Feel ready to commit and buy a house in Mérida? The following information covers purchasing residential real estate. At the end, you’ll find a brief overview and helpful information about buying land, pre-sale developments, and speculation properties. Real estate transactions in Mexico are carried out very differently than other countries. It’s important to know there is no oversight or regulatory committee to oversee real estate transactions. Real estate agents are not required to have any type of licensing.
“Only 10% of the people who offer real estate services in Yucatan have the capacity, training, professionalism, certification, and recognition to advise the public on real estate investment,” said Enrique Trava Griffin, 2023/2024 local president of the Mexican Association of Real Estate Professionals (AMPI). According to Trava Griffin, there are 174 AMPI certified real estate companies with about 550 professionals practicing in the real estate sector. In contrast, more than 5,000 people offer a variety of real estate services without any fiscal accreditation.
Who’s Involved in a Real Estate Transaction
• Real Estate Agent(s)
• Fideicomiso Bank
• Notary Public (Notario)
Real Estate Agent
Some real estate companies and/or agents prefer buyers know as little as possible about real estate. Subsequently, this can be a very bad situation with devastating consequences. It’s hard to know the right questions to ask when you don’t know the laws and/or what to ask. Additionally, exclusive listings are not the norm. You may find the same house listed by multiple “agents” sometimes at different prices.
Because there’s no oversight or regulatory committee for real estate and agents, many people use this as a side hustle. They aren’t serious about legalities or client representation. Their ONLY goal is to make a sale on a rental or purchase. As soon as the transaction finishes, they vanish in the wind – on to the next deal. This is NOT what you want. A reputable agent is serious and professional with how they represent you. It’s just as important for these agents to have a good professional relastionship within the real estate community.
Some people think they can save a few dollars by dealing directly with a builder or developer. Unfortunately, this negates ANY kind of representation before, during, and after the transaction is completed. The price ALWAYS includes commission and is not typically reduced when dealing direct. This is just extra money in their pockets, increasing their ROI (return on investment).
A sure-fire way to negate assistance from a real estate agent is walking into the office of a developer or builder, or contacting a seller directly. This relays to the other party that you represent yourself. If you’ve been working with a real estate agent, it immediately cancels the commission, relationship built, and any advice or resources you will need throughout the process. My best analogy is this: it’s like representing yourself in court, even if you have experience. You know the saying, “The man who represents himself has a fool for a client.”
One piece of good advice from your agent can potentially save thousands of dollars in tax payments as well as other savings when you sell the property. A great agent will answer questions about the city, where to buy furniture, the closest grocery stores, and offer valuable tips. They will also be with you from beginning to end and after the transaction.
Local Tip: Recently, Angel was in the beginning stages of working with a client. One day, they looked at a few properties but nothing suited the client within the parameters he expressed to Angel. Instead of updating his needs/wants list, the client started looking on his own (as we ALL tend to do). He was advised that when he found something to contact Angel to allow him to speak to the other agent or owner to discuss the details. When he did find something he began dealing with the other agent directly. The client didn’t understand Spanish or the local customs or how real estate works here or the legalities. The agent began making unreasonable requests so the client asked Angel for his help. Because Angel was not involved from the beginning, he was unable to help and unfortunately couldn’t even offer advice. The only thing Angel could do was refer him to one of our legal resources at Easy Legal.
Instead of having advice, additional resources, recommendations, and other valuable information from Angel and our team, the client now had legal expenses. All of this because he didn’t follow instructions. And, it happens more often than not. If you are moving here from the U.S. or Canada, this is the question, “Would you represent yourself in a court of law in your home country? Would you represent yourself in a real estate transaction? Would you represent yourself in a foreign country without knowing the rules, regulations, culture, customs, and LOCAL language?” Yucatan has a very specific dialect of Spanish. If you answered no or even hesitated on answering any of the questions, I beg of you NOT to represent yourself in ANY real estate transaction – renting, buying, or selling.
For Sale by Owner
Likewise, there are also For Sale by Owner (Trato Directo) – houses have for sale sign outside with contact information. Some owners are not willing to work with agents. Additionally, the person you are dealing with may not even be the legal owner of the house. If you find one of these houses, I highly recommend finding another property. It is important to have representation. Finally, interview multiple agents and choose ONE to represent you. Engaging the services of multiple agents is not fair to the agent’s time and investment AND it can be confusing if multiple agents inquire about the same property on your behalf. It can also create alot of conflict between agents. This is a large city but a very small town – meaning everyone knows each other. Therefore, help agents maintain their professionalism within their community as well.
