At this point in your life, you may feel as though you have some knowledge of business, finance, contract negotiation, 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 fantastic retirement locations and values south of the border; furthermore, you might even be considering Mexico as your retirement destination. If that’s the case, you might as well throw away everything you’ve learned and your law degree!
Despite its beauty, Mexico has a completely different legal system and a different way of conducting business. Moreover, all business dealings in the legal system—including those involving real estate—are conducted in Spanish. As a result, for those of you who may be considering Mexico as a potential retirement location, the information provided below should provide you with some insight into how the Mexican real estate industry operates, a list of potential pitfalls, and most importantly, the guidance necessary to ensure a positive and safe experience.
We bought our first piece of real estate in Puerto Vallarta in 1984; it was a condominium in Mismaloya, which is about seven miles south of the city. Two years later, we made our second purchase—the condo next door. After a year, we demolished the partition separating the two condos and transformed them into a single, very roomy three-bedroom condo. We had a wonderful time traveling to Vallarta twice or three times a year for thirteen years while still working in Houston.
Our original escrituras, which are legal documents that serve as a title or deed for property and are held in a fidecomiso or bank trust, showed the property values to be about one-third lower than what we actually paid for the two condos, and we became aware of this some time after making the purchases. The lower values were used to lower our annual property taxes, it was explained to us when we asked why there was a discrepancy.
We didn’t realize capital gains taxes were owed on the significant discrepancy between the selling price and the verified purchase price until many years later, when we decided to sell the condo. We paid a lot of taxes on a paper gain, but there wasn’t much of a real gain. We later discovered that the condo developer had intentionally entered extremely low sales prices on each escritura in the condo complex to avoid paying significant capital gains taxes. Being the gullible Americans that we were, we were at the developer’s mercy because, as we later discovered, he could have entered the selling price, the appraised value, his construction costs, or pretty much anything else imaginable into the escritura.
We purchased a stunning new mountainside villa with a sweeping view of Banderas Bay, El Centro, and the Sierra Madres after selling the condo. We requested a visit from our realtor friend after seeing the new villa advertised in one of the neighborhood magazines. Before reluctantly taking us to visit the villa in the magazine, he showed us what appeared to be every property in the neighborhood. After purchasing the villa, we found out that the listing agent was only willing to accept 10% of the commission as payment for the sale, so our realtor friend only received that amount. The listing agent placed the ad in the magazine because she didn’t think a buyer’s agent was required to sell this stunning new villa. As a result, our agent spent a few days only taking us to properties that were listed by his company before giving in to our demands and taking us to the villa of our dreams, which we have been enjoying immensely for more than ten years.
After ten years of residing in Vallarta, we have finally been able to expose the entire real estate iceberg. Some of the details are shared below. These experiences only revealed the tip of the real estate iceberg.
To start, Puerto Vallarta has no licensed real estate brokers or agents! Since the Federal legislation process hasn’t finished, there isn’t even a mandatory licensing requirement for real estate agents in all of Mexico. As a result, such legislation is still pending. There are probably more than 500 real estate agents with only the most basic training in Puerto Vallarta, which has more than 80 real estate agencies. It’s understandable why we have such a diverse group of agents and brokers in Vallarta given the booming real estate market and economy that exist today.
There are voluntary associations for real estate staff in different parts of Mexico in order to maintain some level of continuity from agent to agent. The Mexican Association of Professional Real Estate Agents, Inc., known as About 50 of Vallarta’s 80 real estate agencies are members of AMPI, which is very active there. Despite the fact that AMPI membership is not required and has no bearing on the skills of the agents representing buyers or sellers, it is still regarded as the industry standard for listing agents in the region.
Asociacion de Profesionales Inmobiliarios de Vallarta A.C. is a second real estate organization that is primarily made up of Mexican firms with offices in the Vallarta region., known as APIVAC.
