So, you’ve reached a point in your life where you think that you’ve learned a little about business, finance, contract negotiating, top residential architects in Florida, etc. and have at least a layman’s knowledge of law pertaining to each. Being that savvy, you might also be aware of the incredible retirement locations and values south of the border; furthermore, you might even be considering Mexico as your retirement destination. If so, you might as well forget everything you’ve learned and leave your law degree at home!
Mexico, as beautiful as it is, has a somewhat different way of doing business and a completely different set of laws. Additionally, all legal transactions, including real estate transactions, are done in Spanish. Therefore, for those of you that may be considering locations in Mexico as possible retirement destinations, the following information should give you some insight as to how the Mexican real estate industry works, list some of the possible pitfalls, and most importantly, give you the guidance required to assure a pleasant and safe experience.
In 1984, we made our first real estate purchase in Puerto Vallarta; a condominium in Mismaloya, about seven miles south of town. Our second purchase, two years later, was the adjacent condo. A year later, we removed the wall between the two condos and remodeled them into one very spacious three bedroom condo. For thirteen years, while still working in Houston, we thoroughly enjoyed visiting Vallarta two or three times a year.
At some time after the purchases of the two condos, we noticed that our original escrituras (legal property documentation similar to a title or deed that is held in a fidecomiso or bank trust) showed the property values to be about one third of what we actually paid for them. When we inquired about the discrepancy, we were told that the lower values were used in order to reduce our annual property taxes.
It wasn’t until many years later, when we decided to sell the condo, that we learned that capital gains taxes were due on the huge difference between the selling price and the documented purchase price. Ouch, we owed substantial taxes on a paper gain; when in fact, there was very little real gain! We then learned that the condo developer entered the extremely low sales prices on all the escrituras in the condo complex in order to evade paying substantial capital gains taxes. As we later learned, the developer could have entered the selling price, the appraised value, his cost of construction, or just about anything imaginable into the escritura, and we, being the naïve Americans that we were, were at his mercy!
Upon the sale of the condo, we bought a beautiful new mountainside villa with a panoramic view of Banderas Bay, El Centro, and the Sierra Madres. We saw the new villa advertised in one of the local magazines and asked our realtor friend to show us the property. He showed us what seemed to be every property in town, before reluctantly taking us to see the villa in the magazine.
Some time after buying the villa, we learned that our realtor friend received only 10% of the commission on the sale because that was all the listing agent was willing to pay. The listing agent ran the ad in the magazine and didn’t feel that an agent representing a buyer was necessary in order to sell this beautiful new villa. Therefore, our agent spent a couple days showing us nothing but properties listed by his agency before caving in to our demands and taking us to the villa of our dreams; one that we have thoroughly enjoyed for more than a decade.
These experiences revealed the tip of the real estate iceberg and after living in Vallarta for ten years, we’ve finally been able to expose the entire iceberg and share some of the details below.
To begin with, there are no licensed real estate brokers or agents in Puerto Vallarta! In fact, there is no mandatory licensing for real estate agents in all of Mexico because the Federal legislation process has yet to accomplish it and therefore such legislation remains in limbo. In Puerto Vallarta, where there are in excess of 80 real estate agencies, there are probably more than 500 real estate agents with minimal qualifications. With the booming real estate market and economy that exists today, it’s quite obvious why we have such a diverse group of agents and brokers in Vallarta.
In order to have some degree of continuity from agent to agent, a voluntary association for real estate personnel exists in various areas of Mexico. The Asociacion Mexicana de Profesionales Inmobiliarios A.C., known as AMPI, is quite active in Vallarta with the membership of approximately 50 of the 80 real estate agencies in Vallarta. Although membership in AMPI is not compulsory and has no bearing on the capabilities of the agents representing the buyers or sellers, it is considered to be the standard bearer for listing agents in the area.
A second real estate association, mainly consisting of Mexican agencies based in the Vallarta area, is Asociacion de Profesionales Inmobiliarios de Vallarta A.C., known as APIVAC.
These associations schedule periodic conferences, conduct educational programs, and hold various meetings where they attempt to keep their members and the public current on activities in the area as well as changes in the Mexican law as it pertains to real estate. They have codes of ethics and they do attempt to establish uniform sets of operating policies and procedures, some of which are in writing, others understood but not documented.
They bring real estate personnel together where their members voluntarily agree to abide by their organizations´ statutes and codes of ethics while attempting to operate with some degree of continuity and professionalism. For sure, these associations are better than nothing but still not to be confused with associations such as the National Association of Realtors or NAR in the US. Dual agency disclosure, designated agency, full disclosure, confidentiality, imputed knowledge and notice, implied knowledge, fiduciary duty, loyalty, and vicarious liability are foreign concepts to the majority of real estate agents in Mexico. Consequently, misleading or inaccurate statements often made by many of the agents can put both the buyer and seller in intolerable predicaments in Mexico.