Fideicomiso Bank
When purchasing a property from a foreigner, most likely there will be a Fideicomiso in place. Most of the time, the buyer decides to transfer the existing Fideicomiso into his name. If the Fidiecomiso is at the end of the 50-year period, then the buyer may decide to either renew with the same bank or select a different bank. While the most common banks are Monex and Mifel, other banks offer Fideicomiso. There will either be a transfer fee OR a fee to establish a new Fideicomiso. You’ll pay an annual maintenance fee directly to the bank or via wire transfer. The only way a Fideicomiso can be avoided is to create a Mexican corporation. While this may seem like a better choice, speak to your real estate agent, attorney, or notario to understand the differences. Be sure to ask how this will affect capital gains taxes when selling the property.
Notary Public (Notario)
The role of a Notary Public in Mexico is to witness and certify important business and civil documents which require authenticity. The Notary is also responsible for filing legal documents with the Public Registry of Property as well as the management and secure storage of the original legal records. It’s important to note that a Notario can be held liable in both civil and criminal terms. A Notary is required to ratify all parts of the real estate transaction includingcontract terms, transfer of title, calculate capital gains tax, order an appraisal for tax purposes, and record the transaction Public Registry. Although a Notary is a lawyer they do not function as your lawyer in real estate transactions. Their job is to be neutral and perform their duties for the buyer, the seller, and the government. All notarios are attorneys but all attorneys are not notarios. Notarios undergo rigorous training and certifications that attorneys do not.
Now that you know who’s involved in the transaction, let’s look at the actual steps of buying a property as a foreigner. Keep in mind, this can vary from transaction to transaction (no two transactions are ever the same). We’ve also included some general closing costs included at the end for budgeting purposes ONLY. These are NOT final numbers, it is only meant to give a reference of approximate costs. Costs vary depending upon final details, property location, choice of notario, and other personal choices.
Determine a Price Range
As part of your price range, be sure to factor in closing costs, Fideicomiso fee, and other related fees (outlined at the end). While searching, you may see prices listed in both U.S. dollars and pesos. While negotiation may seem logical, it is entirely dependent upon the seller. They may have planned on negotiating the price or not. Some negotiating is expected but there may not be much wiggle room. It’s always good to keep as close to your budget as possible due to these circumstances. We recommend taking into account the closing costs into your budget.
Choose a Property
Location, Location, Location – that’s the name of the game and always will be in real estate. The process of how to buy a house in Mérida may take some time. Be patient and the right property will appear at the right time. You may find that the area you are most interested in can change over time (strangely enough). Spend time in the area, find the closest grocery stores, hospitals, and pharmacies. It’s also good to be close to an Oxxo. If the closest stores aren’t to your liking, determine drive times to stores that you do prefer. Also get ready for the emotional side of real estate. It’s not just about numbers and location. You’ll also find emotions may drive your decision. Many people say the reason they moved to Mérida was based on a feeling. Choosing the right property is the same – when you feel it, you’ll know it’s the right one.
Ask yourself these important questions:
- Can you envision yourself living in a particular house?
- Do you like the area where the house is located?
- Are you within a close enough distance to your preferred stores, doctors, pharmacies, etc? I say “close enough” because if it is the right house, you’ll justify the distance and make it work.
- Does the house have more pros than cons?
- Do you have the availability to update or change features that are must-haves? For example, you need a washer and dryer. Is there an option or space to add it to satisfy this need?
Remember, this is not a culture of convenience. You’ll have to sacrifice and compromise on certain points of your list of must-haves, like-to-haves, and deal-breakers. You may even surprise yourself by deciding on a different area or specifics than you originally thought.
Make an Offer
It’s possible the list price of the property will be in U.S. dollars. Therefore, determine the best possible outcome for your offer. Rely on your agent to assist with the negotiation process. They can provide valuable advice on how to make an offer so it’s not offensive to the seller. Remember, this culture is very respectful. While it is acceptable to negotiate, be prepared to pay full price if that’s what it’ll take to get the property you want.
It’s difficult and next to impossible to gauge what a similar property sold for. While sales prices are recorded in the tax records, more often than not, they do not reflect the actual sales price. It’s been a practice for many years for sellers to accept two separate payments on properties – via bank transfer to be recorded and via cash to not be recorded. This keeps their taxes low. Fortunately in 2021, this practice was put to an end and now all sales must be officially recorded – no cash payments can be made on the side to the seller to offset their taxes.
