In the final post of this series, I’ll share details of our experience buying a home in Guadalajara in 2022.
Before we dive in, if you skipped part 1 covering the mechanics of Mexican real estate, or part 2 about the house-hunting experience, I recommend you start there. Now, please buckle up for part 3.
The Sales Agreement
Once a buyer and seller have reached an agreement on the purchase price, the next step is for the parties to formalize their intentions with a sales agreement.
The notario is typically the party that creates the sales agreement, which stipulates the purchase price and currency in which it will be paid, number of payments, source of the funds, size of each payment, payment dates, and any other terms of the sale.
A sales agreement can also be executed directly through the agents and parties to the transaction if all are comfortable proceeding without the notario involved.
If you read part 2 of this series, you’ll recall that we dropped a note with an offer in a seller’s mailbox after we learned that a written offer we’d had our agent pass to the seller’s agent was never presented. More than a month passed with no response.
Six weeks later, the sellers’ agent was frantically calling us to see if we’d still like to buy the property. It seems the other buyer had dropped out when they failed to secure a mortgage loan. We had no love for the agent but still loved the house and neighborhood, so we decided to move forward with the deal.
Deposit
As noted in part 1, when a purchase agreement is signed between buyer and seller, it’s standard practice for the buyer to make a deposit.
The size of the deposit is negotiated, with 10% of the purchase price being typical. A buyer can wire funds from a foreign account or transfer money from a Mexican bank account to make the payment.
Traditionally, a buyer deposits these funds directly into the seller’s bank account when the sales agreement is signed. This is still the norm in Guadalajara.
The first payment to sellers occurs before any meaningful due diligence has been conducted and before a closing date has been scheduled.
Because there are so many ways a deal can go sideways after the signing of a sales agreement, there’s a significant risk to buyers when a seller already has a chunk of the buyer’s money sitting in his bank account.
Apart from suing the seller, you have no way to recover your money if the seller becomes uncooperative before the deal closes. This means you should be very committed to doing the deal before signing a sales agreement.
I was deeply uncomfortable with this practice and spent a few weeks looking for a workaround. Ultimately, I was unable to find one and accepted that this is just how property deals are done in most of Mexico, including a modern city like Guadalajara.
The lack of safeguards surrounding money transfers is a big deal for any buyer accustomed to escrow. I wouldn’t criticize anyone for walking away when confronted with this risk. Moving forward under such conditions requires a great leap of faith — and underscores that traditional real estate practice in Mexico strongly favors sellers’ interests over buyers.’
Due diligence on the sellers is your best (and frankly only) option for added protection. This is why we had our notario run a preliminary title search on a house we were interested in before signing a sales agreement.
The search clarifies whether the sellers’ ownership is clear and uncontested. And it was fast, easy, and cheap–costing us $500 pesos (~$25 USD back in 2022) and completed in a few days. Our property search came back clean and provided us with added peace of mind.
In some expat enclaves where foreigners often transact between themselves, U.S.-based escrow services are sometimes used to bypass the practice described above.
Inspections & Repairs
Another surprise for foreign buyers with experience in the U.S. or Canadian property markets is that home inspections and repairs as a condition of sale are uncommon.
Sales are done “as is” in virtually all cases. But this is changing, little by little. In areas of Mexico with a growing presence of international buyers, there are now a handful of inspectors you can hire to test systems and assess structural issues. Given how new this specialty is, it’s best to assume that skills and experience are highly variable. And like agents, there’s no formal certification for inspectors, so do your own due diligence.
We hired a company in Guadalajara called Smart Check. All told, the inspector spent 2 hours in the house, providing detailed insights, a written report and photos, all delivered electronically within 24 hours of his visit. It was a useful step in the process that uncovered a handful of minor issues, and was well worth the money we spent. (about 5,000 pesos)
The sellers asked for a copy of the inspection report, and much to our surprise, they undertook most of the recommended repairs. Given the standard practice of “as is” sales, the sellers’ willingness to do many of the needed repairs was unusual. We no doubt benefited from the fact that the sellers felt great pride in the home as they had also architected it.
Getting Approval to Buy from the Ministry of Foreign Affairs
Once a purchase agreement is signed, your notario will send a request to the Secretaría de Relaciones Exteriores (SRE) in Mexico City requesting approval for foreigner(s) to buy the property in question. There is one office processing requests for the entire country.
Prior to COVID-19, getting SRE approval reportedly took about two weeks. During the pandemic and since, wait times have lengthened considerably. At the height of the pandemic lock-down, getting approval took some as long as five months. I spoke to one unfortunate man whose deal fell through because of the delays.
