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Use Caution When Buying Real Estate in Mexico

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So, you’ve reached a point in your life where you think that you’ve learned a little about business, finance, contract negotiating, real estate, etc. and have at least a layman’s knowledge of law pertaining to each. Being that savvy, you might also be aware of the incredible retirement locations and values south of the border; furthermore, you might even be considering Mexico as your retirement destination. If so, you might as well forget everything you’ve learned and leave your law degree at home!

Mexico, as beautiful as it is, has a somewhat different way of doing business and a completely different set of laws. Additionally, all legal transactions, including real estate transactions, are done in Spanish. Therefore, for those of you that may be considering locations in Mexico as possible retirement destinations, the following information should give you some insight as to how the Mexican real estate industry works, list some of the possible pitfalls, and most importantly, give you the guidance required to assure a pleasant and safe experience.

In 1984, we made our first real estate purchase in Puerto Vallarta; a condominium in Mismaloya, about seven miles south of town. Our second purchase, two years later, was the adjacent condo. A year later, we removed the wall between the two condos and remodeled them into one very spacious three bedroom condo. For thirteen years, while still working in Houston, we thoroughly enjoyed visiting Vallarta two or three times a year. At some time after the purchase of the two condos, we noticed that our original escritura (legal property documentation similar to a title or deed that is held in a fidecomiso or bank trust) showed the property value to be about one third of what we actually paid for it. When we inquired about the discrepancy, we were told that the lower value was used in order to reduce our annual property taxes.

It wasn’t until many years later, when we decided to sell the condo, that we learned that capital gains taxes were due on the huge difference between the selling price and the documented purchase price. Ouch, we owed substantial taxes on a paper gain, when in fact, there was very little real gain! We then learned that the condo developer entered the extremely low sales prices on all the escrituras in the condo complex in order to evade paying substantial capital gains taxes. As we later learned, the developer could have entered the selling price, the appraised value, his cost of construction, or just about anything imaginable into the escritura, and we, naïve North American property buyers, were at his mercy!

So, what happened upon the sale of our condo you ask? Well, our wonderful realtor just told us not to worry, no problema; she handled all the paperwork during the selling process and merely forwarded the phony valuation figures to the new escritura held by the new uninformed buyers, thus it became their problem when they decided to sell.

Upon the sale of the condo, we bought a beautiful new mountainside villa with a panoramic view of Banderas Bay, El Centro, and the Sierra Madres. We saw the new villa advertised in one of the local magazines and asked our realtor friend to show us the property. He showed us what seemed to be, every property in town, before reluctantly taking us to see the villa in the magazine. Some time after buying the villa, we learned that our friend the realtor, received only 10% of the commission on the sale because that was all the listing agent was willing to pay. The listing agent ran the ad in the magazine and didn’t feel that an agent representing a buyer was necessary. Therefore, our agent spent a couple days showing us properties listed by his agency before caving in to our demands and taking us to the villa of our dreams; one that we have thoroughly enjoyed for more than a decade.

These experiences revealed the tip of the iceberg and after living here for ten years, we've finally been able to expose the entire iceberg and share some of the details below.

To begin with, there are no licensed real estate brokers or agents in Mexico! In fact, there is no mandatory licensing for real estate agents in Mexico because the Federal legislation process has yet to accomplish it and therefore it remains in limbo. So, exactly what are the qualifications for being a broker or agent in Mexico? They are essentially the same; one must know how to read and write, have free time and the ability to put a “For Sale” sign in the front yard or show a listed property, and should have access to a car and be able to drive. In Mexico, the term “broker” refers to the boss or the owner of the agency and the term “agent” refers to the employee.

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With the booming real estate market and economy in PV that exists today and the qualifications listed above, it’s quite obvious why we have such a diverse group of agents and brokers in Vallarta. The off-the-cuff babbling by many of the agents is so often inaccurate or misleading that it can easily result in placing the buyer or seller in intolerable predicaments.

