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Beware of NET Listings in Panama

Last Updated - by Jackie Lange

Beware of NET Listings in Panama

Panama RentalIn Panama, some things are done in a different way than you are familiar with. A good example are real estate sales and rental listings.  In Panama, it’s common to see the same house listed at several different prices with different agents. Sometimes the “spread” can be as much as $100,000 difference for the same house!

In North America, most houses for sale are listed as an exclusive listing. This means that one real estate office as the exclusive right to market the property. If that same office finds a buyer, they will typically make about a 6% commission. If an agent from a different office produces a qualified buyer, the “listing” agent will usually agree to split the 6% commission. In North America, a real estate agent has a fiduciary responsibility to the seller/buyer so all the dealings for the transaction are revealed “on top of the table.”

There are some exclusive listings in Panama too. But most listings are NOT exclusive. Instead, the seller has agreed to pay a commission to whoever produces a qualified buyer. This is why you will see the same house listed with several different office and at different prices. A typical commission in Panama is 5-6% of the sales price.

volcan rental 1000But sometimes, the seller has told the agent(s) that they need to NET a certain amount at closing and anything the agent can sell it for over that amount will be there profit. This is called a net listing. Net listings are illegal in most of North America, but it is business as usual in Panama. Here’s an example:

Joe and Mary need to walk away with $150,000 on the sale of their property. Real estate agent Sue advertises it for $220,000 – with room for negotiations, she’s hoping it will sell for $200,000 so she can walk away with a $50,000 commission versus the $12,000 commission she would have earned at 6%.

Maybe $200,000 is the right price for the house. But perhaps $150,000 is the right price. It’s hard to know in Panama because there is not a reliable MLS system to show comps of recent sales in the area. We do have an MLS system but most agents don’t use it and that’s why it’s not reliable.

Last year, I had breakfast with the broker for a local real estate office. He was bragging about how me made $600,000 profit on a NET listing near Boquete.

HOW WIDESPREAD IS THE PROBLEM? [Read more…]

The Real Estate Closing From Hell

Last Updated - by Jackie Lange

The Real Estate Closing From Hell

Since the mid-1990s I’ve been buying and selling real estate as an investor. So, I’m no stranger to real estate closings.

Jackie Lange Real Estate
This is the house I bought

In Panama, I’ve purchased several properties and the closings all went very smoothly.  That all changed this month when I wrote a contract to buy a house for cash and close in a few weeks. Sounds simple enough – right?

Not so fast! TIP = This is Panama

In Panama, it is customary and advised that your attorney creates the purchase contract and all closing documents.  For titled properties, there is always a FINCA number. Once your attorney has the FINCA number they can do a quick title search to verify that the person selling you the property is really the owner and find out of there is a mortgage or any back taxes. The seller had a survey so a lot of information needed for the contract was on the survey – like how much land I got with the house.

The property I am buying was all clear, so my attorney prepared the purchase contract. The seller and I both signed and I paid him earnest money directly.

There are no title companies or escrow offices in Panama. Instead you close at an official Notary. But before you can close a titled property, the seller needs to show a receipt that the 2% transfer tax and the 3% capital gains tax has been paid.  Since the Seller works, I hired my Panama CPA to take care of the payment of the taxes. He got a notarized letter from the seller authorizing him to pay the taxes.

But before you can pay the taxes, it is necessary to get a statement from the DGI (taxing authority) about how much you owe based on the sales price.  To get that statement, the DGI needs a NIT number (tax identification number) for the property. Apparently, this property, which was purchased more than 30 years ago, did not have a NIT number so my CPA had to apply for one.

After 7 days, my CPA finally gets the NIT number and presents it to the DGI.  One of the delays was a Panama holiday in the middle of the process. There are a LOT of Panama holidays and the whole country shuts down to party.

Finally, the taxes got paid.

With the receipts for taxes paid, my attorney could prepare the closing documents then send to me by courier to Boquete the next day.

The documents were supposed to arrive at Uno Express by 10am. But they did not arrive until almost noon.

With closing documents in hand, I drove 30 minutes to David to meet the seller to sign everything at the Primary Notary. When I arrived, the seller is there with his Mom, Dad and sister for the “big event”. A friend met us there too because we planned to go out to lunch after closing.

The whole closing process should take about 30 minutes.  Remember, I’ve done this many times before and it was always quick and easy.

But not this time.

A 20-something kid who works at the Notary comes out to tell us that because the closing documents were prepared by an attorney in Panama City, he needed to see an authorization (email is ok) from a Notary in Panama City that the documents could be signed in David. This has never happened before!

I call my attorney in Panama City who tried to talk some sense in to the kid to no avail.  So, my attorney goes to the Notary’s office by her only to find out he is out to lunch at 2pm and they don’t know when, or if, he will be back that day. (It’s Friday so maybe he decided to take off early).

My attorney suggests that we go to Notary #2 in David. Luckily, it is only 5 minutes away. We, all 6 of us, arrive only to find out that the Notary #2 has already gone home for the day.