Additionally, without an MLS system to see details of the property including upgrades, room sizes, lot sizes, etc. it is impossible to determine similar properties. Appraisals are part of the purchase process. As part of the offer, you’ll also need to consider what type of possession you want. The seller may be in a hurry or they may need a few months. It’s all a typical part of the negotiating process to come to agreeable terms for all parties involved.
Inspection Term
While not common, it MIGHT be possible to have an inspection term for 7 to 10 days. This is called an “apartado” which means there is a hold on the house. There will be a small fee for this service (outlined below) which is usually non-refundable. We have a general contractor that we work with in order to get a general idea of systems, construction, potential maintenance issues, and irregularities. This is NOT a general inspection. It is only a visual inspection to point out possible issues or items in need of repair. This is NOT used to renegotiate the price nor is it an accepted practice to do so. It is used for the buyer to be aware of any major issues that would cause them not to move forward with a formal contract.
Deposit
As part of your contract, you’ll agree on what amount of deposit to pay – this is typically 10% but can be up to 30% of the purchase price. Deposits are held in escrow with the Notario. NEVER, EVER give your deposit to the real estate agent! In rare circumstances, the deposit may be given directly to the seller. If this is the case, it is normally because the seller needs the money in order to move and for other ancillary costs they may have before the sale is finalized. This is one area where you will absolutely need professional representation so that your money is safe.
Penalities
Once a contract is signed, there are stiff penalities for BOTH the buyer and the seller. Penalities occur when the buyer or seller want to terminate the contract AFTER it is signed. Typically, the penalty amount is the deposit amount and is the same amount if the seller wants to terminate.
Formalize the Contract
This involves finalizing details such as possession, signing the contract, and paying the deposit. You’ll have a timeline or schedule in which you’ll pay the other related fees including but not limited to: Acquisition Tax, Notary Fee, Registration Fee, Title Insurance, and Miscellaneous Fees. At this time, you’ll be able to have a very clear view of actual fees and when they are due vs. an estimate.
Owning Property as a Foreigner through Fideicomiso
Mexico’s early history shows foreign invasions and the loss of vast amounts of land. Responding to the fear of history repeating itself, Mexican authorities established in the Constitution what’s known as the “Restricted Zone.” In 1973 in order to bring in more foreign investment from tourism, the Bank Trust of Fideicomiso was created, thus allowing non-Mexicans to own land without having to modify the constitution in the Restricted Zone. Since the law went into effect it has undergone many modifications in order to make purchasing land in Mexico a safer investment. The Restricted Zone is defined as 100 km from a border and 50 km from a coastline.
The Fideicomiso agreement is executed between a Mexican bank and the seller of property in the restricted zone. This type of trust is similar to trusts set up in the United States. However, in this type of trust, a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of a record. The Fideicomiso is a trust held by the bank providing a foreign buyer (beneficiary) all the benefits of direct ownership. In addition to the initial cost of establishing the Fideicomiso, there’s also an annual fee (paid to the bank) for maintaining the trust. The initial fee includes the first year of maintenance fees. This fee is paid in addition to other closing costs.
Be Aware: If your real estate agent suggests that you do not need a Fideicomiso and that you can save money by not having one this is NOT TRUE! If this happens to you, you need to STOP the transaction immediately and find a reputable agent to assist you. The ONLY way to avoid this is to create a Mexican corporation which can affect your capital gains taxes when selling the property.
The beneficiary can:
- Sell or lease the property at any time.
- Develop and use the property to his liking (limited to legal activities).
- Benefit from any sales or transfers within the provisions of the law.
There is a common misconception that once the trust expires, the beneficiary loses all rights. This is not the case. The trust can be renewed in perpetuity.
- The bank (trustee) has a fiduciary obligation to respect the rights of the foreign owner (beneficiary).
- The trust is granted for 50 years and is renewable at any time, for another 50 years, by applying to the bank.
- If the 50-year period expires without renewal, the owner has another 10 years to renew the trust.
- In the event a trust is transferred to a new owner, the new owner has 2 options: (1) to continue the trust for the remainder of its 50-year period OR (2) the trust may be renewed at that time for a 50-year period.
- While real estate transferred on death has no inheritance tax, an acquisition tax may apply. It’s also possible that a Capital Gains tax may apply when sold.
Frequently Asked Questions
Is a closing statement provided to line item all the fees included?
If you’ve bought real estate in the U.S. or Canada, it’s normal to receive a HUD-1 or closing statement. This is not a practice in Mexico. However, ask the notario and/or attorney to provide a list of your approximate fees up front. There’s nothing worse than a bad surprise for something you didn’t plan for. We’ve included percentages as a frame of reference.
How are property taxes paid?
