Buying or renting real estate in Ecuador
Buying or renting real estate in Ecuador is different than in the U.S., Canada or Europe. This is true of many things in Ecuador and is a potential source of difficulty for those who expect things to work the same way they did “back home.” When we started to learn Spanish a helpful piece of advice we received was to assume that our native language was wrong. This when faced with an expression that made no sense when translating to or from English. The same advice is helpful when dealing with how things work regarding real estate – assume that how it worked before was wrong. One of our roles as expats is to learn the rules of the new game in our adopted country. That being said, what follows is a summary of the ways things work here:
¨ The buying process is made somewhat challenging because there is no multiple or central listing service in Ecuador. Accordingly, finding available properties is made easier by someone who knows the market and is connected to the community. There is also the phenomenon of gringo pricing which, as the description implies, means higher prices for expats. For these reasons we recommend using an Ecuadorian real estate agent. The ones we’ve found to be honest and reliable know that they need to insure that no one we refer to them ever pays more than what a local would. A link to their website can be found here.
¨ If you engage a real estate agent to show you properties, it is expected that you will pay them somewhere between $10-15.00 per hour. This amount is refunded or waived if you purchase something whether at the time or in the near future.
¨ Listing agreements are for the most part non-exclusive and non-binding so that if you see a particular property on a website, more than likely it is also available from other brokers often at remarkably different prices. There is little to no cooperation between brokers because of the lack of protected agreements.
¨ Commissions may be paid by either buyer or seller and range from 3% to 10% based on the type of property, location, and the agent you are working with. Locals tend to pay a bit less because they speak the language and can go to the attorney, notary, municipal offices, etc. on their own whereas most expats need to have their hands held throughout the process which takes a great deal more time on the part of the broker. Before heading out with any broker, ask what the commission is and who pays. Typically commissions are higher in the city. If the commission is paid by the seller, they simply add it into their asking price and is why we suggest having the broker work for you since you’re paying either way.
¨ Once you’ve found a property that you are interested in, the way in which it becomes yours is both somewhat the same and a bit different than you may be accustomed to. The offer and acceptance process is similar to what you would find anywhere. The realtor negotiates with the seller on your behalf. Assuming you reach an agreement you will sign either a Compra Venta (Buy/Sell) agreement if you are going to close immediately or a Promesa de Compra Venta (Promise to Buy Sell). In most cases you will use the Promesa de Compra Venta as time to conduct a title search, transfer funds, etc. is needed. If you can’t be present, a Limited Power of Attorney authorizing your attorney to act on your behalf is often used. Attorney’s fees vary as is the case everywhere however unless the closing is particularly complicated the legal fee should be no more than $1,000.00. Ask for a closing statement before agreeing to hire the attorney. We have a list of preferred attorneys so ask if you need one.
¨ An important distinction: A Promesa de Compra Venta is not the equivalent of an Offer to Purchase. It is a promise and as such is considered legally binding. Do not sign one unless you know you can perform as there are penalties. If you don’t close you will lose whatever amount you put down as a deposit. The same is true for the seller. If they don’t close, they have to return your deposit. In both instances there will likely be an additional amount due, which is detailed in the Promesa.
¨ In all cases the contracts need to be notarized and notaries in Ecuador have a very different role than in other parts of the world. Here, unless a document is notarized, it is not considered legal. There are a limited number or notaries in each jurisdiction and they are coveted positions only awarded to attorneys. Fees are a percentage of either the actual sales price in cases where a promissory note is involved or whatever amount is agreed upon. Sellers often wish to state a lower price to avoid paying a higher tax. Given that the assessed value of most properties is a fraction of what they sell for it is a common practice to understate the sales price. For example when we bought our house in Cuenca, the sales price that was recorded in the documents at the registry of deeds was less than half of what we actually paid.
Internet Info & Other “Propaganda”
If you use word-of-mouth advice, such as you might find on internet blogs or forums, be sure to verify the information with your attorney or us here at Move to Ecuador. Although you can pick up useful information this way, much of what you read on-line is incorrect and or outdated. Take this sort of information for what it is: a good starting point. We endeavor to keep up to date with changes in the laws and will update the information posted here as often as necessary AND it’s still a good idea to double check with an attorney.
Ecuador is receiving a lot of press coverage in magazines and website articles resulting in North Americans and Europeans looking to buy property. These same magazine and website articles have created the misconception that these foreign real estate buyers are dramatically affecting the availability and prices of property. Certainly to a degree this is true however our experience is that the real estate market is growing in an organic way of around 8-10% per year versus the boom and bust cycles seen in other parts of the world. The reality is that the market is mainly driven by Ecuadorians, both locals and those returning from overseas. It has been reported that in 2011, returning Ecuadorians accounted for an estimated 30% of local sales. North Americans and Europeans, on the other hand, accounted for less than 1.5% of sales.
There is another misconception that exists and it goes to pricing. There are websites claiming that a luxury penthouse condo can be bought for $50,000 which is not accurate. A nice new 2 bedroom condo with good quality finishes can be bought for just over $50,000 and a 3 bedroom starting at $75,000-80,000. Obviously location will affect price dramatically. Used condos, like used cars, generally can be bought for less.
Real Estate Tours
A tour is a great way to see a lot of properties and the area in a short period of time. There are pros and cons which you need to weigh for yourself. During the years we’ve been hosting the tours for Gary and Merri Scott; many people come with a clear idea what they want before arriving and then do a complete 180. For example, one couple wrote to me, “We want a house in the country with enough land to grow our own fruits and vegetables along with being able to raise chickens and goats.” When they got here they fell in love with a penthouse condo that was under construction and bought it. I don’t know if it’s the altitude or what, but this is not an isolated example. For a description of what tours are available, Contact Us.
To see what’s currently available in the way of real estate throughout Ecuador, click here. This will take you to another website owned by some Ecuadorians we have come to know and trust.