Posts from — January 2009

Something that came up recently with a client of ours who we were arranging a Spanish Mortgage for:

Upon checking the documentation on the off-plan property there was a discrepancy in the price. the price on the purchase copntract was €4,000 higher than the price the property had originally been advertised for.

I asked my client for clarification and they told me that they remember being offered a bank guarantee for the new build as an “optional extra”. This is odd for a number of reasons:

• Bank guarantees are compulsory on all new build projects in Spain
• Generally a guarantee is in place for an entire project phase or it is not
• If a Guarantee is in place, as it should be, it is not to be charged to the purchaser, the developer must bear the cost

The bank guarantee they had paid for was therefore wrong and as such we approached the lawyer and the selling agent and queried the €4,000 payment. the estate agent wasn’t interested, the money had been added tot he purchase price and the guarantee was in place and that was that,.

Thankfully the lawyer did their job and investigated, going over all the paperwork from the initial contract and through all the other paperwork they had received from both the developer and estate agent. It wasn’t good news, the developer had covered their tracks, they had agreed with the client (who had no idea about the laws governing the issuing of bank guarantees in Spain) that they would pick up the €4,000 bill and had amended all paperwork to show the price+€4,000 as the original price so money down the drain.

The developer is clearly wrong in doing this but what is more wrong is that the estate agent “family company” “promise of security” “20 years in the business” involved had helped sell the guarantee, telling the client it was a good idea to have it. What they should have been telling them is the truth – as that is their job surely???

Makes you wonder who the estate agent is really representing during these off-plan sales: the developer – no, the buyer – certainly not. more like they are simply looking after themselves. Also begs the question – why are they pushing policies onto clients? Are they in some way incentivised to do so???

All, in all it was too late in this case and €4,000 has been lost for no good reason so if you are in the process of buying off-plan, take a good look through your documentation – ask difficult questions and make sure you know what you are signing and what you should be paying for.

Use our Tenerife property purchasing service and ourselves along with an independent lawyer will do all this work for you and keep you informed, plus it saves you money!

For more information about bank guarantees have a read of the following article on this Marbella-lawyers website. It is very well written and clearly lays the laws and your rights when it comes to Bank guarantees in Spain and Tenerife.

http://www.marbella-lawyers.com/articles/showArticle/spanish-bank-guarantees

Feel free to Contact Us for information and advice about buying property in Tenerife safely and with transparency.

Please leave your comments on any aspect of this article, the service we provide and the benefits we offer. If you have purchased property in Tenerife before, we would like to know about your experiences. Were you given all the information? Did you pay for a bank guarantee?

Would you do things differently if you were to do it all again? We value your opinions and appreciate your feedback!

Our blog is a Do-Follow Blog – we reward comments! Please read our Do-Follow Link Policy

Buying direct from the owner is one way many purchasers choose to buy property in Tenerife. There are a number of advantages:

• You speak directly to the owner, not through an intermediary
• You can arrange your own visits to suit your schedule – not the estate agents
• The price is usually lower – in some cases considerably

Seems like a no-brainer then? well actually its not! We generally don’t rate estate agents highly on our site, we don’t like the way they work, the way they can smile, lie and nod there head for hours on end unflinching, the way the would shoot their own grandmothers if a sale depended on it. You get the point but, even though many of them have no interest in whether or not you are buying the right property for you, they are often full of useful bits of information. Information about different areas, different new-builds, they generally do know where you can get good rental income and where is best avoided and overall can definitely (when they are not selling) provide information which can be very helpful when it comes to deciding where and what to buy.

The problem is getting this information from them without having to sit through 10 cups of scalding hot tea (its scalding hot so it takes you longer to drink! – More time to sell to you…) endure all of their “leading questions”:

• So you want to buy a property? Yes
• So you like Tenerife? Yes
• So you are looking for a 1 bed apartment? Yes
• At an excellent price? Yes…. yawn…
• And you can pay a reservation fee today? Ye…? What??!!

They think if the get a long line of Yes´s, you are more likely to say yes when it comes to the closing questions… more about that in another post. Anyway, most of these techniques have not been learned in their current profession but in their previous one – Yes, most estate agents in Tenerife come from a Timeshare background which is why they cannot switch off the “hardsell” and which is why it is so difficult to get good, quality advice from them without having to sign your life away first. They simply will not offer this advice until you have handed over:

• Your home number
• Your works number
• Your mobile number
• Your email address
• Your other email address
• Your wife’s email address
• Your brothers, girlfriends sisters, friends, fathers email address (just in case the other numbers don’t work)

It is a difficult situation for you as you really need some good unbiased advice from people who should know. Two easy pieces of information you can get straight away and which they won´t lie about are:

• Where do you live? Is that a good area? Why?
• What do you think of XYZ estate agents? We met them yesterday and liked them. Is there anything we should be wary of?

