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Real Estate Law

Closing Costs in a Real Estate Transaction

By Gustavo Calderon

Closing costs in Mexico are often a surprise for foreign buyers. Sometimes they feel the closing costs are too low, sometimes too high, but many times they are just confused why they were told one approximate by their attorney, a different one by their real estate agent, and a completely different one by the seller. If you have felt like this, or if you are about to enter into a real estate transaction in Mexico, this is going to be very interesting information for you.

Every transfer of property requires taxes, fees, expenses, and the acquisition of certain documents, that must be paid for prior to the signing of the deed that contains the property title. Notaries are required to make some of these payments, but usually the cost break down they provide to their clients includes all of the taxes, fees, expenses, and document costs, required for the entire transaction.

In a regular purchase of a real estate property in the state of Guerrero, the BUYER must pay the following (all of them are mandatory):

1. Acquisition Tax (Impuesto sobre adquisición de inmuebles). This is the property transfer tax and it is 2.0 percent of the purchase price of the property (only if the purchase price is higher than the cadastral value and the assessed value).

2. Public Registry (Derechos de Registro). This is the fee to register the title before the Property Public Registry and it is 0.64 percent of the purchase price of the property (only if the price is higher than the cadastral value or the assessed value and if a local Notary was used).

3. Certificate of Non Encumbrances (Certificado de libertad de gravámen). This document is issued by the Property Public Registry and has a cost of 242.71 pesos.

4. Cadastral Certificate (Certificado Catastral). This certificate states that the property is recorded before the Cadastral office and its cost may vary depending on the value of the property from 124.80 to 2,540.80 pesos.

5. Cadastral Survey (Deslinde Catastral). This document contains the municipality appraisal and their assessed value, its price depends on the size and kind of property and goes from 265.60 pesos to 1,411.20 pesos. (Properties larger than 20 hectares are subject to additional fees.)

6. Certificate of Property Tax Payment (Constancia de no adeudo del Impuesto Predial). This is a document issued by the cadastral office stating that the property is current on the payment of its taxes and has a fixed price of 64.00 pesos.

7. Appraisal for tax purposes (Avalúo fiscal). This document has to be elaborated by a private appraiser licensed by the Guerrero State’s Treasurer. They have different fees but usually charge a fixed amount (around 1,000 pesos) plus 0.04 percent of the value of the property plus the value added tax (IVA).

8. Notary fees, this fee will vary from Notary to Notary but they usually charge between 1% percent and 2 percent of the price of the transaction plus the value added tax.

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I have not included Notary’s expenses in the list above since they are not mandatory, but the Notary will charge for expenses incurred on your behalf, and it is usually a reasonable amount. Attorney fees and expenses are not mandatory either, but if you decide to hire an attorney, you also will have to add his/her fees and expenses to your closing costs.

If you are a foreigner, you might purchase through a Trust, in such case a Mexican banking institution, authorized to act as a Trustee, will require the payment of a Foreign Affairs Ministry Permit Application, a Foreign Investment Registration, its annual fee, and an initial fee. Depending on the bank you work with, you will have to add to the above amount, an approximate of 25,000.00 pesos.

On the other hand, the SELLER is required to pay the Income Tax (Impuesto sobre la Renta), if any, and it will have to be paid at the moment of closing to the Notary. It is an obligation of the Notary to retain this tax from the proceeds to the seller and then to transfer it to the National Treasure (Hacienda). Income Tax might vary depending on the residence of the seller, the type of property that was sold and/or the value of the property. There is a direct fixed rate for non-residents of 25 percent of the gains, however, there are many other options that apply for every particular case, that can range from an exemption, to a maximum of 28 percent with possible deductions.

Reducing your closing costs below the costs listed above is legally impossible. Reducing your closing costs by declaring a lower purchase price on the deed is not legal and may have unwanted consequences to you in the future. Before making any decisions of this kind, be sure to get proper advice from an attorney.

About the author: Gustavo Calderón is a Mexican Attorney who has lived and practiced law in Zihuatanejo and is currently working for Stewart Title Riviera Maya (www.stewartrm.com), you can reach him at gus.calderon@gmail.com

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