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Purchasing a Home

We are purchasing a home we found though friends in Ecuador. We are buying the home while in the USA and the Ecuadorian owner also lives in the USA.  We have an Ecuadorian price on a well built home in the Vilcabamba area.
The owner has requested that the money transfer occur between us in the USA and we have a recommended lawyer from expats in southern Ecuador.

We learned that the lawyer fee is 0.8% of the home price.  We pay a "selling tax" (is that the same as sales tax) of 1%.  We also pay 14% IVA or VTI tax.  What is an IVA or VTI tax?  Is that a national tax?  We don't know yet.
Are these acceptable and expected fees and taxes?

This is new territory for us so your feedback would be appreciated.

Thanks,
Joel and Robin

It depends.  You can get taken by lawyers here in Ecuador who boast that they offer services in English, French and Spanish.  Because I was living in Ecuador, \I was able to take advantage of a much lower fee through a recommended Ecuadorian lawyer, who only speaks Spanish.  It was no trouble for me as I speak Spanish and could read the documents.  But your situation is obviously different, and you may just have to go that way.

HP

I got off-topic.

joelrobin :

We are purchasing a home we found though friends in Ecuador....
We learned that the lawyer fee is 0.8% of the home price.  We pay a "selling tax" (is that the same as sales tax) of 1%.  We also pay 14% IVA or VTI tax.  What is an IVA or VTI tax?  Is that a national tax?  We don't know yet.
Are these acceptable and expected fees and taxes?

This is new territory for us so your feedback would be appreciated.

Thanks,
Joel and Robin

Joel and Robin’s house purchase could be highly instructive to our readership.  So I hope they will keep us posted throughout the process.

By speeding past the ‘caution signs’ that they have been shown this year on this forum and expat.com's Costa Rica forum .. Joel and Robin could be in for a ride as rocky as Laurie and Tony encountered last year.

As documented on this forum, Laurie came down to Ecuador for all of about two weeks in April 2015 and put a down-payment on a fixer-upper house near the San Clemente, Ecuador, beachfront.  Tony, a handyman, was going to be the ‘fixer.'

Laurie obviously didn’t devote enough time to finding a competent real estate attorney in Ecuador.  Her ‘advisor(s)’ missed the key fact that the property was encumbered. 

The putative San Clemente sellers were the heirs of a previous owner who had died.  The heirs lived in three different countries, creating a morass of legal problems in moving ahead with Laurie's potential house purchase.

Laurie stopped posting about a year-and-a-half ago, so we don’t really know how long it took her to (probably) give up on the purchase.

Hopefully, Robin will keep us posted along the way.

cccmedia

I’ve been reading over the threads where Robin has been posting this year.

I have found no indication that she and her husband have visited Ecuador to qualify this house purchase.

It appears they are attempting to make a house purchase in Ecuador
over the Internet !


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What could possibly go wrong ?

Plenty.

She has apparently not yet consulted a competent Ecuador-based attorney, although she has a recommendation for one.  At this point, Robin seems to be relying on this forum's advice about taxes and closing costs.  A competent and experienced EC attorney who knows the Vilca-area ins-and-outs should be addressing such -- not us laymen Expat posters.

Consider the seller’s attempt to receive payment on this Ecuador house transaction via USA wire-transfer with both buyer and seller in the United States.  Is that a sound plan?

I doubt it.  If the purchase goes sideways at some point, the buyers -- Robin and husband -- may have no legal recourse in either Ecuador or the U.S. if payment was made this way.   Do I know this for a fact ?  Of course not, I’m not an Ecuadorian real estate attorney.

Robin needs to get a good attorney and ask him relevant questions such as are mentioned in this post.

cccmedia

Competent house buyers must do their due diligence.

Buying from outside Ecuador also presents problems related to inspection of the new home.

When I have bought properties, I always accompanied the inspector on inspection day.

Presuming that Robin hires an inspector before moving to Ecuador, he may be on his own.

Will he climb through that basement crawl space to closely determine whether the presence of water has compromised lower areas of the house, as the purchaser would normally insist ?  Or will he just shine a flashlight into the crawl space and make an educated guess ?

