Diego Echavarría has practised real estate and immigration law in Malaga and throughout Andalucía for 20 years. I chatted with him via Zoom to learn the ins and outs of home buying in Spain for foreigners and why a real estate attorney is an absolute must. Here is a little of what he had to say…
Why is a lawyer required when buying a home in Spain?
Basically, you always need an attorney when you’re a foreign person investing in Spain. There are a lot of legal requirements and issues that most people do not know about. Lawyers check if the property has any debts and if the mortgages have been paid. The lawyers also help transfer the property and get it in the buyer’s name.
When you say a foreigner, do you mean someone outside of Spain or someone outside of the EU or both?
If you’re a Spanish citizen, you don’t necessarily need a lawyer?
Normally, in the past, using an attorney was like going to the dentist. Nobody called one until it was too late. Before, very few people used a lawyer. But now, needing a lawyer is more common. If you use a notary but not a lawyer, there are always things you’re going to miss. You are very likely going to make a mistake.
Are attorneys needed in both the buying and the selling process?
Yes. In selling a property in Spain, you need to make sure that the 3% retention is paid to the tax office. You also need to pay the principal tax to the county where you sell the property.
From a legal standpoint, if a foreigner is buying a home versus a Spanish citizen buying a home, are there other different laws that need to be followed in those circumstances?
Real estate laws aren’t any different if you’re from Canada or France or from Spain?
They are not different. Most people in Spain buy a house once in their lifetime, and they go to a notary to do it. People don’t understand the house buying process in Spain because they haven’t done it before. That’s why we, as lawyers, handle these situations. We go to the notary every day. It is kind of like when you go to the mechanic, and trust that they will fix the car. We do the same.
What are some of the stories that you’ve heard of, of negative consequences of not using an attorney in real estate transactions?
What happened in the Marbella area in the past was we had a big legal problem because there were around 15,000 properties built that did not have proper building permissions and licenses. This is why a lawyer needs to make sure there are no legal issues before a property is purchased in Spain. I don’t know if you are aware or not, but in the booming days in Spain there were a few mayors that granted licenses to build where they were not supposed to. Developers got a backroom deal. Those properties were sold, and then, the buyers received notice that they bought an illegal property.
What happened in that situation where those people bought property in Spain that was illegally permitted?
They reached an agreement where the buildings have been legalised. We are waiting for a new master plan for Marbella to be approved. This master plan will absorb all of these properties. The master plan has taken five years.
At what point should people involve lawyers in the buying and selling of houses in Spain?
We get involved starting the day you want to buy a property. We help with the reservation deposit; we request the paperwork for the property. If everything is okay, we recommend you go ahead. We can assist with NIE numbers, electricity, water, the community of owners and updating any information about the property such as if there have been any extensions to it that have not been reported. We do a report stating all of the points related to the property.
In the US, when you buy a house, you have an inspection done to tell you if there’s anything wrong with the house. Is that something that is done in Spain?
No, there’s no inspection here, there is only [financial] evaluation by the bank when there is a mortgage. When you as a buyer want to arrange a mortgage, then the bank sends someone, a surveyor to review survey the property.
When you buy a home in Spain, you’re just kind of hoping for the best without knowing if there are any issues with the property you are buying?
Inspections are more of an English thing. English clients sometimes want to engage a surveyor to check the property, to know every single condition, but that’s not really very useful. The buildings are in good condition usually unless it’s a €20,000 apartment in the middle of nowhere.
In a real estate transaction, there’s the lawyer, the bank, the real estate agent. Are any other people besides the buyer and seller involved?
Also, the notary in the end.
In your experience in working with foreigners in Spain, what are some of the biggest surprises about the Spanish real estate system versus the real estate systems in other countries?
One of the main things that foreigners are surprised about is the taxation. Tax transfer fee here is 8 per cent. I think in England it’s 2 – 3 per cent. I don’t know in the States.
In the US, there aren’t any taxes when you buy a house.
No taxes. If I go buy a house for $100,000, I just pay $100,000. Obviously, I have to pay some banking fees and different fees, but there aren’t any taxes.
Here you pay €100,000, plus €8,000 in taxes, plus notary fees, plus land registry fees, plus lawyer fees.
What do you think that percentage works out to be?
Around 11 per cent [of the total purchase price].
Do the taxes prohibit a strong real estate investment market in Spain?
Some people do property investment in Spain. They invest in a property and refurbish, sell, or rent them out. But you need a lot of capital for it, so it’s not really something that anyone could do. Here, there’s a lot of things, a lot of fees and taxes so you need more capital; and when you sell as well, you have to pay taxes.
You get taxed both when you buy and sell a house in Spain?
Yes, when you sell you have to pay taxes because there are capital gains. Here, you don’t pay taxes if you lived for three years in your primary home and buy another house. You cannot sell your house and spend the money in the casino in Spain. You have to invest in another property.
What about anything else that you think people need to know about investing in Spain? I think one thing that’s interesting, another difference, in the United States, if you go buy a house in a neighbourhood, you can go see how much all the other houses in the neighbourhood are sold for. Whereas in Spain, it seems as if the pricing system is a little bit restricted.
Very restricted. Here if you want to buy a property in a neighbourhood, you don’t know the average price of a home in that particular neighborhood, or how many deals have been gone through the last six months. There is no information at all, nothing. So, you can only guess from the websites.
Is there a reason those prices aren’t known or is it just that no one’s ever organised it?
It’s the system. A lot of people are asking me the same question – Why isn’t there a record of all the transactions done in Marbella? There is data protection. If I go to the notary and ask, “How many deals have you gone through the last month?” they won’t tell you; it’s private information.
All the notaries here know all the information, but they don’t release it. For example, in Marbella we have six notaries. If someone could collect all that information, you would have an idea who is buying, how much are they buying, and if the prices are going up or going down. But we don’t know. You’d be guessing just by the real estate websites and for the market. It’s quite difficult to make a valuation of a property. When it comes to selling the property, when you find someone to buy, you have to be a local or have someone local to trust to know if what you are buying is the correct price. And what you see in the websites, usually the prices are 20 per cent more than the reality. The prices on the websites are not really accurate.
How do real estate agents get paid in Spain?
It depends on each region. Here in the Malaga and Costa del Sol, all the agents have an arrangement that it is 5% of the sale price. The seller pays this fee. Usually there are two agents, one that brings the client and the other who brings the property. The two agents then split the commission.
Is there anything else that you would like to add or that you think is important to share about the real estate purchase processes especially for foreigners?
With foreigners from the states, they can invest $500,000 euros in a home and get residency for the whole family.
And with that €500,000, can you take a mortgage out on that in Spain, or does it have to be cash?
No, you have to bring your own money.