General Guide to Buying or Selling Real Estate in Panama
Curious about how to buy or sell real estate in Panama? This story will cover the basics on buying or selling real estate in Panama, including the costs of buying or selling property and the conveyance process.
In some cases, but not all, the first step in the sales process is a Promise to Purchase agreement, whereby the buyer puts down a good faith deposit to take the property off the market for a certain amount of days. The real estate agent or an attorney holds this money, which is backed up by a Promise to Purchase agreement stating the general terms of the deal including the purchase price, deposit amount, and penalties for non-compliance. This is not a necessary or required step, but is useful to take the property off the market and show a commitment to the deal from both sides.
In Panama, the seller’s side is usually the party which draws up the promissory purchase and sale agreement. This document needs to be in Spanish to be legal (we do ours in Spanish and English), states the parties to the sale, describes the property and what is included in the sale, states the timeframe on deposits and final balance payments, penalties for non-compliance, along with other details pertinent to the sale such as if the deal will be a sale of the shares of the corporation which owns the property or the outright sale of the property in a person’s name.
While all contracts are different, the customary amount to put down as a non-refundable down payment is 10% of the purchase, which goes directly to the seller, upon executing the promissory agreement and after the due diligence period. These funds are used to pay the attorney who drafted the promissory agreement, and pay the 5% transfer/capital gain taxes. At this stage, the real estate agent will also bill for the first 10% of their commission, which ranges anywhere from 4-10% on the sales price, depending on the agreement previously made between the sellers agent and the seller.
Once the promissory agreement is signed (promesa de compra y venta) and the deposit is received, it’s up to the seller to gather the deeds, statements of good standing, which show that there is no outstanding balance due to the water company, the building home administration, show that the necessary taxes (if it’s titled) have been paid on the conveyance of the sale and provide an accurate survey.
As per the terms of the contract, the buyer will be required to deliver an irrevocable letter of payment for the balance due. This is essentially the escrow letter, and the seller will cash this at the buyer’s bank once the property has been duly transferred in the public registry.
Once the promissory letter is delivered and all good standing documents have been approved, the promissory agreement gets converted to a buy sell agreement, signed in front of a public notary, and inscribed in the public registry. If there is financing involved, the lending bank will issue a mortgage against the title. Once the property is registered and reflects the change of ownership, the seller can bring the irrevocable letter of payment to the bank and will be paid the amount reflected therein.
This process can happen as quickly as 30 days in the case of a sale of shares to convey the property, because the issue of registering the sale in the public registry is avoided in that the owner remains the same (the corporation) and ownership of the property is simply conveyed by a sale of the shares. The 5% transfer tax is still applicable in this scenario. It can take up to 90 days or longer if financing is involved or if there are complications with the title to resolve. All told, the costs to close will be about 1-1.5% aside from the transfer tax if applicable.
Foreigners can buy real estate in Panama. You don’t have to live here. Find your Freedom, we did.