Unaccompanied by the purchaser, will he inspect all systems in the house as closely as he would if the purchaser was looking over his shoulder ?

cccmedia

Buying Ecuador property remotely means the purchaser is diminished in his/her capacity to judge myriad situations in the neighborhood.

We can remember that poster in Ambato who found out too late that a neighbor’s many dogs barked all day and night, destroying the peacefulness of her new home.  Neither the neighbor nor the police had any interest in rectifying the noise problem.

Is there a pig farm nearby ?  Will the stench ruin the potential enjoyment of the new home when the wind blows the wrong way ?

Is there a 5:30 a.m. garbage collection twice a week with the garbage truck backing up and emitting a loud, piercing series of beeps ?

Are there hills and inclines that reduce the value and enjoyment of the property and make walking around the neighborhood difficult ?

How far away are key shops and businesses for new arrivals without a car?

How much loud music is audible on weekends ?

You have to have the famous ‘boots on the ground’ to reliably know the answers to these kinds of questions. 

cccmedia

As recentlly as several months ago, Robin posted that the plan was to rent in Latin America for a while and visit various communities for an eventual house purchase.  That was prudent thinking.

Now that purchase is being fast-tracked.

Does Robin think she’s getting a once-in-a-lifetime price that must be accepted ASAP ?  That scenario is unlikely.  Prices in many parts of Ecuador are greatly reduced or highly negotiable due to the earthquake publicity .. and that’s not going to change anytime soon.

As several of us have recently posted, the rule of thumb for new arrivals in Ecuador is to avoid purchasing or building on land until you’ve rented in the target area for a year.

What’s the rush ?

cccmedia

Vilcabamba is at a high altitude for folks coming from Kansas City.

The town itself is about a mile high, similar to Denver, Colorado, although in nearby communities YMMV.

Will new arrivals adjust well to altitude ?  That’s a highly personal matter that can’t be judged over the Internet in advance.

Will culture shock be a problem ? 

Vilca has a higher percentage of English speakers than most places in Ecuador, but that doesn’t completely eliminate the language barrier in many instances.

Will Ecuador -- with its fancy trámites and mañana attitude -- be right for new arrivals ?  Maybe so, but I wouldn’t bet the house money on it in Year 1.

cccmedia

I should start by mentioning I am an expatriate from the USA and have been living in Ecuador for over 8 years.  I am also retired attorney and hold the designation of Dr. Abogado here in Ecuador.

Without knowing more about your relationship with your friends, or you needs, I would caution you strongly against purchasing any property in Ecuador sight unseen.

First, a "well-built home" by Ecuadorean standards differs greatly from the same description of that built in the USA.  And if it is a property that is not yet completed, then you are purchasing the proverbial "pig in a poke".

My next concern is the fund transfer:  Any transaction for the purchase of property in Ecuador must occur in Ecuador to be legal.  While it is possible to accomplish much through surrogates via a Poder de Abogado ( similar to a Power of Attorney) that particular document carries many pitfalls.  Most likely the request to transfer funds is due to the fact that removing funds from Ecuador at this time carries a hefty exit tax (5%).  Still, consider that a contract becomes enforceable and you will have no recourse to a refund of your payment should you make this money transfer without the escritura (deed) in had at the time transfer is made.  And the legality and authenticity of escritura and actual land title are also a slippery slope.  There is no title history or search mechanism as exists in the USA, ownership can be amongst numerous beneficiaries through inheritance, and all can hold the ability to revoke your rights as the final owner if in fact they have not been made aware of the sale or contest it in any way.  Vilca is also an area of communal land rights reverting to indigenous land ownership that usurps most other ownership rights and that is probably the largest nightmare one can face, as the entire land sale is null and void and the property can revert back to the communa, basically indigenous peoples of the area, without notice.

Continuing in this vein: you are assuming the use of an attorney who you do not know and have not interviewed.  An abogado in Ecuador is a person with approximately a bachelor's level degree.  They are not persons holding a doctorate as in the USA, and may have less experience.  A Dr. Abgdo is one who has additional experience and education.

