Although the process for buying real estate in Ecuador is, in general, simpler than in North America and Europe, it can be confusing for the foreign buyer.
It is important to understand that there is no multiple listing service (MLS) in Ecuador. This makes the job of real estate agents more difficult in terms of arranging showings of property as well as obtaining detailed property information. Because of this, the foreign buyer should allow ample time to see properties and understand that the process is different than it is back home.
There is no equivalent to a North American-style “sales contract” in an Ecuadorian real estate transaction. It is possible, however, to draw up a short contract, accompanied by $1,000 to $2,000 in earnest money, to protect the buyer. This should be discussed with your closing attorney.
It is important to understand that all legal documents in the process are written in Spanish. Documents written in English or another language other than Spanish, have no legal status. If you do not speak Spanish, it is important that you get a translation of all legal documents so you thoroughly understand the transaction.
Once an agreement to purchase has been negotiated but the buyer is not yet ready to pay the seller full price, the buyer’s attorney will prepare a Promesa de Compra Venta, or promise to buy. The Promesa de Compra Venta will serve as the sales contract if an earnest money contract has not been executed. It is customary for the buyer to make a downpayment, usually about 10% of the purchase price, when the Promesa de Compra Venta is signed. The Promesa de Compra Venta, which is a notarized document, states the sales price, the closing date, lays out penalties for default and includes other terms agreed to by buyer and seller.
Based on the terms laid out in the Promesa de Compra Venta, the final step in the purchase process is execution of the Compra Venta.
If the buyer is ready to pay the full price negotiated with the seller immediately, the Promesa de Compra Venta can be eliminated, and the Compra Venta, the final closing document, can be executed. This saves time and legal fees. Like the Promesa de Compra Venta, the Compra Venta is signed in the office of a notary and all outstanding money due the seller is turned over. A brief point of explanation: in Ecuador, as in much of Latin America, a notary is an attorney with advanced training. Generally, you pay the notary at the conclusion of the notarization (the fee varies between but is typically less than $300).
The buyer’s attorney is responsible for researching the title of the property, making sure it is free of leins, and making fee and tax payments at or after the closing. The attorney will also register the Compra Venta with the municipal Office of Land Registry. Once registered, the Compra Venta becomes the official property deed. The property owner will receive a second notarized copy of the Compa Venta.
If the buyer is unable to be in Ecuador for the closing, he or she can leave a Power of Attorney with the closing attorney.
Closing Costs and Taxes
Closing costs and fees and taxes are very reasonable in Ecuador. A buyer should expect to pay about 1% to 2% of the purchase price for all costs, including attorney’s fee and various registration fees and taxes.
Real Estate Taxes
Annual real estate taxes are very low in Ecuador and even million-dollar-plus properties rarely pay more than $400 a year. Taxes are based on municipal value which is considerably less than the purchase price, ususally 25% to 75% less. Your attorney will record the municipal value of the property in the Compra Venta.
A Final Word
As we mentioned earlier, if you are not fluent in Spanish, make sure to have the closing documents translated into English or your native language. This is well worth the extra expense. If you are present at the closing, the Ecuadorian notary will make sure that you understand the documents you are signing.
Needless-to-say, we strongly recommend that you use an attorney who speaks your language to handle the closing.