CLOSING AND TAXES COSTS OF SELLING PROPERTY IN MEXICO

Closing costs must be considered in addition to the down payment to determine the total funds required to close. The closing costs in Mexico are slightly higher than in the United States and Canada, but the yearly property taxes in Mexico are relatively low. Closing costs in Mexico mostly range between 6% and 8% of the purchase price (although they depend of many factors, some of which will be enunciated in the following paragraph). These fees may seem high but, in the long run, they add up to less money when considering property taxes. In Mexico, unlike the U.S., most fees are charged upfront and property taxes are relatively low.

Many things can affect the closing costs: the location of the property (e. g., it’s not the same to purchase a property in a historic city than by a beach location), the citizenship of the buyer, the bank used to set up the trust, the character of the trust (if the trust is being transferred or a new trust is being set up), or which notary is being used. It is important to use a professional closing company and to be guided and advised in negotiating by a trained real estate agent.

Normally, the buyer pays the closing costs and the seller pays the capital gains tax and sales commissions. Certain fees are paid prior to closing for services provided by third parties (such as the appraisal, notary deposit, trust permit, trust set up fee). It is important to get a good faith estimate up front from the closing company and to have a real estate agent review it.

The following is a list of some closing items:

• Public Registry Rights: The permit can be processed through the notary, and is based on the sales price of the property. Once the corresponding rights are paid, the notary can process the registration in the Public Property Registry of the town where the property is located. The costs vary per state.
• Property Acquisition Tax: This is a State Tax. The notary is responsible for charging and declaring it without surcharges. It is around 2%, based on the highest value of the previously authorized construction appraisal. In order to calculate this tax, a special procedure must be applied, and the real closing costs must be determined by a notary.
• Certificate of no liens on property tax or water/maintenance fees: The notary must check that the subject property has no liens. The notary will gather the certificates from the corresponding Government offices. This charge is normally not more than $100 dollars.
• Title Search
• Bank Trust (fideicomiso) Fees: These are charged on a yearly basis and are paid upfront. They may vary according to the transaction, the property and the trustee bank; most of them charge around $600 for properties priced under $700,000. For properties priced over that, the fees will increase accordingly. All the trustee banks collect the following:
  • Trust Acceptance Fee – This is a one-time initial fee to set up the Trust. It varies for each bank, and a 16% VAT rate is levied on it.
  • Trust First-Year Fee – Yearly fee charged by the bank to maintain the trust. This is paid in advance, so the trust’s first year must be paid at closing.
  • Trust cancellation fee – If the property being sold is held in a Bank Trust, then it would be necessary to budget for a ‘trust cancellation fee’ levied by the bank. The amount varies, but around US$1,000 are usually enough to cover this.
• Professional fees (Notary and Attorney): The role of the notary public in Mexico is enormously important in property transactions. A Mexican notary public is a legal professional with very important statutory roles.   The fees for the notary public are paid for by the buyer.  Some buyers also choose to hire a lawyer, which can add several thousand US dollars to their total fees, but this is not necessary for most transactions.

The notary fees are regulated by a list authorized by the Notary Law valid in every State. The fees can be for a lesser amount but never for an amount over this list. Sample fee list is as follows:

• From $1,600 up to $6,492 = 2.75%
• From $6,493 up to $16,230 = 2.00%
• From $16,231 up to $32,462 = 1.50%
• From $32,463 up to $162,311= 0.95%
• from $162,312 up to $324,622 = 0.55%
• From $324,623 and over = 0.35%

• Appraisal by Authorized Valuator: This is used exclusively for tax purposes.
• Property survey: This is a sketch showing the property boundaries and physical features, like federal zone, roadways, easements, etc., as well as some topographical information.
• Permit from the Ministry of Foreign Affairs (SRE): This is a permit processed by the notary or the Trustee Bank through the closing agent and it may cost around $1,100 USD.
• National Registry of Foreign Investment: The Trustee Bank has the obligation to register the Deed within a 30-day period after the granting. The costs vary depending on the Bank and the fee will range from $350 up to $800 Dollars.
• Title Insurance: This varies according to the value of the transaction and the insurance company, but it should not exceed 0.5% – 0.7% of the price of the property.
• Escrow Account: Recommended for managing the funds for the purchase of a property. It’s normally set up by a closing agent when depositing earnest money. Funds for the real estate purchase are deposited into the escrow account prior to closing, and then disbursed in the moment of closing, based on specific, previously-prepared disbursement instructions. The fee is $550-$750, depending on the sales price and title company that is used.
• Selling fees: Although it’s possible to sell a property without the services of a local realty agent, a good realty agent provides a marketing service, a conduit between the negotiating parties, as well as paperwork management.  Realty agents in Mexico typically charge between 5% and 8% of the sale price in commission, on which a 16% VAT rate is levied.