IN Ecuador an abogado  may or may not have experience in the field they are selling their services for, in this case, sales, and they have no ethical obligation to confidentiality nor need they be held  to the levels of sufficiency of counsel as we do in the USA.  There is little recourse if something goes wrong due to the abogado´s mistake, fault, error, or omission.  It is truly a caveat emptor market, buyer beware.

Covering your next item, there is no official fee schedule for work by attorneys.  In the situation you are telling us if the house sale price were $100,000, the lawyer's fee would be $800.  DO you know what this will cover?  Will they be researching the title history, will they be preparing the closing documents, the translations, etc.  What does this cover?

AS a point of reference a well respected member of the Guayaquil Board of Realtors, a Licensed Realtor in Ecuador and NY, an American citizen living in Ecuador for 10 years who is fully bilingual and certified as a translator by the local Notario, who has an MBA and a background in Securities and Exchange Compliance regularly prepare closing packages for the real estate community including translations (which are required for any sale to non-native speakers) for about $650 regardless of the purchase price of the property.

As for an additional "selling tax", I have never heard mention of this before.  Nor have I heard the term VTI.

The IVA is a tax paid on the sale of items, sales tax.  It is how Ecuador raises the majority of its revenue.  IVA stands for El Impuesto al Valor Agregado.  It was recently raised from 12% to 14% as a means of raising funds to offset the expenses created by the catastrophic earthquake of April 16, 2016.  It is a tax on goods and services.  It is not a tax on real estate transactions.

The tax on real estate is a Municipal tax, and that is based on the declared value of the property and home.  Since the earthquake, all property in Ecuador has to go through a re-evaluation through the local branch of the Ministry of Terreno y Catastrofes.  Your taxes must be up to date for your sale to be properly recorded and the new escritura (deed) to be drafted with your name on the title.

Please keep in mind that the above is a very fast overview responding only to those points you raised in your initial question.  There are many more issues and complexity involved in the purchase of property in Ecuador, not the least of which is, do you really want to own property in a developing country?  If you make a mistake and choose to resell, you will be doing so at a tremendous loss.  Keep in mind that statistically, more than 80% of the expats who come to Ecuador return to their country of origin or move on in 2 years.

A final point about Vilcabamba.  It is a lovely location but it does have a recent history of crime against gringos.  Do a google search for "Vilcabamba crime against expatriates" and you will come up with a great deal of information on this subject that is not touched on by real estate professionals, magazines aimed at expatriating, or those trying to sell their properties to get out of Ecuador.

If you would like to discuss this matter in greater detail, I would be happy to do so at your convenience.

Susan

In an outstanding post :top: , Susan’s best point of all may be the issue of re-sale.

If things don’t work out, Ecuador will be a compromised market for re-selling the house given the post-earthquake environment in EC and the perceptions abroad.

Re-selling property in Ecuador has historically been difficult for exiting Expats.  The post-quake market will be even more challenging.  That would be especially true on a property in the high-end market because the potential buyer pool is small. 

cccmedia

Here's a google streetview of  Vilcabamba. You can drive the google car around town, all 8 streets of it, to see if you like it.

This view is about 2 blocks from Parque Central. It's pretty country, not a whole lot there. Drive around and see for yourself.

https://www.google.com/maps/@-4.2602003 … 312!8i6656

I have to mention that I have some really good friends both real time and cyber-life who live in Vilcabamba.  The common point of all of them is none of them live there full-time.  Rather they tend to nest there and recharge and then fly out to circuit Ecuador, South America, or Every Hemisphere (including the Cerebral version of the same.)

If you feel Vilca calling to you, visit first and get to know it.  It is not like anything you think it is...after all the Tao you can describe is ..well not the Tao...

enjoy tome tea and think that over a bit...

Susan

Re\; the question of heirs .  When I received my Escritura, along with it came many papers such as receipts for items paid to Municipality, Notario, etc, Included among these was a FORMER Escritura, which told the historical story of how the six lots (one of which I bought) belonged to a certain person and  how when that person died, the finca was divided into six lots, each roughly exactly equal dimensions, for each of the six heirs.  There was no problem wit unknown heirs here in that situation.  Others may not be so lucky.

