Once you have found the property you wish to purchase and you are ready to go ahead and buy a property in Tenerife, the process should go something like this:
- Hire an independent lawyer
- Discuss your mortgage options if you require financing
- Place a reservation fee to take property off the market
- Lawyer checks the property and drafts contract
- Pay a deposit
- Bank checks the property and valuation report
- Transfer funds to Tenerife for the purchase
- Completion day
Hiring an Independent lawyer/gestor for conveyance
It is essential that you hire an independent lawyer for your property conveyance. You need to do this pretty early on as you will need an independent third party to transfer your deposit to (we do not handle client deposits!) Many agents will offer to do the legal work for you in house, don´t let them! This is the single easiest way to run into legal problems. If you know a good legal representative, then use them. If not, I can recommend some good lawyers (some are terrible at conveyancing….) who have provided a good service to former clients at a reasonable price and who speak English. Not all lawyers are equal! Ensure you aren´t overpaying. 1,500€ is about the average cost for a lawyer. You also need to ask if this includes the transfer of utilities or if this is billed separately. Also check if the fee quoted includes tax.
Arranging a mortgage
If you require a mortgage then before you hand over any money, you should speak to me in depth about your mortgage options here. I am a Spanish mortgage broker and brokered mortgages exclusively before I began marketing property so know the market very well and know all of the pitfalls of buying with a mortgage.
I can estimate very quickly what you are able to borrow and what documentation you will be required to produce. Be careful when purchasing with a mortgage as you must ensure your mortgage offer is approved by an underwriter and you have a valid FIPER document before paying a deposit (if the deposit is not refundable.) If you do not do this, you pay a deposit and then find out the mortgage terms are different or the bank will not lend you enough then you run the very real risk of losing your deposit if you unable to complete. Insist that you have written into a reservation contract and the deposit contract the amount you you need to borrow to purchase the property. Add a clause stipulating your money is refunded IN FULL should you not be successful with your mortgage application. We do this as a matter of course for all clients, many agencies unfortunately do not. If for any reason this cannot be added to the contract, then you can proceed with the mortgage application but you cannot under any circumstances pay the deposit.
Placing a reservation fee
In order to show you are committed to purchasing and to take the property off the market a reservation fee is usually paid. This is paid to either the agency or to your own lawyer. Reservation fees are generally non-refundable so best to try and negotiate this down as much as possible. 2,000€ would tell me a buyer is serious but some agents ask for more. Your decision, but look after your own interest here, 2,000€ really is enough. A preliminary sales contract is drawn up at this point which details the price and terms and conditions of the sale. Once a reservation fee is paid you will usually have a set amount of time to pay a 10% deposit. It is up to you to negotiate as much time as you think you will need to transfer the money to your legal representative.
Your lawyer should now carry out all the necessary checks on the property title and order a “Nota Simple” which costs about 12€ and details any charges against the property (outstanding debts including mortgages etc.)
Paying a deposit
A deposit of 10% is the standard amount asked for a Tenerife Property purchase. However, it is not set in stone and is entirely up to the buyer and seller to negotiate what they are happy with. Most sellers will want 10% unless you have a good reason for paying less. A deposit must only ever be paid across to your legal representative. Never, ever pay this to an estate agent under any circumstances. At the point of paying a deposit you will agree a set amount of time within which you will go to the notary and complete your property purchase. If you are taking a mortgage this is why you need the mortgage clause detailed above: Spanish banks can move very slowly, there may be complications, some mortgages just take a long time. If you don´t have this clause you may find yourself under immense pressure to take a sub-standard mortgage with poor terms and high interest rate as you can no longer wait, due to the deadline approaching. However, if your clause is in place you can invoke it but rather than taking your money back and cancelling the deal, simply tell them to either give you more time or cancel the sale and return your money. This way you get as much time as is required to get yourself a good mortgage.
More property checks and mortgage offer
If you are taking a mortgage the bank will now carry out their own checks on the property once they have made you a mortgage offer. If they are happy to lend on the property they will order a valuation from an independent surveyor. The valuation report will be sent to the bank and so long as nothing has shown up on that report which they are not happy with (bad title, boundary disputes etc) then they will issue a final mortgage offer based on the valuation figure. This final mortgage offer will be sent to your lawyer and they will draw up a “provision of funds” detailing all the costs involved in the purchase, how much you have already paid, how much the mortgage will cover and any outstanding amount which will need transferred to your lawyer prior to completion.
Transfer funds to Tenerife
Once you have the provision of funds you should know exactly how much you need to send across to your lawyer for completion. We would recommend sending 2 or 3 months mortgage and community fee payments at the same time and always maintaining a surplus in your account for any account or card charges. It makes sense to employ the services of a Currency Specialist at this point who may be able to save you up to 4% on exchange rates and fees. I can recommend my own account manager I use for sending money back and forward if you like.
On the day of signing, everyone required to attend will meet at the notary public. If there is a mortgage on the property it will be cancelled or transferred to the buyer (a process called subrogation.) If the buyer is taking a new mortgage, a representative from the new bank will be there. You can attend in person or sign power of attorney across to your legal representative to attend on your behalf. If flying over from the UK or Ireland to attend signing it is probably a good idea to have a power of attorney arranged anyway as signings can and are sometimes delayed, put back a week etc and if you are only here for a few days you won´t have to reschedule your flights.