In order to have some degree of continuity from agent to agent, a voluntary association for real estate personnel has been formed in Mexico. The Associacion Mexicana de Profesionales Immobiliarios, A.C., known as AMPI, is quite active in Vallarta, although membership in AMPI is not compulsory and has no bearing on the capabilities of the agents representing the buyers or sellers. You’ll notice the “P” in AMPI stands for “Professionals”, however it would be an extreme stretch of the imagination to consider many of the real estate agents or associates in PV as “Professionals”.AMPI schedules periodic conferences, conducts educational programs, and holds various meetings where they attempt to keep their members and the public current on activities in the area as well as changes in the Mexican law as it pertains to real estate. AMPI has a code of ethics (some of which are followed sometimes!) and it does attempt to establish a uniform set of operating procedures, some of which are in writing, others understood but not documented. AMPI brings real estate personnel together in a private, non-governmental organization, where it’s members voluntarily agree to abide by the organization’s statutes and code of ethics. For sure, it’s better than nothing but still not to be confused with or even compared to associations such as the National Association of Realtors or NAR in the US.

Dual agency disclosure, designated agency, full disclosure, confidentiality, imputed knowledge and notice, implied knowledge, fiduciary duty, loyalty, and vicarious liability are foreign concepts to the majority of agents in Mexico. As an example of the differences, NAR provides it’s member agencies with standard statewide listing forms, pre-qualification forms, escrow account and earnest money forms, standard purchase agreement forms, letters of intent, etc. The NAR has written and enforceable guidelines regarding the handling of commissions and the sharing of commissions between the selling and buying agents. In Vallarta, there are no such forms provided by AMPI. Each real estate agency has it’s own listing form, which clearly depicts the listing agent as receiving 100% of the commission upon sale of the property. Although there are guidelines for commissions, they are still to some degree negotiable with the seller. The listing agent can then negotiate commission sharing with the buyer’s agent.All other forms vary from agent to agent and are not necessarily written in the best interest of the buyer. Also, all forms and contracts for North Americans are in English; however the Spanish version is the only document that has any legal standing in Mexico. Therefore, regardless of what you read in English, a Spanish speaking attorney should always represent you along with your agent.

Another major difference between AMPI and NAR has to do with the Multiple Listing Service or MLS. In the States, the MLS is controlled and monitored by the NAR and is available to all NAR agents. In certain Mexican cities, including Vallarta, there is an MLS however it is not controlled by AMPI. Instead, it is privately owned and operated by a local publisher and is available to the public at no charge. AMPI members are able to list their properties on the Vallarta MLS, with the general public as well as the other AMPI members having access to the listings.

Once you understand the inner workings of the real estate industry in PV, you need to learn a little about Mexican real estate law. It is very complex regarding trusts, escrows, mortgages, treatment of taxes, etc. and is often open to interpretation by a federally appointed attorney, known as a notario. A small percentage of the realtors in Vallarta have a fair understanding of Mexican law as it pertains to real estate transactions; however the vast majority of them are sorely lacking in this field. Even with little or no knowledge of the law, they will be anxious to advise you, right or wrong, thereby looking like “Professionals”.

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The best law for you to follow is caveat emptor, buyer beware! Because of the many pitfalls that a buyer can encounter while purchasing real estate in PV, we learned over twenty years ago that it is wise to interview realtors with scrutiny, keeping in mind that most all will be promoting their own listings first and meeting your needs second. It’s just human nature and with virtually no control in Mexico, it’s pretty much assured. Also, because almost 100% of them have listing agreements with the sellers, they are legally bound to act in the best interest of the sellers, and not necessarily in your best interest. Because the buyer usually has no contractual agreement with the realtor, he will in all probability get the “short end of the stick” in this conflict of interest.

Of all places, in Mexico you should select an agent that is 100% dedicated to helping you find the property that meets your needs and satisfies your requirements; preferably, a contractual agreement with an agent with no listings, no axe to grind, no ulterior motive, and is exclusively representing buyers and their best interests. A true buyers´ agent in PV should have no property listings, should have complete access to the Vallarta MLS, should know the areas and growth trends in and around Vallarta, should be able to professionally negotiate on the buyer’s behalf, should have a decent understanding of Mexican real estate law, should have a working relationship with the local notarios, real estate attorneys, escrow and title agents, mortgage bankers, insurance agents, inspectors, appraisers, and lastly, your representative must have a thorough working knowledge of the local real estate industry and understand the idiosyncrasies associated with it.

Buying your dream home or condo in Vallarta should be one of your best experiences, however without due diligence, it can be a nightmare. Obtaining an exclusive buyers´ agent with 100% dedication to you is a prerequisite for assuring a pleasant beginning of your retirement in Paradise.


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Jim Scherrer has owned property in Puerto Vallarta, Mexico for 25 years and resided there for the past eleven years. The mission of his series of 47 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling (more...)

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