Notary #3 in David PanamaSo, we, all 6 of us, drive to Notary #3 in David.

I’m following the seller and trying to keep up with him. I turned left on a road that I thought was a one-way road only to find it is a two-way road. Yikes! I cut in front of a taxi (they cut in front of me many times). But, this time, there is a cop right behind the taxi. He pulls me over to give me a lecture in Spanish about safe driving. Luckily, I did not get a ticket.

Finally, we all arrive at Notary #3. The documents are signed and a fingerprint next to the signature. Then we wait and wait for all the stamps. You cannot have any kind of an official document in Panama without a lot of stamps all over it.

I felt so bad that the seller and his whole family had to wait so long and had to drive all over town to get this closed, so I gave them $100 to go out to dinner.

My friend and I went to TGIF for a margaritas and dinner.

What an ordeal!

Finally, I bought a great property which I plan to fix up then resell to hopefully make a nice profit.   The house is on a really big lot which I may subdivide so I can build another house on the other lot.

Lessons learned on this one – I should have let my attorney in Panama City take care of getting the taxes paid. Getting just about anything done in Panama requires going to an office in Panama City. Trying to get a NIT number, or anything else, from anywhere but Panama City causes unnecessary delays and frustration.

Margarita time

Buying Real Estate In Panama

Last Updated - by Jackie Lange

Buying Real Estate In Panama

House for Sale Boquete PanamaI’ve been a real estate investor for more than 25 years and have bought and sold hundreds of properties so I know real estate.  But in Panama the whole process of buying and selling are completely different.

You should know that usually only a Panamanian is a licensed real estate agent or broker. Foreigners can sell real estate but are considered a “consultant” or associate.  A foreigner cannot prepare any contracts or other paperwork for the purchase or sale of real estate.  A foreigner cannot be a “real estate agent” or licensed until they have been working with a broker for several years then take a test, in Spanish, to get a license.  99% of the foreigners who sell real estate are not licensed real estate agents.

WHO CAN YOU TRUST?

Any foreigner who is working in Panama or selling real estate is required to have a work permit.  If you’re working with an expat (foreigner) to buy or sell real estate, you should ask to see their work permit to verify that they are working legally.  An owner can sell their own real estate without having a work permit… unless they have made a business out of buying and selling real estate then they need a work permit.

If a foreigner is advertising that they have a “real estate agency” in Panama, it could be an illegal operation.  Chances are they do not have a work permit either.  It is better to work with a company and sales people are work legally in Panama and avoid those who are not working legally.

Neither the Panamanians nor the foreigners who sells real estate or helps you buy real estate are obligated to a fiduciary responsibility in Panama. A fiduciary responsibility means that they will put your interest above their own.  It’s not required in Panama though some honest real estate agents/consultants do put your interest first and foremost.  Others will say and do anything to get the sale and their commission.

Panama RentalsSome agents, but certainly not all, will put their commission above your best interest.  That’s why it is important to always have your OWN attorney do a title search and create the purchase contract.  Your attorney can also give you advice about what is needed to successfully buy real estate in Panama. Unfortunately, many real estate sales people will not tell you that:

♦ You should always get the property inspected
♦ You should get the septic and water systems inspected
♦ You should verify that there is a Certificate of Occupancy filed
♦ You should verify that all taxes have been paid (even if in a corporation)
♦ Be aware of the pros, cons and dangers of Right of Possession property
♦ 3% capital gains tax (on full sales price) even if a corporation
♦ 2% transfer tax (on full sales price) even if a corporation
♦ Review the survey to verify what you are buying or get a new one
♦ If there is a tax exemption, it needs to be transferred to you
♦ The best way to take title for your situation

Your attorney will make sure that your interest is protected before any contracts are signed, money changes hands or title is transferred.  Most likely, all contracts and other documents will be in Spanish.  Unless you are fluent in Spanish it is especially important to get YOUR attorney to create, or at least review, all documents.  Do not trust what someone other than your attorney says the documents say. You can request that the contract be in Spanish and English.

Panama RentalsClosings are handled in a completely different way in Panama.  There are no title companies or escrow offices.  It is customary to give the seller 3-5% down when the contract is signed (it’s not held in escrow) so it is imperative that your attorney is involved before any money changes hands.  Your attorney should not be the same attorney as the seller’s attorney or the real estate sales person’s attorney.  You need to have an attorney who represents you and your interest.  Your attorney will prepare the closing documents, then you and the seller will go to a notary to sign everything.   Your attorney will record the documents once everything is notarized.  There are slight variations in closings for right of possession properties.

Titled Versus Right of Possession Property

Not all property in Panama is titled.  If you are considering buying a property, you should ask the seller or the real estate sales person for the FINCA (farm) number.  With the Finca number, your attorney can do a title search to verify that the person selling you the property is really the owner(s), can determine if there is a mortgage, the balance of the mortgage, if the payments are current, and if all taxes have been paid.

