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When it comes to buying real estate in Panama, 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 Panama. We want to help you avoid the same experience.
We'll give here a very brief overview regarding the property sales contract in Panama ; if you want a full checklist, please check our property pack for Panama.
What is the Promesa de Compraventa in Panama?
In Panama, the property purchase agreement is a crucial document in real estate transactions.
Locally, it's often referred to as "Promesa de Compraventa" (Promise to Sell/Purchase Agreement).
This agreement outlines the terms and conditions of the property sale and is legally binding for both the buyer and the seller.
The Promesa de Compraventa typically includes details like the property description, purchase price, payment terms, and any other conditions agreed upon by both parties.
It acts as a guarantee for both the buyer and the seller. For the buyer, it ensures that the property won't be sold to someone else, while for the seller, it confirms the buyer's commitment to purchase.
For international buyers or non-residents, the process is generally the same as for locals, but it's important to be aware of certain regulations.
For instance, in some areas of Panama, especially near the borders or the coast, there are restrictions on foreign ownership, and in these cases, special permissions might be required.
The agreement is usually signed at an early stage in the purchasing process. Once both parties agree to the terms, they sign the Promesa de Compraventa. At this point, a deposit is typically required.
The amount can vary, but it's often around 10% of the purchase price. This deposit is held in escrow until the completion of the sale.
Comparing the process in Panama to other countries, one key difference is the level of involvement of lawyers. In Panama, it's common to have legal representation to ensure that all aspects of the transaction comply with local laws and regulations.
In some countries, this might be less emphasized or handled differently.
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What should be included in the property purchase agreement in Panama?
In Panama, the property purchase agreement, or "Promesa de Compraventa," must adhere to certain requirements and standards as per Panamanian real estate law.
The relevant law governing these transactions is primarily the Panamanian Civil Code.
A typical property purchase agreement in Panama should contain several mandatory clauses.
Identification of Parties
Full names and identification details of both the buyer and seller.
A detailed description of the property, including its location, size, boundaries, and registration information.
The agreed-upon price for the property.
Details on how and when the payment will be made, including the deposit amount and payment schedule.
Delivery of Property
Terms about the transfer of the property, including the date of possession.
Confirmation that the property is free of liens, encumbrances, or any legal issues that might impede the sale.
In addition to these mandatory clauses, several additional clauses can be included:
- Allowing the buyer to conduct a thorough investigation of the property.
- Specifying penalties in case either party fails to comply with the agreement.
- Covering unforeseen events that might prevent either party from fulfilling their obligations.
Conditions or contingencies are also common in these agreements. They might include things like the sale being contingent on the buyer obtaining financing or the sale being subject to a satisfactory property inspection.
Regarding authentication, the agreement typically needs to be authenticated by a notary. This process ensures that the document is legally binding and recognized by the state. It's a crucial step in the property purchase process in Panama.
The role of the real estate agent is primarily advisory and facilitative. They help in finding the property, negotiating terms, and guiding both parties through the process.
However, they don't usually have a legal role in the formulation or enforcement of the purchase agreement.
That said, they are instrumental in ensuring that all parties understand the terms and conditions of the agreement.
What's the signing process like?
In Panama, the signing process of a property purchase agreement, or "Promesa de Compraventa," is a structured procedure that involves several steps.
Both the buyer and the seller are required to sign the agreement. It is bilateral, meaning it legally binds both parties to the terms and conditions outlined in the document.
The buyer or the seller can be multiple people, such as in cases where a property is being bought or sold by more than one individual or entity.
The parties need to provide personal identification (such as a passport or cédula for Panamanian residents), and the seller must provide the property's legal description and proof of ownership.
This typically includes the registered deed, recent utility bills to prove the location, and a certification from the Public Registry confirming the property is free of liens.
Here is the signing process timeline:
Drafting the Agreement
The agreement is first drafted, usually by a lawyer or notary, incorporating all the terms negotiated between the buyer and seller.
Review and Agreement
Both parties review the agreement. This can take a few days to a week, depending on the complexity of the terms and the negotiation process.
Signing the Agreement
Once both parties are satisfied with the terms, they sign the agreement. This can be done in the presence of a notary.
The signing can be done remotely, especially if one or both parties are not present in Panama.
In such cases, documents can be signed electronically or sent via courier for physical signatures, followed by notarization.
There's no standard deadline for signing the agreement; it is usually determined by the mutual convenience of the parties involved.
However, once terms are agreed upon, signing typically occurs within a few days to a week.
The validity period of the contract is agreed upon by the parties and stated in the agreement. This can vary, but it typically aligns with the expected timeline to complete the sale, often a few months.
After signing, the agreement is usually registered with a local notary. This registration is crucial as it formalizes the document, making it legally binding and recognized.
