You have found your dream home in Spain? Fantastic, congratulations! But before you receive the keys, you will have to go through an exciting process. In this blog we will give you a brief overview of the purchasing process so that you know what to expect and are well prepared. Although each process can be unique, the general outline usually remains the same.
From negotiation to reservation
It all starts with the negotiations about the price and conditions. This can include the contents, the desired transfer date, a structural survey and the financing (note: reserving financing is not common in Spain). Once you and the seller agree on the conditions, the first concrete step is signing a reservation contract and paying a reservation amount, also known as a ‘reserva’.
This reservation amount usually varies between €3,000 and €10,000, depending on the value of the property. This payment means the property is temporarily removed from the market and the seller indicates that the property will not be sold to anyone else.
The purchase contract
After the reservation, the purchase agreement is signed, in Spain known as ‘Contrato de arras’ or ‘Contrato de compraventa’. This usually involves you paying the seller a deposit of 10% of the purchase price (from which the reservation payment is deducted) upon signing. This contract contains all essential information that will also be included in the final notarial deed of sale.
If you buy a new-build home, you will often make interim payments per construction phase. The exact schedule may vary, but an example is:
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- reservation
- 20% (minus the reservation) upon signing the purchase contract
- 15% upon completion of structural work
- 15% upon making the home wind- and waterproof
- final payment to notary's suspense account (remaining 50%)
Preparing for the notarial transfer
Next, you prepare for the notarial transfer. Your lawyer will make sure that all legal documents are in order and will check for any outstanding debts. The final step is to go to the notary, where the official transfer of ownership takes place and you pay the remaining amount.
You pay the remaining amount of the purchase price to the notary and into his/her fiduciary account (official name for the ‘third-party account’). For existing homes, this is usually 90% (the remaining 10% has already been paid as a deposit). For new construction, you pay the final instalment according to the agreed schedule, for example 50% of the total purchase price. Although the final payment seems simple, there are a few points to consider to ensure that everything goes smoothly.
Final payment and other costs
Inform your bank in your own country about the planned large transfer intended for the purchase of a home. This prevents the bank from blocking the payment as a security measure. You can agree with your bank to transfer the final amount in one go, after which they will ‘open’ the account at a pre-arranged time. Alternatively, you can choose to pay the amount in instalments, for example in amounts of €50,000 (the limits for bank transfers can vary per bank). This process can take several days, so keep this in mind and inform your lawyer in time so that he/she can provide the notary with the necessary bank details.
Pay attention to the following when making payments:
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- If you are buying as a private individual, the remaining payment must be transferred from a private account in the buyer's name. If, for example, you live together and/or are not married (you are single under Spanish law) or if the purchase is made by friends or family, the payments must be made proportionally by the buyers concerned and from bank accounts in their names. This is important for the tax authorities, so that the flow of funds can be tracked.
An ‘and/or’ bank account in the name of all buyers can be a solution. - If the purchase is made in the name of a company, the remaining payment must come from a business account bearing the same name as the buyer (company) as stated in the deed.
- If it is not possible to make the payment from an account with the same name (points 1 and 2), a declaration or agreement must be submitted explaining the monetary relationship between the buyer and the payer. This could be, for example, a loan agreement between a company and a private individual or a loan from one partner to the other.
- If you are buying as a private individual, the remaining payment must be transferred from a private account in the buyer's name. If, for example, you live together and/or are not married (you are single under Spanish law) or if the purchase is made by friends or family, the payments must be made proportionally by the buyers concerned and from bank accounts in their names. This is important for the tax authorities, so that the flow of funds can be tracked.
Be aware that payments should preferably be made from bank accounts in EU countries. If money is transferred from outside the EU, the receiving bank may ‘freeze’ the payment because they must first investigate the origin in connection with anti-money laundering legislation. Documentation must be provided stating where the money comes from (salary, dividends or savings, for example) and what it will be used for (buying a house). This process can take some time and the transfer cannot take place until the bank releases the money.
If this is not an option, it may be advisable to engage a currency trader in time or to route the money through a European escrow account for which the bank has already carried out the necessary money laundering checks.
The above process will be different when you purchase with a Spanish mortgage. In that case, the bank that provides the mortgage will have to inform you about their procedure. Read more about the purchase process with a Spanish mortgage in this blog.
Provide proof of bank transfers
The transfer receipts for all payments (reservation, 10% to the seller and the remaining payment(s) to the notary) must be provided as official bank statements in PDF format (so not screenshots of the transfers). These payment receipts will be officially added to the deed of sale. The payment receipts must show legible IBAN numbers and the names of the account holder and recipient, as well as the amount and date. This is required by law in connection with the money laundering act. Make sure your lawyer has these receipts at least one day before the notarial transfer.
Additional costs for the buyer
Finally, you must take into account the payment of the transfer tax or, in the case of new construction, the payment of the so-called ‘stamp duty’. In addition, the costs for the notary and registration in the Property Register must be paid. Your lawyer can give you an estimate of the amount in advance and ask you to pay it to his/her client account before or just after the notarial transfer. The lawyer will take care of the payment of these costs, the so-called ‘costs of the buyer’. It is also possible that the lawyer will have the notary office handle it. In that case, you will receive an invoice afterwards for the notarial deed and registration in the Property Register. The transfer tax must be paid within one month of signing the deed of sale.
Conclusion
Buying a home in Spain is a process with several important steps, from reservation to notarial transfer. Although each process can be unique, the broad outline remains the same. It is crucial to be well informed about how payments should be made, what documentation must be provided and what checks are required, so that you are not faced with surprises just before or even on the day of signing the deed of sale. Engaging the services of an experienced lawyer to help you follow the correct procedure will ensure that everything is handled correctly and that unexpected problems are avoided. In the unlikely event that something goes differently than expected, he/she will assist you in finding the right solution.
