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When it comes to buying real estate in Chile, making sure you fully grasp the property sales contract is essential.
Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.
We've heard countless stories of people making costly mistakes when signing their property agreement in Chile. We want to help you avoid the same experience.
We'll give here a very brief overview regarding the property sales contract in Chile ; if you want a full checklist, please check our property pack for Chile.
What is the Promesa de Compraventa in Chile?
In Chile, the property purchase agreement is known as a "Promesa de Compraventa," which translates to "Promise of Sale Agreement."
This document is a key part of real estate transactions in Chile. It outlines the terms and conditions agreed upon by the buyer and the seller, including the sale price, payment terms, and other relevant details about the property and transaction.
The "Promesa de Compraventa" is legally binding for both parties. Once signed, both the buyer and seller are obligated to complete the transaction under the agreed terms.
This agreement serves as a guarantee for both parties, ensuring the seller will sell the property and the buyer will buy it at the agreed price and conditions.
For international buyers or non-residents, the process is generally the same, but there might be additional requirements, such as having a RUT (Rol Único Tributario), which is a tax identification number in Chile. It's important for international buyers to be aware of any additional paperwork or legal requirements.
Typically, the "Promesa de Compraventa" is signed after initial negotiations and once both parties are ready to commit to the transaction but before the actual transfer of the property. This stage is crucial as it legally binds both parties before the final deed is signed and registered.
Regarding the deposit, it's common for the buyer to pay a deposit when signing the "Promesa de Compraventa." This deposit, often a percentage of the total sale price, demonstrates the buyer's commitment to the transaction.
The exact amount can vary, but it's usually around 10% of the purchase price. This deposit is typically held in an escrow account until the transaction is completed.
The way real estate transactions are handled in Chile can differ from other countries. For instance, the involvement of a notary public is crucial in Chilean property transactions.
The notary public plays a significant role in verifying the documentation and ensuring the legality of the transaction.
Also, the use of "Promesa de Compraventa" as a binding agreement before the final sale is more formalized in Chile compared to some other countries, where informal agreements might precede the formal contract.
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What should be included in the property purchase agreement in Chile?
In Chile, the property purchase agreement, or "Promesa de Compraventa," must adhere to specific requirements to ensure its validity and enforceability.
The Chilean law governing real estate transactions and contracts is primarily the Civil Code (Código Civil de Chile), which outlines the general principles and requirements for contracts.
The "Promesa de Compraventa" should contain several key elements:
Identification of the parties
The full names, identification numbers (RUT for Chileans or passport numbers for foreigners), and addresses of both the buyer and the seller.
Description of the property
A detailed description of the property, including its location, registration data, and any relevant characteristics. This should match the description in the property's title deed.
The agreed-upon price for the property and the payment terms, including how and when the payment will be made.
Date of transfer
The agreed date when the property will be formally transferred from the seller to the buyer.
Penalties for non-compliance
Clauses that outline the consequences if either party fails to fulfill their obligations under the agreement.
Additional clauses may include:
- Stating the property's current condition and any responsibilities for repairs.
- Allowing the buyer a period to conduct property inspections or legal checks.
- If the property has any encumbrances, how these will be handled.
Conditions or contingencies can also be included, such as the sale being contingent on the buyer obtaining financing, or the sale being dependent on a satisfactory property inspection.
In Chile, it is mandatory for the "Promesa de Compraventa" to be authenticated by a notary. This process gives the agreement legal validity.
The notary reviews the document to ensure it meets all legal requirements and then officially records it.
Regarding the role of real estate agents, while they often facilitate the process of buying and selling property, they do not have a direct legal implication in the "Promesa de Compraventa."
Their main role is in helping the buyer and seller reach an agreement, finding suitable properties, and assisting with negotiations.
However, the legal aspects, including drafting and authenticating the agreement, are typically handled by legal professionals and notaries.
What's the signing process like?
In Chile, the signing process of a property purchase agreement, or "Promesa de Compraventa," is a structured and formal procedure.
Understanding each step is crucial to ensure a smooth transaction.
Firstly, the "Promesa de Compraventa" is a bilateral contract, meaning it requires the participation and consent of both the buyer and the seller. It can certainly involve multiple parties on either side. For instance, if a property is owned by a married couple or multiple partners, all must be present to sign the agreement.
Similarly, if the buyer side consists of more than one person, like a group of investors, each individual must sign the contract.
The documents and information required from both parties typically include:
- National ID (RUT) for Chilean residents or passport for foreigners.
- This is generally the title deed, showing the seller's ownership of the property.
- Registration details of the property, including its exact location and specifications.
For the signing process, the timeline generally follows these steps:
Drafting the Agreement
The agreement is drafted, outlining all the terms, including price, payment schedule, and property details. This can take a few days to a few weeks, depending on how quickly both parties agree on the terms.
Review and Approval
Both parties review the agreement. This might involve legal counsel to ensure that all terms are clear and legally sound.
Signing the Agreement
The agreement is signed in the presence of a notary. This is a crucial step as the notary public authenticates the signatures and the terms of the contract.
Regarding the method of signing, traditionally, physical presence is required for the signing of the contract, especially since it needs to be notarized.
However, with advancements in technology and depending on the notary's policies, there may be options for remote signing or digital authentication. It's important to clarify this with the notary involved in the transaction.
There isn't a fixed deadline for signing the "Promesa de Compraventa," but once the terms are agreed upon, it's advisable to sign it as soon as possible to formalize the agreement and protect both parties' interests.
The duration for which the contract is valid is usually stipulated within the agreement itself.