They will generally describe the area they live in honestly, they should be able to list off plenty of reasons why it is a good area because they will have really considered all of these reasons themselves. Generally, it is easier to tell the truth about something than lie and if they like the area they live in, they will have plenty to tell you about it. This isn’t foolproof, they may be trying to sell up and move to a better are for example but it is a good indication and if they have the same requirements as you (perhaps you and the agent both have kids of a similar age therefore local schools are important for example) then it is a good way of getting some genuine information.

The second question can bring fantastic results – sometimes an agent will simply tell you “we don’t want to criticise other companies” a rather passive-aggressive response designed to simply sow the seed of doubt in your mind. They will then tell you how great they are and why you should only be working with them…. But, some agents will “go off on one”. Lots of the agents know one another and generally the real reputations amongst the estate agent community are no secret. Agents who live here know all about the other agents, how they work, how busy they are, where they have worked in the past, shady deals they have been involved in, scams they have pulled etc.

If it means the difference between a sale and no sale, many of them will spill the beans. They may exaggerate bad behavior of other agents but in most cases they simply won´t have to. They do not have to lie to come up with plenty of reasons to put you off. See what they say, what the reputation of certain agents are – especially the big agents – think the top ten results on Google for “Tenerife Property” and similar terms. Then, go and visit another agent and ask them the same question. it can be very eye-opening to hear what they have to say about one another!

In our view and whilst only a generalisation – the bigger the agent – the bigger the lies. This is based on our own experiences working with them and also on the economics of running this type of business. The average sale price of a property in Tenerife is about 150,000€. That means a commission of 7,500€ per sale. The biggest agents here have many offices dotted around the south. more offices means higher overheads, more staff means higher salary costs. The pressure is really on to generate and close sales – lots of sales to pay the bills. If there aren´t lots of sales (like now – depressed market) the agent has two choices.

1. Reduce overheads massively, close offices, lay off staff (very expensive to cancel staff contracts in Spain), or
2. Make more money per client

But, how can they make more money per client if commission is fixed at 5%? Well, the answer is they “unfix” the commission and charge whatever they can get away with. We were recently asked by a property buyer what they could do about their agent. They had paid a deposit on a property for 165,000€ and had eventually managed to contact the seller of the property to chat about furnishings etc. It came to light that the agent had negotiated the seller down to 135,000€ on price telling them the buyer would not budge and advising them to accept the offer if they wanted any chance of selling. Since they now knew the agent was trying to walk away with 30,000€ on a sale of 165,000€ (over 18% commission!!!) they both wanted to reduce the commission to 5% (8,250€)  the agent told them they had both agreed to their respective prices and it was only fair that they should make 30,000€ as they had negotiated the deal, at one point the seller was told it was “none of your business what we are getting”.

This wasn’t a small agency or a “one man band” but one of the large, all singing, all dancing agents offering “20 years experience” “family company” “testimonials from happy buyers” and all the rest of the cliches that mean absolutely nothing!

So, buying through an agent can be dangerous and can mean paying far more than you need to. But, they do have that vital information and thousands of property listing between them all.

If you can get an agent to GUARANTEE:

• Transparency from start to finish.
• Transparency on commission (maximum 5%)
• All money handled through a lawyer – nothing handed over to the agent.
• You can use your own completely independent lawyer (ask the agent who they recommend, then find a different one)
• If buying with a mortgage – they do not get involved – use a Spanish Mortgage broker in Tenerife
• A clause added to the contract protecting your deposit if you are turned down for the mortgage

If you can get all this guaranteed by an agent and successfully get to completion without the agent breaking any of those rules, then the 5% commission is definitely worth it.

The only problem now is getting through the sale without the agent going back on what they agreed to – however, we can ensure this wont happen and save you some money at the same time. if you would like our help, feel free to contact us and good luck with your purchase!

Please leave your comments on any aspect of this article, the service we provide and the benefits we offer. If you have purchased property in Tenerife before, we would like to know about your experiences. Were you given all the information? Did you agent tell you how much commission you were paying them? Were they transparent? Would you do things differently if you were to do it all again? We value your opinions and appreciate your feedback!

Our blog is a Do-Follow Blog – we reward comments! Please read our Do-Follow Link Policy

Estate agents in Tenerife are commission based, most people are aware of this. What may come as a shock though is that this commission is not fixed at any level and there is no-one imposing a maximum amount.