HP

My husband and I did go to Ecuador for three weeks.  We looked in the area we liked.  Some were overpriced - gringo!  Then we met some Americans who recommended two attorneys.  We stayed a Villa with a wonderful Ecuadorian family.  We got to know them fairly well.  We told them that we like the houses next to them.  We found out one was for sale.  The owner of the Villa emailed the owner of the house.  We looked at it - 5 years old.  Our friend put us in touch with the seller and others who live near by.  We got all the information on the construction, blueprints, receipts for home building costs, and tons of pictures of the the building process.  After evaluating all the information, we decided to buy it.

My husband and I just wanted to make sure that the numbers we were getting from the lawyer were similar to what other expats experienced.

The owner of the Villa was a retired University Economics Professor and gave us lots of information about the owner and the building of the house.  He and his family wanted us to buy it because we fit in with or personality and goals for the area.  They offered to help up with all we needed to learn about the house and land/plants.  One other family also offered to help us with learning the area. They would be our closest neighbors and they are Canadian.

We feel good about the purchase, we just wanted to compare attorney information with others.

Thanks for all the feed back.  We learn from each other!

Robin and Joel

Good luck to you and I just want to put value for you in perspective, a friend of mine bought a 100 square meter plot for $700 in Pomasqui, it’s illegal land but Ecuadoreans sort it out, and he built a 2 story residence on that plot for $15,000. In Sur Quito, an undesirable area, you can buy a house for $50,000 but you can also get $200 a month or 5% cap.

It's best to buy a home that is a good investment.

My only advice is to best to rent the place for a year or two and shouldn't cost you much in that area.

This has potential to become one big mess, but lacking details and time I cannot comment a lot. For one thing, I have been involved in several house sales here, none of which levied a 14% "IVA" tax. Also, a .8% lawyer fee could be a good deal or a waste of money, depending on what you get. There has been talk of a property transfer tax (which I think a good idea, in a reasonable amount) but the rich people of the country are fighting it.

In the US title companies handle the transactions, holding the transaction money until the title is cleared and the conditions met. When this happens the seller gets the money (less what is given mortgage holder or others as stipulated) and the buyer gets the deed, which is recorded at that exact moment. Title insurance (optional but usually foolish to skip) insures that the title is clear, so that if someone pops up with a lien or claim they are responsible. Unfortunately, Ecuador does not have title companies (opportunity for a new business here!).

In my experience, a "good Ecuadorian lawyer" is an oxymoron. I have generally found them skilled at extracting money without producing results. Don't pay for anything until you get results, except for maybe a modest deposit you can afford to lose. CCCMEDIA here has some important additional suggestions.

smitty88 :

Don't pay for anything until you get results, except for maybe a modest deposit you can afford to lose. CCCMEDIA here has some important additional suggestions.

Here are those suggestions, Smitty....

1.  Don’t buy or build on property in Ecuador until you’ve lived in the target area for a year.

2.  Most Expats leave Ecuador or move to another place in Ecuador after a few years.  So go for a rental unless you absolutely can’t stop yourself from buying.

3.  The Ecuador real-estate market is depressed.  You should realize that if you buy anytime soon, you may have a nightmare in store for you down the road -- for example, not being able to re-sell for years.  The depressed market does not mean that current sellers are significantly lowering the offer prices on properties you might consider buying.  In Ecuador, being a re-seller -- or for years a remotely-located landlord hoping to re-sell -- is not normally a path to happiness.

4.  If you must buy or build on property, hire an experienced and ethical attorney.  And by that I mean:  hire Sebastian Cordero and call it a day.   He has offices in Quito and at the coast ... email: scordero[at]gcabogados.com .... If you need someone in Cuenca, Sebastian might have a referral for you.

cccmedia

Well  put, but it is also important not to forget that Ecuador is still, in many ways, a third world country. Official record keeping and processes are better than in many other countries but can still be a mess. For you possible amusement I will attempt to post, here, a couple of photos I took in the records closet of one of the bigger notary offices in Otavalo of the chaotic bundles of official property records, dating from 1917, I took during a house sale where I was on the periphery.

Well, I do not see how to insert a photo here so you will have to imagine them. I have the photos on my computer but no "URL" for them. Copy and paste did not work.

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