A Step by step explanation of the process of buying property in the Republic of Panama, including insider tips.

Step 1: Find a Reliable, Licensed Real Estate Broker that speaks your Language

Licensed Real Estate Brokers have to follow a Code of Ethics, similar to that of the National Association of Realtors [NAR] in the U.S., and they are legally bound to provide reliable and accurate information to their clients. Violators can be fined and jailed. These days in Panama, many people are representing themselves as Real Estate Brokers while, in fact, they are not licensed. This is against the law in Panama. Therefore it is important that you verify that the broker you select is licensed. Note: Real Estate Agents are not required by law to be licensed; however, in order for them to operate legally, they need to be employed by a Licensed Broker.

Step 2: Identify the Property You Wish to Purchase

With the help of the broker you have selected, find the property you wish to purchase. This is not an easy task in Panama, as there is no M.L.S. [multiple listing service] in existence at this time. Many properties are listed with several brokers, and generally brokers will only want to show you properties for which they have a direct listing with the owner or developer. Brokers in Panama are generally not happy when they have to split their commissions with another broker. However, a broker that is truly looking out for their client´s best interests will not be opposed to showing you a wide variety of properties, direct listing, or otherwise.


Step 3: You get what You Negotiate For!

Do not be afraid to negotiate the listing price. Many owners/developers maintain a negotiating margin in their listed prices. Submit offers in writing through your broker. In addition, use the leverage available to you through your broker as some brokers have more leverage with certain developers and can negotiate not only a better price, but also more favorable terms and sometimes, value added items [i.e. appliances, air conditioning, upgrades, etc.]

Step 4: Promissory Purchase Contract

Once your offer is accepted, the owner/developer will provide you with a promise-to-purchase contract, commonly referred to as a Promissory Purchase Contract or Contrato de Promesa de Compra-Venta in Spanish. This contract outlines the terms and conditions of the purchase, including payment terms. This contract should also outline exactly what is and is not included in the unit that you are purchasing. For example, it is normal practice in Panama that units are sold without appliances or air conditioning, and in many newly constructed units, even lighting fixtures may not be included. It is important that you understand exactly what you are or are not getting, from the type of tiles to be used, to moldings.

Golden Rule: If it is not in writing, it means squat! Here are some things you need to look for in the Promissory Purchase Contract:

1. Maintenance Fees: How much are they and what do they include, Generally in condos, maintenance fees are set on a per-square-meter basis and can range anywhere from $1.00 per-square-meter [$0.09 per-square-foot] to $1.75 per-square-meter [$0.16 per-square-foot] per month. Normally, this includes Gas, Water, and the maintenance of common areas in the building. Sometimes, Satellite TV and Internet are also included.
2. Price Augmentation Clauses [applies to new projects in construction]: All developers include a price augmentation clause in their contracts allowing the developer to raise the agreed price by anywhere from 5% to 10% if the cost of construction increases. This price increase must be substantiated by documentation from the Chamber of Commerce for the Construction Industry [CAPAC]. You should take it for granted that this clause will be exercised.
3. Penalties for Non-compliance: You can lose your entire down-payment if you do not comply with payment terms or things as simple as not providing certain documentation on time. Be aware of these clauses. Currently there is legislation in the Panamanian government deeming these types of clauses unenforceable, but the legislation is under review and may change.
4. Assessments: Make sure you are clear on any type of future assessments that you may be liable for, and how they will be calculated and what percentage the developer will pay above your normal homeowners fees. Common examples might include: another swimming pool, a gymnasium or a children´s play area.
5. HOA: How is the Homeowners Association structured? How many votes do you have? How many votes will the developer have if any ? Get a copy of the Reglamiento de P.H. or HOA Rules and Regulations in your language. Make sure the copy has been filed with and approved by the Ministry of Housing [MIVI] .
6. Total Construction Size: Be aware that in Panama, when you are quoted the size of a unit, it is the total construction size, including balconies and other open areas. Not just the area, under air, dimensions.
7. Cancellation Clause by the Developer: Lately there have been cases whereby unethical developers cancel pre-construction Promissory Purchase Contracts because the prices of the units have doubled and they wish to resell the units at the higher price and make all of the profit for themselves. You have to look for language in your Promissory Purchase contract that may give the developer the right to unilaterally cancel the contract if circumstances deem the project unfeasible. Wording in this case, is intentionally quite vague. The other way developers may do this is by verbally instructing their clients not to make a particular payment as scheduled, or not to worry about providing the Promissory Payment letter by the date stipulated, then later claiming that they are canceling the contract as you are in default. If you receive instructions to this effect, insist that they give it to you in writing [see Golden Rule]. This has recently been deemed illegal by the courts. Do not accept such clauses in your Promissory Purchase Contract.

Step 5: Get yourself Competent Legal Council

Under no circumstances should you sign a Promissory Purchase Agreement without having the benefit of legal advice. Laws in Panama are not the same as in your home country, do not assume that they are. Make sure you hire the services an attorney that is experienced in Real Estate contracts and is able to speak your language. The only contract that is legal in Panama is the one that is written in Spanish. Even though developers will provide you with an English translation, the contract that will be filed with the Public Registry will be in Spanish.

There are many forms of ownership of property in Panama. Property can be held in your personal name, a corporation, a foundation or trust. Each has its own benefits and drawbacks, including tax implications. Consult your attorney regarding this issue.

Step 6: Free and Clear Title?

Have your attorney conduct a title search to make sure the unit you are buying is free of any liens and encumbrances. This will also ensure the person selling you the property is legally authorized to do so.

Step 7: Financing?

Most Panamanian banks offer special financing programs for foreigners. They will generally finance between 70% and 80% of the assessed value of the home or condo. They offer terms of up to 30 years [depending on your age] and all mortgages in Panama are Variable rate [ARM].

U.S. Citizen? Now there are special mortgage programs exclusively for U.S. Citizens offered by U.S. Banks. These programs offer terms of 30 years with no age restrictions [Panamanian Banks will only finance you up to your 75th Birthday], and fixed rates for 1, 3, 5 or 7 years with no life insurance requirement ? yes, Panamanian banks require you to get Life Insurance from a provider in Panama to cover the value of the loan.

Once your loan is approved, and you sign the Letter of Acceptance for the terms, the bank will issue a Letter of Promissory Payment to the developer, guaranteeing payment upon transfer of Title.

If you are not planning on financing, then you can deposit the funds in an Escrow account and have the escrow agent issue a Letter of Promissory Payment to the developer.

Step 8: Purchase-Sale Agreement

When the owner or developer is ready to transfer title to you, they will issue a Purchase-Sale Contract. This contract is basically the same as the Promissory Purchase Contract, but is signed at Closing. Make sure your attorney reviews this contract to make sure there are no significant changes from the Promissory Purchase Contract.

Step 9: Closing

Closing takes place when the Title to the property in question is transferred to you or your corporation [foundation etc.] and the deed is duly recorded at the Registro Publico [Public Registry]. Once this has been done, payment from the bank or escrow agent will be released to the seller, and the Purchase Sale Agreement will be signed by both parties.

Step 10: Move in and Enjoy!

Don´t forget to invite your Real Estate Broker to the House Warming Party! Should I bring wine? Glasses?

For more information on finding and purchasing property or obtaining mortgages in the Republic of Panama, and for All your Panama Lifestyle, Panama Travel or Panama Real Estate needs, contact Douglas M. Choyat ThinkPanama.com. He will be happy to provide any guidance and information you may need.