Uruguay Coastal Properties

Note: Coastal Uruguay has several informative real estate related articles.

Here’s a brief on the process of buying real estate in Uruguay. This is not a legal opinion and is not a substitute for professional consultation. The following is about business angles, exposing the possibilities for monkey business, as well as cost savings.

The Purchase
The major dissimilarity compared with buying real estate in North America is the use of verbal understandings, less is in writing. This is good news bad news. Sure, there’s no endless loop of paperwork, but the process lacks transparency. Not everyone knows for sure what’s going on in the background. The chance for intrigue and monkey business is greater than what I’m accustomed.

My advice is to forget verbal, handshake agreements on matters of even modest importance. Don’t be shamed by, “I give you my word; that is not enough?” No. Get it in writing.

There is a tendency to apply subtle pressure, “This is the way we do it here.” Don’t bite on it. But, remember to be low key and polite while insisting on anything different than the norm. Uruguayans like everything to be cordial and friendly on the surface; don’t be seen as loud and pushy. Smile a lot.

Making an Offer
As it is in many countries, an offer is given to the seller’s agent and there’s the usual back and forth, ya da, ya da until seller and buyer agree on the price and terms. The next step is to draft Reservation Papers. This document establishes what’s being purchased/sold, the price, commissions, terms, timing, who signs the deed, etc. The Reservation Papers also institutes a 10% penalty (of purchase price) for backing out of the transaction without legal cause. Once this document is signed, the Escribano (Notary), which represents the buyer begins the research/verification process. The seller doesn’t have a notary, because they supposedly have all required documents in order. (Ha, ha! Don’t count on it if it’s an older existing property.) If the sale is complicated, the seller may have a lawyer involved.

FYI: The Escribano in many ways acts as a Title Insurance company/Attorney.

Title Research
Next, the notary conducts a review that goes back up to 30 years. Generally, this assures there are no problems with the title: liens, permit issues and other encumbrances. An example of permit/approval compliance is making sure renovations have been declared/permitted properly with the municipal authorities. There are other procedures that could come into play during the title research phase. I’m not qualified to address them; that’s were a good lawyer comes in.

Fees, Taxes and Commissions
The notary acts as the government’s representative to collect taxes from both parties.

The notary’s 3% fee is the same throughout the country. There’s also a 1% add-on for forms and certificates for a total of about 4%. Be careful here! Some Escribanos compete for the business by quoting 3% for their fee and forget to mention the 1% mandatory fee/tax. One of the nickel and dime games to watch for. That begs the question, do all notaries charge 3% as the prescribed? The answer is it depends. If you have connections or have worked with the Escribano before, ask for a break; you may get a bit of a deduct.

Real estate agents earn commissions from both sides of the transaction. The seller pays 3% and the buyer pays 3%. Each commission has a 1.02% tax added for a total of 4% on each side. The 6% commission is typical whether there’s one or two agents involved. There is no extra cost to having your own agent. You’re going to pay 6% or close to it regardless.

Any breaks here? Well, the official line with most agents here is, “We do not negotiate fees.” Well, may be. If you’re a newbie fresh off the plane without connections, don’t expect a break. Here’s where discounts might come into play: existing customers, competition for new desirable clients (big dollar properties), large new projects (developers dictate commissions at times.) Working with a straight shooter agent helps. The right answer is, “Of course there can be flexibility.” However, unless it’s a large purchase, repeat business, or a large development, don’t expect much.

The other tax you’ll always see is the ITP - the transfer of property tax and paid every time a property sells. Seller and buyer both pay 1% of the purchase price (or appraisal if available) of the property for a total of 2%.

This is an interesting juncture. The ITP is based on the Stated purchase price on the certificates prepared by the notary? Enough said.

Closing Time
On a new or nearly new building, this can take as little as a couple of weeks. Older existing properties, where the seller doesn’t have his documents in order, the process can drag on for a few months.

OK. Here are the total closing costs:

Buyer’s Closing Costs:
4 % real estate commission w/tax
4 % notary’s services
1 % tax on transfer of property
9 % Approx. Total

Seller’s Closing Costs:
4 % real estate commission w/tax
1 % tax on transfer of property
5 % Approx. Total

A couple of things to consider. If you’re working with a buyer’s agent you like/trust, be sure to take them with you while window shopping. Here’s why: If you enter an agency office without your guy or gal, you become walk in business, a customer of that office. Remember, you’ll pay the same commission one-way or the other. The difference is you’ve probably lost the help of the agent you have a relationship with on that particular property. Agents here have been known to get into catfights over silly stuff like this.

This is a different culture; forget what you think should happen. Have a good legal review, get your Escribano on board and of course a skillful agent is a plus.