Any amendments to the contract after signing are possible but require the consent of both parties. These amendments must be documented and ideally notarized to maintain legal integrity.
After the agreement is signed, the timeline to complete all necessary paperwork and obtain approvals can vary.
Generally, it takes a few weeks to a few months, depending on factors like property inspections, mortgage approvals (if applicable), and completion of any required legal checks.
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How is the payment handled when signing a property purchase contract in Panama?
In Panama, understanding the financial aspects of a property purchase agreement is crucial for a smooth real estate transaction.
When you sign the sales agreement, also known as the "Promesa de Compraventa," you are typically required to make a down payment. This amount can vary, but it's commonly around 10% of the purchase price. This payment acts as a commitment to the transaction.
The standard down payment for property sales in Panama is usually 10% to 30% of the total purchase price. However, this percentage can be subject to negotiation between the buyer and seller.
In addition to the down payment, there may be other upfront fees associated with signing the sales agreement. These can include legal fees, notary fees, and potentially some administrative costs. It’s important to clarify these costs upfront.
The down payment is typically made to an escrow account, not directly to the seller. This ensures that the funds are securely held until the completion of the sale. The use of an escrow service adds a layer of protection for both parties.
The due date for the down payment is usually specified in the sales agreement. It's typically due upon signing the agreement or shortly thereafter, as agreed upon by both parties.
In Panama, there are tax implications associated with property transactions.
The buyer is usually responsible for paying the property transfer tax, which is around 2% of the updated registered value of the property or the sale price, whichever is higher. This tax is due at the time of the property transfer.
The down payment amount can be negotiated with the seller. It's part of the overall negotiation of the sales terms.
If the sale falls through, the conditions for refunding the down payment depend on the terms outlined in the sales agreement.
Generally, if the sale doesn't proceed due to a failed inspection or financing contingency (if these were included in the agreement), the down payment may be refundable.
You typically cannot use a mortgage loan for the down payment; it usually needs to come from your personal funds. Mortgage loans are generally for financing the balance of the purchase price after the down payment.
An attorney or real estate agent can guide you through the payment process, ensuring that all financial transactions comply with Panamanian law and the terms of the sales agreement. They can also assist in setting up an escrow account for the down payment.
You should always request a receipt or confirmation when you make the down payment. This document serves as proof of your compliance with the terms of the sales agreement.
For the buyer, apart from the property transfer tax, there may be other tax implications, such as annual property taxes.
For the seller, capital gains tax may be applicable on the sale of the property. The specific tax implications can vary based on individual circumstances.
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 Panama.
In Panama, like in any real estate market, there are risks and pitfalls associated with property purchase agreements.
Understanding these can help in navigating the process more smoothly.
Both the buyer and the seller can potentially withdraw from the agreement, but the circumstances and consequences depend on the terms outlined in the contract.
Typically, valid reasons must be provided for withdrawal, especially if it's after the agreement has been signed.
Panama’s real estate transactions do not universally include a cooling-off period. If it exists, it must be explicitly mentioned in the agreement. The duration of this period, if applicable, and whether it includes weekends and holidays, would also be specified in the contract.
If a buyer is unable to secure financing, they can back out of the agreement only if there was a financing contingency clause included in the contract. Without this clause, failing to secure financing might not be considered a valid reason to withdraw without penalty.
If one party fails to fulfill their obligations as outlined in the agreement, penalties can be imposed. These are typically specified in the agreement and can include forfeiture of the deposit or payment of damages.
The penalties for withdrawal or failure to comply with the agreement depend on the contract terms.
Commonly, if the buyer withdraws without a valid reason, they may lose their deposit. If the seller withdraws, they might have to return the deposit along with an additional penalty.
The process in Panama can differ from other countries, particularly in terms of legal requirements for property transactions, the role of notaries, and the specifics of contract law.
For instance, in some countries, a cooling-off period is a legal requirement, whereas in Panama, it's more contract-specific.
Buyers and sellers should be aware of risks like incomplete or incorrect property documentation, potential legal claims against the property, and unclear terms in the purchase agreement.
Ensuring clear, legally sound, and comprehensive contracts is crucial.
Disputes in real estate transactions can arise, though they are not exceedingly common when proper due diligence is done
Disputes are typically resolved through mediation, arbitration, or legal proceedings, depending on the nature of the dispute and the dispute resolution mechanisms outlined in the agreement.
If defects or issues with the property are discovered after signing, the course of action depends on the terms of the agreement and Panamanian law.
Generally, if the seller knew about these issues and did not disclose them, the buyer might have legal recourse.
For resolving disputes or disagreements, the first step is usually to refer to the dispute resolution clause in the agreement.
It might specify mediation or arbitration before any legal action can be taken. If the dispute cannot be resolved through these means, legal proceedings may be necessary.
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.