These associations attempt to keep their members and the general public up to date on activities in the area and changes in the Mexican law as it relates to real estate by scheduling recurring conferences, holding educational programs, and holding various meetings. They attempt to establish uniform operating policies and procedures, some of which are in writing, while others are understood but not documented. They also have codes of ethics. They assemble real estate professionals who voluntarily agree to follow their organizations’ rules and codes of ethics while attempting to conduct themselves in a consistent and professional manner. These organizations are undoubtedly better than nothing, but they shouldn’t be confused with organizations like the National Association of Realtors (NAR) in the US. For the vast majority of real estate agents in Mexico, terms like dual agency disclosure, designated agency, full disclosure, confidentiality, imputed knowledge and notice, implied knowledge, fiduciary duty, loyalty, and vicarious liability are alien to them. As a result, many of the agents frequently make false or inaccurate statements that can put both the buyer and seller in untenable situations.
NAR offers its member agencies standard statewide listing forms, pre-qualification forms, escrow account and earnest money forms, standard purchase agreement forms, standard letters of intent forms, etc., whereas AMPI does not. This is just one example of how AMPI and NAR differ from one another. Such forms are not offered in Vallarta by APIVAC or AMPI. Each real estate company has its own listing form or uses one that is offered by a third party, privately owned publisher, and which expressly states that the listing agent will receive 100% of the commission upon the sale of the property. The handling of commissions and the division of commissions between the selling and buying agents are also covered by written rules that are enforced by NAR. Real estate commissions in Mexico are subject to regulations, but they are also somewhat negotiable with the seller. Following that, the listing agent and the buyer’s agent can discuss commission splitting.
The writing on all other forms varies from agent to agent and is not always done so with the buyer’s interests in mind. The majority of contracts and forms used by North Americans are written in English, but the only document recognized as being valid in Mexico is the Spanish version. Therefore, regardless of what you read in English, you should always have a Spanish-speaking lawyer represent you in addition to your agent.
The Multiple Listing Service, or MLS, is another significant area where the associations with Mexican roots and NAR diverge. All NAR agents in the United States have access to the MLS, which is controlled and supervised by NAR. There is an MLS in some Mexican cities, such as Vallarta, but AMPI or APIVAC do not have control over it. Instead, it is privately owned and run by a local publisher, and it is open to the public for free property searches. The general public, as well as the other AMPI and APIVAC members, have access to listings made by AMPI members on the Vallarta MLS.
You should learn a little bit about Mexican real estate law after you have a basic understanding of PV’s real estate market. Regarding trusts, escrows, mortgages, the treatment of taxes, etc., it can be quite complicated. and is often open to interpretation by a state appointed attorney, known as a notario. The vast majority of Vallarta’s realtors are woefully ignorant of Mexican law as it relates to real estate transactions, but a small percentage of them do. The best rule to abide by is caveat emptor, or buyer beware, because they will be eager to advise you even with little or no knowledge of the law, right or wrong.
We discovered more than 20 years ago that it is wise to carefully interview realtors because of the numerous pitfalls that a buyer may run into when buying real estate in PV. Keep in mind that the majority of them will be promoting their own listings first and attending to your needs second. It’s just human nature, and with so little control in Mexico, it’s pretty much guaranteed. Almost all of them have listing agreements with the sellers, so they are obligated to act in the sellers’ best interests rather than necessarily the buyers’ best interests. 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, Mexico is where you should choose an agent who is entirely committed to assisting you in finding the property that meets your needs and fulfills your requirements; ideally, a contractual agreement with an agent who has no listings, no grudges to stow, no hidden agenda, and who solely represents buyers and their best interests.
A genuine buyer’s agent in Puerto Vallarta should not have any active listings, have full access to the Vallarta MLS, be familiar with the neighborhoods and population trends in the area, be able to negotiate effectively on the buyer’s behalf, have a working knowledge of Mexican real estate law, and maintain connections with the area’s notarios, real estate attorneys, escrow and title agents, mortgage bankers, insurance agents, inspectors, and appraisers.
It should be one of your best experiences to purchase your ideal house or condo in Vallarta, but if you don’t do your research, it could end up being a nightmare. To ensure a happy start to your retirement in paradise, you must find an exclusive buyer’s agent who will devote all of their time to you.