For us, SRE approval took a bit more than six weeks. No one is really sure why things are so sluggish now. Additionally, there are no “fixers” you can hire to speed up the process. Several Mexican friends even told us that having your notario pester the SRE to complete their review can backfire, with your application getting moved to the bottom of the pile instead. Accurate? Perhaps.
Whether SRE delays are due to staffing cuts or the explosion of foreign demand for Mexican real estate in recent years, be prepared to wait, and wait some more.
Besides the stress and uncertainty of the outcome, we watched the USD devalue more than 5% against the peso while waiting for SRE approval to buy. Because of the dollar’s devaluation during this period, we had some tough discussions about how much more we were willing to pay for the property before walking away from the deal, if the dollar’s value vs. the peso continued to deteriorate.
If you’re a couple buying property jointly, approval is requested from SRE for each buyer separately. As it turned out, my and my husband’s SRE approvals came back 3 days apart, despite being submitted together.
In the interim, we also began wondering if a deal could be salvaged if only one of us got SRE’s approval to buy. The answer is an unsatisfying… maybe.
According to my notario, if one foreigner gets approved and the other doesn’t, you cannot complete a purchase that specifies two buyers taking an equal ownership share in the sales agreement. You would be obligated to create a new sales agreement and re-apply to the SRE as a single buyer.
It turns my stomach to imagine navigating that scenario. Fortunately, this didn’t happen to us — and I’m pretty sure if it had, we would have folded and decided to rent.
The Closing & Wiring of Funds
Finally, when everything is in order, your notario will set a closing date when buyers and sellers return to sign final paperwork.
The same week, buyers will wire the final 90% of the purchase price (or whatever was stipulated in the sales agreement) into the seller’s bank account, and pay taxes and any remaining fees directly to the notario.
If the seller had a mortgage loan outstanding on the property — not common, but was the case in our deal — the buyer must also wire money to the bank that holds the seller’s loan, paying it off. (You do not pay the seller this money to let them pay off the loan)
Following the mortgage lender’s instructions, we wired a six-figure sum to BBVA bank, where the sellers’ loan was being serviced. Shortly thereafter, I received confirmation from OFX, the foreign exchange firm that transferred our funds, that BBVA had received our money.
BBVA claimed they didn’t have our money. Over several days, we sent various paperwork to prove the wire transfer was made. First, we sent our electronic confirmation. They still couldn’t “find” the money.
Next, we provided more detailed, back-office paperwork from OFX that included the destination bank’s SWIFT code (unique bank identifier) and Clabe number (unique account identifier). These numbers had supposedly been missing on BBVA’s side.
Once we provided a detailed paper trail, BBVA was forced to acknowledge they had our funds. Then, they claimed the funds were not in the ‘right place’ so they couldn’t be credited to the borrower’s loan right away.
This snafu prompted the seller to make two in-person visits to his BBVA branch consuming 4+ hours, where he pleaded with staff to move the money and pay off their mortgage loan so that our deal could close.
As we waited, our minds reeled at the thought of losing a six-figure USD sum to a shady bank practice, but that’s where we were for about 3 days over Thanksgiving week last year. Finally, after the sellers’ second visit to plead their case, BBVA agreed to properly credit the funds, allowing the sellers’ mortgage to be paid off and our deal to close.
Some readers may be thinking… Well, this is just how banks operate in Mexico. And to a degree it’s true. Lots of clients of Mexican banks suffer myriad problems in the regular course of business. But it’s not always the case.
The two bank wires we’d sent to the seller’s personal account at BanBajio were credited the same day. The confusion and delays we encountered at BBVA were strictly a BBVA “thing,” to put it politely.
If the topic of Mexican bank malfeasance interests you, one of the recent scandals to catch up on involves Accendo Banco, which “disappeared” a heap of Zapopan taxpayers’ money when it failed in August.
Getting the Deed
Assuming that you bought property outside of the restricted zone, it will take an additional few months to receive the property deed (escritura) from your notario. The new deed is issued once all legal paperwork has been registered and processed by the state government office in the city where your property is located.
Based on my research, wait times vary a lot by city and state. We waited about five months to receive the deed to our property.
Conclusion
We were fortunate to have a happy ending. We love our neighborhood and new house in Zapopan (the west side of Guadalajara for you non-locals). It’s a tranquil area that after a few months feels like home.
That doesn’t change the fact that buying property in Mexico was a long and emotionally draining experience. When we finally crossed the finish line, I recall saying to my husband that I’d never, ever, go through that again.
I’m not sure if I’ll always feel this way… but one thing’s for sure. I have a lot more gray hairs than I did 12 months ago!
Caveat emptor.