Buying property in Colombia is pretty much the same for both locals and foreigners.
As a foreigner, you have the same rights as Colombians to buy real estate, and it won't cost you extra money. All you need is a valid passport and enough funds to buy the property.
You can stay in Colombia for up to 90 days without needing a visa, which gives you time to look at different properties. If you're going to be away from Colombia during the sale, you can give someone else the power to act on your behalf through a Power of Attorney.
Finally know that, at TheLatinvestor, we understand the challenges foreigners might face when buying property in Colombia. That's why we've put together a set of documents that will help you save time and money.
Estudio de Títulos - make sure everything is ok with the property
Once you’ve found a property you like, you must make some verifications.
A physical property inspection is a crucial step that will allow you to identify any structural issues, potential damages, or maintenance requirements.
Consider hiring a professional inspector who can provide a detailed report on the property's condition.
Then, you have to check the documentation.
Unfortunately, title insurance is not commonly used in Colombia. Instead, property buyers rely heavily on a thorough title search and due diligence conducted by their lawyer.
This must be done prior to entering into any agreements with the seller.
The 'Estudio de Títulos' is an exhaustive process that scrutinizes a property's ownership history, any existing liens, and past illicit activities.
Typically, your Colombian lawyer will take care of this for you and will look into three important things; he will:
- make sure the person selling the property actually owns it
- check if there are any debts or legal claims on the property
- investigate if anything illegal happened on the property before
Which documents are helpful during this stage?
The "Paz y Salvo de Valorización" is the first document your lawyer should obtain. He will then verify the certificate and conduct due diligence checks through the local Registry Office, which costs 15,700 Colombian pesos.
This certificate provides extensive information about the property, including its history, property records, mortgage details, legal claims, and any renovations made.
Additionally, there is the Certificate of Property Free of Taxes (Paz y Salvo Predial), which confirms that all municipal taxes related to the property have been paid.
What happens when the property has unresolved issues?
It will have an impact on the next stage of the process, which involves drafting the purchase agreement on your behalf.
For instance, if the property currently carries an existing mortgage, the purchase agreement will incorporate a provision for settling the mortgage.
In the event of outstanding tax payments on the property, the purchase agreement will obligate the clearance of these debts.
If there is a lien attached to the property, the purchase agreement will necessitate addressing and removing it.
These are merely a few examples of how a title analysis can shape the terms of your purchase agreement.
Negotiation phase - get the best price for your property
From the feedback we get from our community of customers, property prices in Colombia are often open to negotiation. It’s especially true if, as we just saw, you’ve found some issues during the title inspection phase.
When you want to buy a property in Colombia, try to negotiate and get a 10-15% discount. It's essential to be smart about it.
Property appraisals are not as common in Colombia, but you can still estimate a property's value by researching recent sales of similar properties in the area. You can also check our data and reports in the Colombia Property Pack.
Your realtor is your greatest ally. They'll assist by inspecting the properties you're interested in, determining how long they've been on the market, and gauging the sellers' willingness to make a deal.
Here's a thing we heard often from our local experts and a key point to remember: if the seller knows you're a foreigner, they might try to get a higher price from you.
To avoid this, it's a good idea to have a local agent do the negotiating for you.
The seller doesn't need to know your identity, including that you're a foreigner, until you're ready to make things official by signing the purchase agreement (called “Promesa de Compraventa”).
Everything you need to know is included in our Colombia Property Pack
Promesa de Compraventa - draft a solid purchase agreement
What is it?
The Promesa de Venta in Colombia is the equivalent of a standard purchase agreement.
It will either be drafted by a real estate agent or your lawyer. In most cases, it’s your lawyer.
What should it include?
When drafting your Promesa de Venta, your lawyer should include:
- a description of the property to be purchased
- payment terms and a schedule
- legal disclaimers
- terms of the sale
- liquidated damages clauses
- arbitration provisions
- legal identity of the property
- identity of the parties
- the signatures of all parties
- a timeline of key events in the transaction
- penalties for failure to abide by the contract
What are the potential pitfalls during this stage?
As reported by our local experts on the fields, there are several potential pitfalls to watch out for.
One common problem is when contracts lack clear deadlines for important steps, like deposit payments or mortgage liens.
These vague contracts can lead to misunderstandings and delays in the transaction.
Missing Fixtures and Appliances
Some items like light bulbs, stoves, curtains, and more may not automatically come with the property unless they're specifically listed in the contract.
Buyers should ensure that these items are included to avoid surprises when moving in.
Contracts in Colombia are typically in Spanish, even if negotiations were in English.
Buyers need to understand the documents they sign, as there's usually no requirement for translations.
