Buying in Ecuador
It is important that the foreign real estate buyer have a working understanding of the process of buying real estate in Ecuador. This can be done is several ways including researching the process on-line or at the library, contacting Ecuadrian embassy officials or hiring professionals to help you navigate the process.
If you use word-of-mouth advice, such as you might find on internet blogs, bulletin boards or forums, be sure to verify the information. Although you can pick up useful information this way, much of what you read on-line is incorrect. Take this sort of information for what it is: a good starting point.
There are a number of reliable tools available for those seeking real estate and business advice about Ecuador. We recom
mend the Ecuador Owner's Manual, published by International Living (Go to www.internationalliving.com to order). The book provides an excellent overview of buying property in Ecuador, updated every two years, as well as overviews of the visa process and relocating from another country to Ecuador. If you purchase the Owner's Manual are interested in hearing of updates since publication, contact David Morrill at Ecuador@InternationalLiving.com. He is also a partner in CuencaRealEstate.
Unlike the U.S., Canada and most Western European countries, there is no multiple listing service (MLS) of properties for sale in Ecuador. It is not uncommon for a real estate agent in one part of the country to have no information on properties for sale in another part. Since many properties are offered directly by the seller, it is not even uncommon for agents in one part of a city to have no knowledge of properties for sale across town. Like many other real estate agents in Ecuador serving foreign buyers, CuencaRealEstate operates as a "buyer's agent." As a buyer's agent, we are able to assemble a larger offering of properties for the prospective buyer.
Most buyers will find that buying property in Ecuador is simpler than in their home country. This simplicity, however, comes with the burden of the buyer's due diligence to understand the procedures involved in buying. Ecuador, like most of Latin America, operates under the civil law system which varies from the North American common law system in many aspects. CuencaRealEstate will make certain proper procedures are followed and that the attorney and notary we work with protect the interests of our clients. It is a requirement of Ecuadorian law that that purchasers of real estate fully understand all aspects of the closing. A translator is required by law to be provided for non-Spanish speakers at real estate closings.
The Process
Once an agreement to purchase has been negotiated but the buyer is not yet ready to pay the seller the full price, the buyer's attorney will prepare a Promesa de Compra-Venta, or promise to buy. The Promesa de Compra-Venta document is similar to the sales contract in North America, although it is more formal and much more binding on the buyer. It is customary that the buyer delivers 10% of the purchase price at the signing of the Promesa de Compra-Venta. The Promesa de Compra-Venta, which is a notarized document, states the sales price, the closing date and lays out penalties for default. Unlike a North American contract, there are fewer avenues for opting out of the deal and getting the 10% binder back. It is important that the buyer complete all inspections of the property and negotiate any price adjustment prior to signing the Promesa de Compra-Venta.
If both parties are ready to close the sale at the time the price is negotiated, 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. The Compra-Venta is also 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 generally runs between $50 and $100.
The buyer's attorney is responsible for researching the title of the property, making tax payments from funds the buyer has provided and, after the signing of the Compra-Venta, registering the property with the Office of Land Registry. The attorney will present two notarized copies of the Compra-Venta to the Land Registry. One will be filed at the Land Registry Office, the other returned to the buyer and serves as the property deed.
If the buyer is unable to be in Ecuador at the signing of documents, he or she can sign over Power of Attorney to an attorney or representative.
Closing Costs and Taxes
Closing costs and fees and taxes are a fraction of what a real estate buyer will pay in the United States for similarly priced property. A buyer should expect to pay from 1% to 1.5% of the purchase price for these costs.
Taxes are based on an assessed municipal value, generally 2% to 2.5% of the purchase price. The value will vary by area of the country and by such factors as whether the property is located in a rural or urban area. In other words, an urban house costing $170,000 has a tax value of $4,250. The buyer will pay a registration tax of 1% of the municipal value of the property and a transfer tax of between 10% and 38% of the municipal value.
Property taxes are very low in Ecuador. The owner of the $170,000 house mentioned above, pays about $110 annually.
A Final Word
If you own real estate in Ecuador you should have an Ecuadorian will. Although it is very possible that your Ecuadorian assets will go to your heirs without an Ecuadorian will, this can be a long and painful legal process. You will pay less than $200 to have a simple will drawn up by an attorney and notarized. If you wish, you can write a "hybrid" will that will be good in both the U.S. and Ecuador. Simply have the will notarized in Ecuador with a copy sent to your representative in the U.S.