Predial is the name of the annual tax paid for real estate. Average predial is 0.3-0.5% of the assessed value of the property at the time of sale. The annual predial fee can change annually.
If you pay your taxes early in the year, you’ll get a discount:
- January payments = 30% off
- February payments = 20% off
- March payments = 10% off
Who holds the deposit or down payment for the property?
In most cases, the notario holds all monies for the real estate transaction and is in charge of the money transfers, etc. Your agent will keep in close contact with them and update you along the way.
Is it possible to buy a house in Mérida without a Fideicomiso?
While it IS possible to buy property without a Fideicomiso, it is NOT possible anywhere in or around Mérida because Mérida is located in the Restricted Zone. The Restricted Zone is 50 km from the coastline and 100 km from the border. If your agent or someone else advises you that you do not need a Fideicomiso, this is absolutely 100% incorrect. If you do receive this advice, I recommend walking away immediately. Remember, the only exception is creating a Mexican corporation.
What is ejido land and can a foreigner purchase it?
Ejido land is communal property belonging to an indigenous community. It is common to find Ejido land close to the beaches and coast. Because Ejido is not private property, if someone wants to purchase it, 100% of the community must agree to sell it. Additionally, it is NOT possible for a foreigner to purchase it. Only a Mexican National can purchase Ejido land and as you can imagine, it is a long, difficult, and costly process that may result in not being able to complete the transaction.
Are mortgages available in Mexico?
If you’re wondering why mortgages aren’t typical in the restricted zone, consider this; as a foreigner you don’t own the property outright. The bank owns the property as the trustee, and you are the beneficiary. It is not necessary to have a Mexican will when you own property in Mexico. In the Fideicomiso, you’ll name a beneficiary to convey the property to. For many years, purchasing a property in Mexico has been cash only especially if a Fideicomiso is required. Because the bank is not lending directly to the buyer, mortgages have not been available with a Fideicomiso. However, Intercam Bank has a mortgage program for foreigners that qualify. Learn more about their Dream Loan program to check the terms and to see if you qualify.
What happens if I can’t be present to sign the final contract and documents related to the sale?
You can have a limited power of attorney for real estate drawn up in order to have someone sign on your behalf. This is a common practice for real estate transactions when the buyer is not able to be present. It’s common to give power of attorney for real estate to the notario.
Is the price negotiated in U.S. dollars or pesos?
This depends upon the listing agent and seller. Dollars may be preferred if proceeds from the transaction are being deposited into a foreign account. Be sure to ask upfront what currency is preferred in order to alleviate any stress for exchange rates and bank transfers. As the buyer, you’ll have no control over the currency. It is the seller’s choice.
ESTIMATED CLOSING COSTS FOR SAMPLE PURPOSES ONLY
- Fideicomiso, Attorney Fees & Closing Costs = Approximately 10%
- When purchasing at the beach, closing costs can be a bit higher
ONE ITEM TO NOTE
Some list prices for houses are published in U.S. dollars for ease of understanding. ALL fees, purchase price, and other items related to the purchase and contract are in Mexican Pesos. There is no way to “hold” the price in U.S. dollars as that is not the local currency. If price is quoted in U.S.D., the exchange rate at the time of closing is adjusted to Mexican pesos.
Final Thoughts on How to Buy a House in Mérida
There is truly something for everyone in Mérida – the objective is to determine HOW you want to live. What are your priorities? Are you willing to sacrifice some things on your list in order to be in the location you prefer? Nothing will be perfect, that’s for certain. You’ll have to decide priorities and what can be compromised.
If you are thinking about a new development, land, or similar, here are some words of wisdom. I sold properties in a new development in Riviera Maya in 2006 – 2007 at Bahia Principe and I’ve seen it ALL.
- BEFORE you commit to a new development or builder, drive around. Spend as much time as possible both inside and outside the city. Observe ALL the abandoned projects so you have an idea of how RISKY it can be.
- DON’T believe this time it will be different or this developer is trustworthy or this seems like a good deal. Don’t be one of the first to buy in a new development as you will become the poster child for potential buyers.
- MANY people have issues with developers and builders NOT just foreigners. Locals and Mexican Nationals have had their share of problems. It’s not only the foreign community.
- It may take a few years for the developer scam to be uncovered and apparent. The best example is Caban Condos in San Cristanto along the coast. For more information, join the Facebook Group: Caban Condos Mexico Reviews – this is the PERFECT example of how a project went from fabulous to fraudulent.
- If you’ve had a bad experience in one development, PLEASE do not go to another development thinking the experience will be different or better. Many times the same issues appear causing immense amounts of frustration and loss of funds.
