sales commission because that was all the listing agent was willing to pay. The listing agent ran an advertisement in the magazine and did not feel that an agent representing the buyer was needed to sell this beautiful new villa. Therefore, our agent spent several days showing us anything other than the properties listed by his agency before giving in to our demands and taking us to our dream villa; one we have enjoyed for over a decade.
These experiences reveal the tip of the real estate iceberg and after living in Vallarta for ten years, we are finally able to uncover the entire iceberg and share some of the details below.
First of all, there are no licensed real estate brokers or agents in Puerto Vallarta! In fact, there is no mandatory license for real estate agents in all of Mexico because the Federal statutory process has not yet been completed and therefore the law remains unclear. In Puerto Vallarta, where there are more than 80 real estate agents, there may be more than 500 real estate agents with minimal qualifications. With today’s booming real estate market and economy, it’s pretty clear why we have such a diverse group of agents and brokers in Vallarta.
In order to have some degree of continuity from agent to agency, voluntary associations for real estate personnel exist in various regions of Mexico. Asociacion Mexicana de Professionales Inmobiliarios AC, known as AMPI, is fairly active in Vallarta with a membership of about 50 of the 80 real estate agents in Vallarta. Although membership in AMPI is not mandatory and has nothing to do with the ability of an agent to represent a buyer or seller, it is considered a standard bearer for listing agents in the region.
The second real estate association, composed primarily of Mexican agents based in the Vallarta area, is the Asociacion de Professionales Inmobiliarios de Vallarta AC, known as APIVAC.
These associations schedule periodic conferences, hold educational programs, and hold various meetings where they seek to keep their members and the public current about activities in the area as well as changes in Mexican law relating to real estate. They have a code of ethics and they seek to establish a uniform set of policies and operating procedures, some of which are written, others are understood but not documented. They bring together real estate personnel where their members voluntarily agree to abide by the law and their organization’s code of conduct while seeking to operate with a certain level of continuity and professionalism. To be sure, this association is better than nothing but still not to be confused with associations like the National Association of Realtors or NAR in the US. Double agent disclosure, designated agent, full disclosure, confidentiality, calculated knowledge and notice, implied knowledge, fiduciary duty, loyalty, and representative duty are foreign concepts to most real estate agents in Mexico. As a result, the misleading or inaccurate statements often made by many agencies can put buyers and sellers in intolerable trouble in Mexico.
Although AMPI and NAR do have an employment relationship, one example of the difference between AMPI and NAR is that NAR provides standard statewide registration forms, pre-qualification forms, escrow account and cash-in-the-money forms, standard purchase agreement forms, letters of intent , etc. In Vallarta, there is no such form provided by AMPI or APIVAC. Each real estate agent has his or her own listing form or uses a form provided by an outside private publisher, which clearly describes the listing agent receiving a 100% commission on the sale of the property. In addition, NAR has written and enforceable guidelines regarding the handling of commissions and the distribution of commissions between selling agents and buyers. While there are guidelines in Mexico for real estate commissions, they are still flexible, and to some extent negotiable with the seller. The listing agent can then negotiate a commission share with the buyer’s agent.
All other forms vary from agent to agent and are not necessarily written in the best interests of the buyer. Also, most forms and contracts for North Americans are in English; however the Spanish version is the only document that has legal standing in Mexico. Therefore, regardless of what you read in English, a Spanish-speaking lawyer should always represent you along with your agent.
Another key difference between Mexico-based association and NAR has to do with the Multiple Listing Service or MLS. In the United States, MLS is controlled and monitored by NAR and is available to all NAR agents. In certain Mexican cities, including Vallarta, there is MLS; but not controlled by AMPI or APIVAC. Instead, it is privately owned and operated by a local publisher and is available for public property searches at no charge. AMPI members can register their properties in MLS Vallarta, with the general public as well as other AMPI and APIVAC members having access to the register.
Once you understand how the real estate industry in PV works, you need to learn a bit about Mexican real estate law. It can be very complex regarding trusts, escrow, mortgages, tax treatment, etc. And it is often open to interpretation by a state-appointed attorney, known as a notary. A small percentage of real estate agents in Vallarta have a fair understanding of Mexican law relating to real estate transactions; but most of them are very lacking in this area. Even with little or no knowledge of the law, they will be eager to advise you, right or wrong; therefore, the best law to follow is caveat emptor, or buyer beware!
Because of the many pitfalls buyers can encounter when buying real estate in PV, we learned over twenty years ago that it’s wise to interview realtors carefully, keeping in mind that most will promote their own listings first and cater to your needs second. . It’s just human nature and with almost no control in Mexico, it’s pretty reassuring. Also, because nearly 100% of them have a listing agreement with the seller, they are legally bound to act in the seller’s best interest, and not necessarily in the buyer’s best interest. Since the buyer usually doesn’t have a contractual agreement with the realtor, he or she is likely to be on the “spearhead” of this conflict of interest.
Of all places, in Mexico you should choose an agent who is 100% dedicated to helping you find a property that meets your needs and meets your needs; preferably, a contractual agreement with an agent without a register, without an ax, without ulterior motives, and exclusively representing the buyer and their best interests.
A true buyer’s agent in PV should not have a property listing, must have complete access to Vallarta MLS, must be aware of areas and growth trends in and around Vallarta, must be able to negotiate professionally on behalf of the buyer, must have a decent reputation understanding of real estate law Mexico, must have working relationships with local notaries, real estate attorneys, escrow and title agents, mortgage bankers, insurance agents, inspectors, appraisers, and lastly, your representatives must have a thorough working knowledge of the local real estate industry and understand the perks involved with him.
Buying your dream home or condo in Vallarta should be one of your best experiences, but without due diligence, it can be a nightmare. Getting an exclusive buying agent with 100% dedication to you is a prerequisite to ensure a pleasant start to your retirement in Paradise.