The way it works is like this: A seller approaches an agent and asks them to market their property. The Tenerife Estate Agent asks them how much they want back – the return to owner (RTO) price. In this example lets say they want 300,000€

The estate agent then markets the property via their websites and to their agents/introducers in the UK, but first they have to add on their cut – their commission. The normal amount in Tenerife is 5%. So, in this case the agent will market the property at 315,000€. When it is sold the former owner receives their 300,000€ and the agent is paid their commission of 15,000€ – or at least thats what should happen….

Unfortunately many estate agents in Tenerife have gotten greedy. They look at the price the owner wants, calculate their 5% commission and then decide “Actually, lets put it out at 345,000€, its a nice property and if no-one enquires at that price, we can always drop it down a bit later.”

This is not only greedy, it is completely unethical. Now an agent may counter this by saying:

“But if the buyer wants to pay that price for a Tenerife property, then that is what it is worth, so what is the problem?”

Well the problem is it is dishonest. It is dishonest because their commission is not transparent, it is not documented, it is not open to scrutiny by the buyer. We ask why? Why not be honest, open and upfront about what you are being paid? Be honest about how much money you are taking off the buyer, because that is where all their commission comes from – the buyers own pocket and that is why the buyer should be made aware of exactly how commission works for estate agents in Tenerife. They should know how much they are paying for the property and how much they are paying in addition for the estate agents “service”.

There are many ways to spot this scam, even if you are not an experienced buyer. One of the first checks should be the estate agents website. Look for links on the homepage such as “Working with us” “UK agents wanted” “Affiliates” or “Collaborators”. This tells you that they are actively seeking other agents to introduce clients to them. Sometimes they market to agents in the UK and Ireland, many of them work with other estate agents here in Tenerife. Whilst working with other introducers and agents may appear to be a legitimate business activity, the downside to the buyer is that their estate agent is then under intense pressure to increase the overall commission. The Agent in the UK or the agent in Tenerife who introduces business to them wants their cut and they want this to be a decent amount of money. If they cant get it off one Tenerife estate agent they will take  their clients to another who WILL pay them more commission. So inevitably, the commission goes up. Sometimes by 2.5% to pay the agent, other times they will simply double the added on commission. These increases commissions will apply to those clients who are introduced by another agent and those client who go to the estate directly as they can only offer one price for a property on their website so they have to offer the price which covers the commission payments.

The more an estate agent in Tenerife pays his introducers, the more clients his introducers are likely to send him. Ironically, with this commission model, the worst estate agents in Tenerife, with the highest property prices end up with the most clients because they pay the most commission to introducers. Meaning their clients are paying more than everybody else for the same properties.

One simple way of checking if you are being ripped off is by checking the purchase price stated on the purchase contract. As obvious as this sounds, most clients don´t ever see this price because they don´t know to ask. This scam works through a process called “Black Money”

Black Money is a method of buying property in Tenerife where a proportion of the money paid to the seller is not declared. This is done to reduce the amount of capital gains tax the seller has to pay. For example, the seller of a 300,000€ property wants 225,000€ declared at the notary and the other 75,000€ paid “under the table” – not declared to the authorities. Another 15,000€ will be added on for the estate agents commission.

• Total Price to the buyer – 315,000€
• Declared Price – 225,000€
• Black money – 75,000€
• Agents commission – 15,000€ (5%)

Property in Tenerife has been bought and sold like this for decades and an estate agent may try and convince you “it is absolutely normal”,  “it is a legitimate way to purchase” – It is not, it never has been and it never will be. In the past, the authorities have “turned a blind eye” to this practice, but not anymore. There are three very good reasons to walk away/decline/simply refuse to be involved in any property deal involving black money:

1. It is illegal, why help the seller break the law?
2. There is no advantage to the buyer, in fact you are effectively purchasing somebody else´s tax burden
3. It is a fantastic way for an estate agent to steal money from you using the “black  money” as cover

All very important reasons to stay away from these kinds of deals and the agents who offer them. In the example above, since there is going to be a discrepancy between the official purchase price (225,000€) and the real price of 315,000€ (300,000€ + 5% commission) what is to stop the agent simply adding on whatever amount they feel like? They could tell you that instead of 75,000€ black money, the owner actually wants 125,000€, boosting  the purchase price to 350,000€. By moving these numbers around, as long as you are going along with a black money purchase you are leaving yourself wide open to being ripped off.

Worse still , you are making it very easy for the estate agent to deceive you. Dont allow “black money” “undeclared money” “money under the table” or any other rubbish like this to form any part of your sale. Not only is it tax fraud, financially, it is in your worst interests – when you come to sell on at some point in the future, YOU will be paying the capital gains tax that the previous owner should have paid and it is a fantastic way of allowing the estate agent to rip you off.

