Getting to the purchase agreement
The bank here in the U.S. is churning on with the loan and we've reached the preliminary purchase agreement stage on the Mexico end of things.
The way this works, at least in my case, is the notary in Mexico writes up the purchase agreement. It's a side-by-side document. One side in Spanish, the other side in English. As helpful as that seems, it is clearly stated that the Spanish half of the agreement rules. So, if there is any doubt in a section, or an area you want to be absolutely sure is accurate, make sure it is accurate in Spanish.
My Spanish skills are still a work in progress. Speaking Spanish is still a non-starter that we'll get into someday. But I can read it fairly well. Add in a little help from Google and we're doing okay!
The idea behind the agreement is both parties read through it and once they both agree on it, they sign it and 10% of the purchase price is transferred to an account to be held by the notary. At that time, if I back out, I forfeit the 10%. Equally, if the seller backs out, he owes me my 10% and another 10%.
Remembering back to the original negotiations, I had agreed to a price in pesos, to guard the seller from a fluctuating exchange rate. The preliminary purchase agreement had everything in U.S. dollars. I read through it and thought "If that works for the seller, it works for me."
It did not work for the seller. He requested a change to the agreement. Oddly, he didn't want the price fixed, he wanted the exchange rate fixed at 18.5 pesos to 1 U.S. dollar. It's a long way around it, and somewhat silly, but it works out the same. I double checked with the notary and he found it odd, but agreed with my reading that it's the same thing as if he just fixed the price in pesos.
He also requested that Isaac's commission be lowered by a percentage. But that is something between them and possibly just a clerical error.
I was also made aware that the appraised value on the deed will be considerably lower than the purchase price. As in, the price on the deed will be about 40% of the purchase price. Also, I will have to wire the purchase money to two banks. One bank will get the amount shown on the deed. The other bank will get the extra.
I know this is a fairly common thing in the Yucatan (and maybe Mexico, in general?) when selling to gringos, and it's an even larger discrepancy when buying land. Am I overpaying? Yeah, absolutely.
Am I getting screwed by this in the long run? You bet.
Is it illegal? Apparently not.
The point of all of this is so the seller can avoid large capital gains taxes. Short run, I will have smaller yearly property taxes (predial) and should have smaller closing fees, since they should be based on the deeded price, not the actual sale price.
Long run, if we ever decide to sell, we won't likely be able to pull the same magic act as a Mexican citizen can. Even if we sold for less than we paid, which would mean we were taking a loss, we would still have made money in the eyes of Mexican tax authorities and would have to fork over 30% of our seeming "profits." That would hurt. So, it's definitely a gamble that we won't have to sell anytime soon.
So far, I've been amenable to everything. Am I being incredibly too nice in all of the dealings? Yeah, I could probably push a little harder on some things. Save some money here and there. My desire to be the "nice American" is a very big detriment.
We're going to try to go down there for closing in a month or two, which will be a fun trip, even if only for a couple of days. Assuming we get to closing, of course. There's always the chance that something hiccups and things fall through.
But I'm pretty relaxed at the idea of that. I won't be devastated if it falls through this time. I'm definitely more confident in the idea of it all.
In fact, as I was writing this post I grew a little courage and said "No! Stop being overly nice and stand up for yourself! You have a right to negotiate, too!" Well, I thought that, I didn't say it out loud.
I wrote everyone and asked for a couple of small concessions. First, I asked that we do away with that strange dollars and exchange rate business and just set the price in pesos. Why does it need to be so confusing?
Also, when I originally had agreed on an amount in pesos I was given a specific number. The exchange rate business actually made that number more expensive. It would cost me around $1,500 more than I had originally agreed to. Not a giant amount of money in the grand scheme of things. But why shouldn't I get to fight for that? Especially when the seller is insisting on low-balling the price on the deed.
How hard will I dig my heels in? I guess we'll see what the response is. I don't want to scuttle the deal, and I want everyone to walk away happy. But I don't want to get steamrolled in the process.