Typically, it remains valid until the final sale is completed, which involves transferring the property and completing all financial transactions.
After signing, the agreement is registered with local authorities, usually through the notary's office. This registration is crucial as it officially records the transaction and protects both parties legally.
Amendments to the contract after it has been signed are possible but require the consent of both parties. Any changes must be formally documented and signed, often requiring notarization again.
The timeframe for completing all necessary paperwork and approvals can vary.
Typically, from the signing of the "Promesa de Compraventa" to the final transfer of property, it can take anywhere from a few weeks to several months, depending on the complexity of the transaction, the speed of obtaining financing (if needed), and the efficiency of the bureaucratic processes involved.
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How is the payment handled when signing a property purchase contract in Chile?
In a real estate transaction in Chile, understanding the financial aspects is crucial.
When you sign a property purchase agreement, known as the "Promesa de Compraventa," there are specific financial commitments and implications.
Firstly, at the time of signing the sales agreement, you're typically required to pay a down payment. This down payment, often referred to as "earnest money," is usually about 10% of the property's total sale price.
However, this percentage can vary and is subject to negotiation between the buyer and the seller.
There can be upfront fees associated with signing the sales agreement. These might include notary fees for the authentication of the agreement and legal fees if you have engaged an attorney to assist with the transaction.
Regarding the payment, it is generally made to an escrow account, not directly to the seller. This account is managed by a third party, often a notary or a lawyer, to hold the money securely until the transaction's terms are fulfilled.
The exact timing for the payment due is typically specified in the agreement. Usually, it's upon signing the contract, but the specifics can vary based on what the buyer and seller agree upon.
There are tax implications to consider. Property transfer taxes may apply, and the buyer is usually responsible for paying these taxes. In Chile, the transfer tax is known as the "Impuesto de Timbres y Estampillas" and is calculated based on the property's sale value.
Additionally, VAT (Value Added Tax) may apply to the sale of new properties.
Negotiation of the down payment amount is possible. You can discuss and agree upon a different percentage or amount with the seller, depending on your financial situation and the seller's flexibility.
If the sale falls through, the fate of the down payment depends on the terms of the "Promesa de Compraventa."
Typically, if the buyer backs out without a valid reason as per the contract (like a failed inspection or financing contingency), the down payment may be forfeited.
Conversely, if the seller backs out or a contingency clause is activated (such as failing to secure a mortgage), the down payment is usually refunded.
Using a mortgage loan for the down payment is feasible, but this depends on the terms of your mortgage and your lender's policies. Generally, buyers use their personal funds for the down payment and secure a mortgage for the remainder of the purchase price.
An attorney or real estate agent can play a significant role in handling the payment process. They can ensure that all financial transactions are carried out correctly and legally. They can also help in holding and transferring the down payment to the escrow account.
You should certainly request a receipt or confirmation of payment when you make the down payment. This document serves as proof of your transaction and is important for your financial records.
For tax implications, the buyer typically faces property transfer taxes, while the seller might be subject to capital gains tax if the property's value has increased since they purchased it.
What are the potentials risks and pitfalls?
You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in Chile.
In Chile, the property purchase agreement, or "Promesa de Compraventa," comes with certain risks and pitfalls that both buyers and sellers should be aware of.
Regarding withdrawal from the agreement, both the buyer and the seller are legally bound once they sign the "Promesa de Compraventa." Withdrawal is generally not permitted unless there are clauses within the agreement that allow for it under specific circumstances.
There is no standard cooling-off period in Chilean real estate transactions. Once signed, the agreement is binding unless the contract stipulates conditions under which withdrawal is possible.
If a buyer or seller withdraws without a valid motive as outlined in the agreement, they may face penalties. For instance, if a buyer backs out without cause, they could lose their down payment.
Conversely, if the seller withdraws without cause, they might be required to pay damages or return the down payment along with a penalty.
A buyer can back out if they are unable to secure financing, but this is usually only possible if the agreement includes a financing contingency clause. Without such a clause, failing to secure financing might not be considered a valid reason to terminate the agreement without penalty.
If one party fails to fulfill their obligations as outlined in the agreement, the other party may seek legal recourse. The penalties for non-compliance vary depending on the terms of the contract.
They can range from financial penalties to the forfeiture of the down payment or even legal action for breach of contract.
In comparison to other countries, the real estate transaction process in Chile can be more rigid, especially regarding the binding nature of the "Promesa de Compraventa."
In some countries, there's a standard cooling-off period allowing buyers to reconsider their decision without penalty, which is not typically the case in Chile.
Potential risks and pitfalls associated with the agreement include:
- Failing to include necessary contingency clauses, such as those for financing or property inspections.
- Misunderstanding the binding nature of the agreement.
- Overlooking legal requirements or necessary paperwork, leading to delays or legal complications.
Disputes during the agreement are not uncommon and can arise from misunderstandings or failures to meet contractual obligations. These disputes are often resolved through negotiation between the parties, but they can escalate to legal arbitration or court proceedings if an agreement cannot be reached.
If the property is discovered to have defects or issues after signing, the course of action depends on the terms of the agreement and the nature of the defects.
If the seller knew about the defects and did not disclose them, the buyer might have legal grounds for seeking damages or nullifying the sale.
To mitigate these risks, both buyers and sellers are advised to:
- Thoroughly review and understand all terms of the "Promesa de Compraventa."
- Include necessary contingency clauses.
- Conduct due diligence, such as property inspections and legal checks.
- Engage with a real estate attorney to navigate the complexities of the agreement.
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.