Real Estate Closing Costs and Associated Fees
Purchasing Real Estate in Ecuador – Associated Fees
Sure, you’ve planned carefully, budgeted smartly, searched extensively and now you are ready to close on that perfect real estate deal in Ecuador. Right? So, are we sure that everything is quite so “perfect”? For many, the unfortunate answer is “no”. With USA-style “Settlement Sheets” being non-existent in Ecuador and few agents/practitioners even discussing the subject matter with clients, many buyers approach the closing table dreading the total real estate closing costs and associated fees that make up a transaction here in Ecuador. Worse yet, many may approach that closing date without an even remote clue as to what those costs entail.
In an effort to demystify the process a bit, we provide this general report. The report is not intended to be exhaustive. We always recommend consulting Ecuadorian legal counsel, specializing in real estate transactions. Also, note that wherever it was a factor, we have gravitated to an “average pricing model”. Your actual real world results might vary somewhat. However, what has never varied for me is that quoting a 6% maximum, worst case, closing cost scenario has always been valid. No transaction of ours has ever exceeded that amount. It is a good “worst case” thumbnail figure, but before you become married to that number, let us look inside the details of the process. You just might find your closing costs closer to 2%-3% of the purchase price.
Assuming a house valued at $200,000, a typical buyer’s fee schedule, for a real estate closing process in Ecuador, might look something like this:
Purchase Agreement (Lawyer Fee) – $250
Minuta Draft (Lawyer Fee) – $150
Title Search – $200
Purchase Agreement (Notary Fee) – $50
Property Deed (Notary Fee) – $563
Alcabala (Tax 1%) – $2,000
Property Registration (Registrar Fee) – $1,050
Real Estate Agent 3% of Purchase Price – $6,000
Briefly, let us discuss what likely even a quick glance reveals you do not see present on our list of expenses. First, no title insurance. Then, no escrow costs. Finally, no loan fees or other expenses associated with a mortgage. There is a good reason for the exclusion of each.
Title insurance and escrow account fees both need to be thought of separately and differently than what many are accustomed. While this topic, by itself, could likely be the source of a future report (might just do exactly that), the bottom line is that neither service is common in an Ecuadorian real estate transaction. For starters, there is only one legitimate global company that provides Escrow services within Ecuador. As monopoly costs often do, prices have soared. Really devalues the risk-reward analysis of escrow services. As for title insurance, again, only the same company provides said services in Ecuador. Costs even more inflated than for escrow services. The risk-reward ratio again takes a turn for the worse. While I know what I am saying seems “foreign” and, likely, a wee bit scary, you will likely do better to forego both title insurance and escrow services.
As for mortgage costs, well, this is a cash market. No mortgage debt to weigh you down and no loan fees to drive up the cost of closing transactions. Of course, being that this is an all-cash deal market, planning ahead for that “ultimate” real estate purchase just got a little bit more tricky.
Now, just as there were a few items “missing” from our closing costs list, you will likely note an item that is present, which is not the norm for most. The closing costs include a 3% real estate buyer’s representative fee. This is not mandatory. Purely optional. Again, this could be the subject matter of its own separate report. The short version is that a real estate professional’s fiduciary responsibility here in Ecuador is 100% wholly with the party that pays the fee. While this is also true in the USA, for example, there are two distinctions worth noting. In the USA, that same real estate professional, if representing the seller, at least owes the buyer a minimum amount of fiduciary responsibility, by law. In Ecuador, not so much. However, you will seldom hear my profession detail such an unsavory thought. Caveat Emptor. Likewise, the very fact I just stated is required to be disclosed in the USA, but not in Ecuador. In short, I am under no obligation, except a moral one, to disclose the facts that I just…well…did disclose, in Ecuador, while I would be required to do so in the USA. Not surprising at all to find a nice real estate practitioner here in Ecuador, making a buyer feel all safe and snug, as though that representative had their best interest at heart, while every step of the way they maximized the seller’s interests, at the expense of the buyer. Not illegal here…not considered unethical here (no National Ethics Board, even)…and common practice here.
My advice, spring for the Buyers Rep. A good professional will save you somewhere around 5%-10% off the asking price, minimum, which more than covers the 3% fee. You will also know that they are working solely in your best interest. Also, don’t buy into the numbers I have seen posted elsewhere, placing that fee figure as a “norm” of 5% to 6% of purchase price. I admit, that is the norm, but Ecuadorian law states that the charged amount should not exceed 3%. May seem odd, but I am likely the most experienced real estate professional in the market and, yet, I generally charge less than most. I strictly follow the proper procedure and you should heavily question anyone who does not.
Well, anomalies aside, let’s walk through the rest of the items on the closing schedule, as well as some additional ancillary items to consider.
Purchase Agreement Attorney Fee: To draft the document that binds you to move forward with the sales transaction. Standard fare contract.
Minuta Draft Attorney Fee: Fee for drafting a Minuta, which is a document used by the Notario to specify the sales terms and legal property description, for deed preparation, prior to closing. Think of this as an “instruction document”, instructing the Notario how to proceed. The Notario is a neutral third-party legal figure, who presides over the closing process. Think of the Notario as…well…God. If he doesn’t want the process to move forward, it is no going to move forward.
Title Search by Attorney: A familiar process, here in Ecuador, generally hired by the buyer’s attorney (some real estate agents “volunteer” to do it, for a “small fee”, but they are not licensed to practice law…go with an attorney). As a minimum, a well-conducted Title search, should include a review of the following documents:
Certificado De Registro De Propiedad Actualizado – Confirms that the property is correctly registered with the local government entities.
Certificado Del Historial De La Propiedad – Complete sales transaction history of the property.
Escritura De Propieded Del Inmueble – Actual property deed
Pago de Impuesto Predial – Receipt confirmation of recent property tax payment.
Certificado De Gravamenes – Lists any liens, debts, claims, or restrictions on the property.
Permiso De Propiedad Horizontal (where applicable) – If purchasing a new condo only, this document represents municipal approval of multi-level dwellings. For pre-construction projects, it is common to enter sales contracts before final government approval, so your attorney needs to verify that the approval process is either finalized or properly in process.
Certificado de no adeudar al municipio – Document stating that the property owner is not indebted to the local municipality in any way.
Certificados de no adeudar al cuerpo de bomberos – Certification that the fire department levy has been paid and is current.
Certificado de no adeudar a la empresa de agua potable – Certification that all payments are current, with no lingering debt, to the local area potable water utility company.
Purchase Agreement Notary Fee: A routine administrative processing fee, paid to the Notario.
Property Deed Notary Fee: The deed preparation fee for the duties performed by the Notario.
Alcabala Tax: Is a transactional transfer tax, customarily paid by the buyer.
Property Registration Fee: Payment to the local municipality’s Registrars office to publicly record your real estate transaction, thus publicly announcing you as the legal owner of said real estate asset.
Real Estate Agent’s Fee (optional) – Payment for real estate services rendered, if you wish to employ a Buyers Representative.
As you can see, the total closing costs on a home or condo valued at $200,000 is just a little over 5% of the purchase price (under the magic 6% projected cap). However, if you choose to go it “sans real estate professional”, your total closing costs would be nearer to 2.5% of the purchase price. Either way, these figures should serve as a reasonable pricing guideline, from which to project expenses. As a reminder, real world experiences might vary, but they should not vary dramatically. Happy house hunting!