Guatemala Real Estate: How to Navigate the Sales Process

Buying Guatemala real estate can be a profitable venture. The country has branded itself "The Land of Eternal Spring", and no other name could be quite so fitting. …

Buying Guatemala real estate can be a profitable venture. The country has branded itself "The Land of Eternal Spring", and no other name could be quite so fitting. There are 22 states within the country of Guatemala, and a population of 13 million people, most of which is made up of the indigenous population of Mayan descent. With a land size of just over 42,000 Sq miles, it is the most populated country in Central America.

Foreign purchasers under the Guatemalan Constitution have all the rights of a Guatemalan citizen when it comes to real estate ownership. Purchasing real estate in Guatemala is not a complicated procedure, and there are several appealing features when compared to other countries around the world.

Negotiate a price

As in most countries, there is an asking price and a selling price. In Guatemala, the asking price is normally very negotiable. Negotiating is quite simple, and investigation can usually determine what the area prices are. As a Real Estate company, part of our client service is to provide the information. There is no MLS service in Guatemala, so you can’t check property prices from previous sales information. In many cases, the price of property can be negotiated 25% to 30% below the asking price. It is a cultural matter to overprice and negotiate, and it is expected.

Tip: The most common measurement used for residential property in Guatemala is a vara, which is 33”X33”. Large tracts of land are referred to as manzanas, which include 10,000 varas and roughly converts to 1.7 acres. This could be an important price consideration for a seller looking to compare property in Guatemala with that in other countries.

Check for a clear title

An offer is made, and normally countered by the seller. When the final price has been arrived at, the buyer and seller will use a lawyer to verify that the property title is clear of all liens and encumbrances.

Sign the “Promesa de Compra Venta”

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If this proves to be the fact, then the lawyer will draft an agreement referred to as a "Promesa de Compra Venta." This document is a private document between the buyer and the seller and outlines all the conditions of the sale.
 
The normal conditions would be the actual selling price, the date of closing the sale, any items that may be included with the property etc.

Put up your deposit

At this point, the buyer normally gives a non refundable deposit to the seller of an agreed amount. Make sure you’ve done your homework on the property before this point. If you don’t end up going forward with the transaction, you will not get your deposit back.

Legally transfer title

When the agreed closing date arrives, the buyer and seller meet with the lawyer and enter into another agreement referred to as a "Compra Venta". This document is the legal transfer of the title to the buyer.

The buyer is expected to present the balance of the purchase price at this time. This might make foreign buyers a little uneasy, but here in Guatemala the deposit is paid directly to the seller. If they receive no earnest money with the Promesa, there is no deal. There are no escrow accounts in the country involving real estate transactions, but there is Title Insurance available from Stewart Title. In 17 years on real estate transactions in Guatemala though we have only used their service once.

Register title

The lawyer will then present the "Compra Venta" document to the Central registry in Guatemala City, and within 30 days, the title will be recorded and the buyer will receive the legal document which is called the "Escritura".

Pay your sales tax

The Government charges a sales tax equal to 12% of the registered value at the time of closing.

As mentioned earlier, the "Promesa de Compra Venta" contains all of the agreed information, plus the actual selling price. When the "Compra Venta" document is created, it will contain a price that is substantially lower than the actual price. For example, a property selling for $250,000.00 is normally registered for $20,000.00, and the tax payable is only $2400.00 Property taxes are based on the registered value of the property, and in this case, the annual property tax will be around $200.00.

This is more or less standard practice here in Guatemala, although it probably seems unethical to most outsiders. If you want to register the property at the higher amount, and pay the 12% you can certainly do that, however, you would be one of the very few to do it and you will pay dearly both in the 12% tax and annual property taxes.

Some foreigners may wonder about how such an arrangement might affect their taxes if the next buyer down the line decided to record the purchase at the higher price, well here in Guatemala there is really no personal capital gains tax on the sale. If the property is held by a corporation, then the tax would be 5%. Again this is simply how things are done in Guatemala, no one here says “please register this at the actual price”, the annual property tax and the 12% purchase tax would not attract any buyers.

Is it legal? In the true sense, no, but this is the way it has been done ever since property has been registered, and the Government imposed the 12% tax. I have argued that a flat transfer tax of 2% would gain better acceptance, and then the Government would actually start to receive their share. Most people here don’t like to pay tax, as the Government usually steals just about any revenue it collects anyway.

 

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