We see this all the time when we arrange mortgages for clients. We are given a sale price of 200,000€ which we base the mortgage on, then later we are told “Actually the price on the contract is only going to be 180,000€” We know immediately that the other 20,000€ is going straight in the estate agents pocket and we know full well that the buyer is not aware of how much commission they are paying the agent.

Be suspicious, question everything, don’t accept excuses when buying. One big problem is that a lawyer will almost never tell you about this if it is happening to you. They presume that you know and it does not form part of their job to make you aware. So what can you do to level the playing field? How can you safely buy property in Tenerife?

Buying safe is actually very easy and you can save money at the same time!

The service we offer on our homepage covers all aspects of these scams. If you choose to use our service when you buy, we will check the real price. If the agent wont tell us, we will find out from the seller or from the lawyer. Failing that, we will see the real price on the purchase contract before you sign at notary. Or, if we are arranging your mortgage, we will inform you immediately that there is a discrepancy between the price you are paying and the amount the owner is receiving. If the estate agent will not comply with our transparency requirements – we will recommend you do not purchase through them.

The biggest difference between us and an estate agent in Tenerife is that we only represent you, the buyer. We only look after your interests. We will tell you if and when to pay a reservation, if and when to pay a deposit. We will arrange a completely independent lawyer – independent from your estate agent and we will closely monitor everything your estate agent says and everything your estate agent does. If we think they are lying – we will tell you.

We believe that 5% commission back to an agent is more than fair and more than enough for you to have to pay. There is no excuse and no reason to charge more than this and any agents that we contact on your behalf will be fully informed in the first instance of these terms.

We will negotiate half of the commission on any sale where you make use of our services and we contact the agents on your behalf. This will be fully declared to you, you will receive a breakdown of exactly how much commission we earn and how much your agent makes before you sign.

Of the 2.5% commission, we will pay 50% of the bill for the services of an independent lawyer up to 750€ We will also reduce your mortgage broker fee by 50%, up to 500€, if you require a mortgage for your purchase.

So, you gain the safety of a third party overseeing the sale, you have an independent lawyer of your choosing at half the price you would normally pay and you have the benefits of independent, whole of market advice if you require a Spanish Mortgage – again at half the price.

We have tried to make this as beneficial as possible to potential buyers by reducing your costs and increasing your protection throughout the sale. We hope we to make your property purchase as transparent as possible and reduce the likelihood of you overpaying to zero.

Feel free to leave your comments on any aspect of this article, the service we provide and the benefits we offer. If you have purchased property in Tenerife before, we would like to know about your experiences. Were you given all the information? Did you agent tell you how much commission you were paying them? Did you have a good or bad experience? We value your opinions and appreciate your feedback!

Our blog is a Do-Follow Blog – we reward comments! Please read our Do-Follow Link Policy

Mortgage rates in Tenerife look set to drop following the recently announced ECB (European Central Bank) rate cuts on 4th December. The ECB cut the base rate from 3.25% to 2.5% as a measure to lower inflation across the 15 countries that use the interest rate. It is the largest rate cut since the inception of the ECB rate 10 years ago

Following the rate cut, the Euribor has gradually moved downwards and as of January 2nd 2009 the 3 month Euribor was at 2.86%. The Euribor is the benchmark used by most banks in Spain to determine their interest rate for borrowers. The common form of expressing the interest rate of a Spanish mortgage is “Euribor + 1%” for example. With Euribor+1% being the average non-resident Spanish mortgage rate available in Tenerife, borrowers can hope for a rate in the region of 3.86% for property purchases.

Those looking for a Spanish remortgage in Tenerife could hope for a new rate in the region of 3.8% to 4.3% depending upon their personal status. Property owners in Tenerife who are currently struggling to pay their mortgages may look at remortgaging as a way of alleviating pressure. First a foremost a switch to an interest only Spanish mortgage could now make a massive difference in terms of monthly mortgage payments.

For every 100,000€ borrowed, at an average rate of 6.25% on a 20 year term, the repayment is 731€ per month.

Switching to interest only means a borrower can immediately take advantage of the recent rate cuts rather than having to wait for their bank to update their mortgage interest rate (which could take as long as 12 months).

A new interest only mortgage at prevailing rates would reduce their monthly payments from 731€ to only 321€ per 100,000€ borrowed, more than halving their monthly commitments.

Given the economic crisis, this could mean the difference between keeping a hold of a property and handing back the keys for many owners.

Our blog is a Do-Follow Blog – we reward comments! Please read our Do-Follow Link Policy