The way this works, at least in my case, is the notary in Mexico writes up the purchase agreement. It's a side-by-side document. One side in Spanish, the other side in English. As helpful as that seems, it is clearly stated that the Spanish half of the agreement rules. So, if there is any doubt in a section, or an area you want to be absolutely sure is accurate, make sure it is accurate in Spanish.
My Spanish skills are still a work in progress. Speaking Spanish is still a non-starter that we'll get into someday. But I can read it fairly well. Add in a little help from Google and we're doing okay!
The idea behind the agreement is both parties read through it and once they both agree on it, they sign it and 10% of the purchase price is transferred to an account to be held by the notary. At that time, if I back out, I forfeit the 10%. Equally, if the seller backs out, he owes me my 10% and another 10%.
Remembering back to the original negotiations, I had agreed to a price in pesos, to guard the seller from a fluctuating exchange rate. The preliminary purchase agreement had everything in U.S. dollars. I read through it and thought "If that works for the seller, it works for me."
It did not work for the seller. He requested a change to the agreement. Oddly, he didn't want the price fixed, he wanted the exchange rate fixed at 18.5 pesos to 1 U.S. dollar. It's a long way around it, and somewhat silly, but it works out the same. I double checked with the notary and he found it odd, but agreed with my reading that it's the same thing as if he just fixed the price in pesos.
He also requested that Isaac's commission be lowered by a percentage. But that is something between them and possibly just a clerical error.
I was also made aware that the appraised value on the deed will be considerably lower than the purchase price. As in, the price on the deed will be about 40% of the purchase price. Also, I will have to wire the purchase money to two banks. One bank will get the amount shown on the deed. The other bank will get the extra.
I know this is a fairly common thing in the Yucatan (and maybe Mexico, in general?) when selling to gringos, and it's an even larger discrepancy when buying land. Am I overpaying? Yeah, absolutely.
Am I getting screwed by this in the long run? You bet.
Is it illegal? Apparently not.
The point of all of this is so the seller can avoid large capital gains taxes. Short run, I will have smaller yearly property taxes (predial) and should have smaller closing fees, since they should be based on the deeded price, not the actual sale price.
Long run, if we ever decide to sell, we won't likely be able to pull the same magic act as a Mexican citizen can. Even if we sold for less than we paid, which would mean we were taking a loss, we would still have made money in the eyes of Mexican tax authorities and would have to fork over 30% of our seeming "profits." That would hurt. So, it's definitely a gamble that we won't have to sell anytime soon.
So far, I've been amenable to everything. Am I being incredibly too nice in all of the dealings? Yeah, I could probably push a little harder on some things. Save some money here and there. My desire to be the "nice American" is a very big detriment.
We're going to try to go down there for closing in a month or two, which will be a fun trip, even if only for a couple of days. Assuming we get to closing, of course. There's always the chance that something hiccups and things fall through.
But I'm pretty relaxed at the idea of that. I won't be devastated if it falls through this time. I'm definitely more confident in the idea of it all.
In fact, as I was writing this post I grew a little courage and said "No! Stop being overly nice and stand up for yourself! You have a right to negotiate, too!" Well, I thought that, I didn't say it out loud.
I wrote everyone and asked for a couple of small concessions. First, I asked that we do away with that strange dollars and exchange rate business and just set the price in pesos. Why does it need to be so confusing?
Also, when I originally had agreed on an amount in pesos I was given a specific number. The exchange rate business actually made that number more expensive. It would cost me around $1,500 more than I had originally agreed to. Not a giant amount of money in the grand scheme of things. But why shouldn't I get to fight for that? Especially when the seller is insisting on low-balling the price on the deed.
How hard will I dig my heels in? I guess we'll see what the response is. I don't want to scuttle the deal, and I want everyone to walk away happy. But I don't want to get steamrolled in the process.
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