Penalties for Non-Compliance
If a party doesn't follow the contract terms, they might lose their deposit.
However, enforcing these penalties can be challenging. To prevent this, an enforcement clause can be added to the contract.
Penalties are quite huge, this can cost the buyer or the seller 10%-20% if they back out of the sale.
Property Payment - bring your money in and know when you have to pay
What is the payment schedule?
In Colombia, there is no escrow service, which means you'll need to pay the seller directly when buying a property.
However, this can put homebuyers at risk, as there's a possibility that the seller might not fulfill their part of the deal (taking your money but not transferring the property, for example).
To prevent this from happening, it's crucial to work with your lawyer to include a well-defined payment schedule and payment method in the Promesa de Compraventa (Promise of Sale) contract.
These clauses should offer protection for you while also assuring the seller that they won't be unfairly treated in the transaction.
Usually, after the promesa de compraventa is signed, the buyer is required to send a significant down payment, often 20% of the property's price, to the seller.
The rest of the payment will be made during the next stage, the escritura pública, when you will receive the ownership of the property.
How do you bring your money in Colombia?
You will need a significant amount of money to pay for your new property, and it's highly likely that you won't have that kind of money readily available in Colombia.
Therefore, like most foreign buyers, you'll need to bring the necessary funds for purchasing a Colombian property through a brokerage account.
To open a brokerage account, you'll need to provide certain documents, including a copy of your passport, bank statements, personal income tax returns, and documents that support the source of your funds.
Typically, the company responsible for the brokerage account will assist in converting foreign currency to Colombian Pesos, and they will charge a fee (around 1%), along with an additional 0.4% tax imposed by the Government of Colombia.
The most recommended brokerage account providers are Cazataza, Alianza Valores, and Colpatria.
The steps involved in this process are relatively straightforward:
- open a brokerage account
- wire the funds to the account
- convert the funds into Colombian Pesos
- register the funds with the Colombian National Bank (Banco de la República)
Any potential pitfalls?
The last step is crucial. Based on feedback from our customers who have purchased the Colombia Property Pack, there is a common pitfall to be aware of, which we will explain to you.
So, you must ensure that your funds are properly "legalized" in Colombia. This process can take anywhere from 2 to 6 weeks or even longer. Do not assume that it's as simple as sending a wire transfer, as most local banks will automatically block incoming wire transfers and will require paperwork to unblock the transaction.
Please be cautious because there is a final payment date specified in your Promesa de Venta (Promise of Sale). If you miss this deadline, you will breach the contract and may be subject to a penalty, which can be a substantial amount, sometimes as high as 20% of the property's sale price, and you risk losing the property.
Escritura pública - get the ownership of your new property
In Colombia, these steps are typically consolidated in a single location known as a Notaria, simplifying the process.
The initial step involves the preparation of the escritura pública, an official document responsible for transferring property ownership. This document encompasses pertinent information regarding the property, the buyer, the seller, and the sale's terms.
To produce the escritura pública, you will need to engage a notary's services. The Gastos de Escrituración, or deed drafting costs, typically amount to 0.54% of the property's sale price, with both the buyer and the seller sharing this expense equally.
Both the seller (grantor) and the buyer (grantee) must endorse the escritura pública in the presence of an authorized individual, often a notary public, who will also verify identities by taking fingerprints.
Subsequently, once the escritura pública is signed, it must be officially registered with the government at the Oficina de Registro de Instrumentos Públicos. Once registered, the property transfer becomes public and legally valid.
Following the signing and registration of the escritura pública, the remaining funds for the property sale must be promptly transferred to the seller.
There are additional fees that need to be paid, including:
- notary fees, as mentioned earlier
- various government taxes associated with the property title transfer
- real estate agent's commission (3% to 5% of the sales price)
The allocation of costs, whether they will be borne by one party or shared, is ultimately determined by the terms previously outlined in the Promesa de Compraventa.
Upon completing all these steps, you will be officially recognized as the new owner of the property (you will receive a title with your name several weeks later).
Disclaimer: The information provided in this response is intended for general informational purposes only and should not be construed as legal or financial advice on any subject matter. Property transactions and related legal matters can be complex, and laws and regulations vary by jurisdiction. Therefore, it is imperative that you seek the assistance of a qualified professional, such as a licensed attorney or financial advisor, who can analyze your specific situation, provide personalized advice, and guide you through the necessary legal and financial processes. The author and publisher of this response disclaim all liability for any actions taken or not taken based on the information provided herein. Remember, ensuring that you have accurate and up-to-date advice tailored to your circumstances is crucial in making informed decisions and protecting your interests.