Once the purchase agreement has been negotiated but the buyer is not yet ready to pay the full balance , the buyer's attorney will prepare a Promesa de Compra-Venta, or a “Promise to Purchase” . The Promesa de Compra-Venta agreement is similar to the sales contract in North America, although it is more formal and much more binding on the buyer. It is standard protocol 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 and/or non payment.
If both parties agree to the sales terms and are ready to close the deal at once , the Promesa de Compra-Venta can be eliminated, and the Compra-Venta, the final closing document, can be executed. This will save time and additional 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 explanation of the Notary: 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 varies from but is generally under $200
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 their real estate broker/agent. Most of our clients choose this option as it is much easier to get the power of attorney done here then to have to go to your nearest Ecuadorian Consulate in your home state.
Closing Costs and Taxes Associated with Purchasing Property
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 about 1.5% to 2% of the purchase price for these fees.
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% (Alcabala) of the municipal value of the property and a transfer tax of between 10% and 35% of the municipal value.
Property taxes are very low in Ecuador. Taxes for homes under 200k are about $200 or less / year. The majority of buyers of real estate in Ecuador will find that all fees, taxes and legal fees for a real estate purchase will amount to about $3,000USD or less. Many pay no more than $2,000.