If the seller cannot supply you with a Finca number it is probably a “right of possession” property, meaning there is no title.  These properties are usually priced much less than titled property.  Because it is not titled, you are taking the risks that someone could come along later claiming that the property has been in their family for years.  At that point, you lose your home and all the money you invested.  It rarely happens but it does happen.

Panama REntalsRight of possession property can be titled but the process takes about 5 years about costs about $6,000 to $100,000.  I know some people who have been trying to get their property titled for 10 years with no success.  I also know people who lost $10,000s of $100,000s of dollars buying right of possession property.  And I know people who have purchased right of possession property with no problems.  If you do buy right of possession property, you still need to get your attorney to review all the documents that the seller has to claim their ownership of the property. Get your attorney to review the survey to verify what you are buying.  Buyer beware of right of possession property.

Not all right of possession property can be built on.  If you plan to build, verify that you can get a building permit before you give anyone any money. If there is a current building on the property, verify that it is legal and can stay.

If you buy titled property, you can avoid any right of possession problems because there is a clear and recorded chain of title.

TAX EXONERATION = NO PROPERTY TAXES

Rental near Chitre PanamaIn 2008 the government stimulated the real estate industry by promising a 20-year tax exoneration for properties which were built prior to January 1, 2012.  This tax exoneration, which only applies to titled property,  can be transferred from one owner to the next.  But you should be aware that the tax exoneration only applies to the improvements or construction.  You will still need to pay taxes on the land.

The tax exoneration rules changed in 2012.  You still get a break on property taxes for houses or condos built after 2012 but not a 20 year tax exemption.  Depending on the price, the tax exoneration could be for 15 years to as little as 5 years.

Then in 2018, the property tax laws changed again.  If you purchase a titled property for $120,000 or less, you will NEVER have property taxes. Properties valued at $120,000 to $750,000 only have a 0.50% property tax but that is only after the 20 year tax exoneration if it applies.

Right of possession properties currently pay zero property taxes.  That’s a plus.  But the Panamanian government is talking about requiring all right of possession property owners to title their property which could cost $6,000 to $100,000 depending on the size of the property.

HOW TO TAKE TITLE

Bocas del Toro PanamaIn Panama, it is not customary to take title to a property in your own name.  Instead, you would take title in the name of a corporation or a foundation.  There are several reasons this is done including asset protection and estate planning.  Some agents will tell you that you do not have to pay capital gains taxes if you just buy the shares of the corporation instead of the real estate.  This is not accurate.  If the seller does not pay the capital gains taxes when the property is sold, you could get stuck with the bill later.

There are pros and cons to taking title in a corporation.  The biggest “pros” are asset protection and estate planning.   You could avoid probate too.  The biggest “cons” are the upfront cost in setting up a corporation which can be $1,000 to $1500 depending on which attorney you are working with.  There is also a $300 annual renewal fee to keep the corporation alive. If you’re a US citizen, you will also have to report the “offshore corporation” to the IRS.  If you take title in your own name, you can avoid these additional costs.

EASY TO BUY, NOT SO EASY TO SELL

PanamaRelocationTours.comIf a property is priced right it will usually sell within 30-90 days.  But because there is no way to know what the right sales price is,  most properties are not priced right.  You cannot go by what other people are asking for their property.  Generally houses priced under $150,000 sell faster.  Anything priced over $500,000 could take two or three years to sell.  Some houses have been on the market and priced too high for more than 5 years – yet the sellers refuse to lower their price.  It’s crazy!

Some sellers try to justify their sales price based on replacement cost but that is not an accurate way to price properties in Panama because building costs vary considerably.

 

GOOD REASONS TO BUY

bocas viewIf you are in good health and plan to live in Panama for more than five years, it may make more sense to buy a house if you can pay cash.  Then you won’t need to worry about your rent going up.

If you find your dream home and it is good price, it may make more sense to buy instead of renting.

Panama is a great place to buy investment properties.  There is always a need for more rentals.  But you should understand that rents are low in Panama compared to North America or Europe.  A typical house worth $125,000 in Panama will only rent for $750 – $800 a month – furnished and all  bills paid.  You will need to buy below market for investing to make sense.  Good property managers are hard to find so it is best to scope out who can manage your property before you buy.

Some towns in Panama have more “upside potential” than others.  These towns are usually have fewer expats so they are priced lower than other areas that have been “discovered”.  Their is a chance — a risky chance – that the town will improve and more expats will move in which could – could – cause the property prices to go up.  It certainly won’t happen fast though.  You should plan on at least five to ten years for prices to go up.  Keep in mind that if you need to sell quickly, you may not be able to sell for what you paid for the property.

OTHER THINGS YOU SHOULD CONSIDER BEFORE BUYING IN PANAMA

House in Puerto Armuelles PanamaIf you have health problems  you need to know where the closest medical facility is located and how long it will take to get there.  It may be better to rent instead of buying.

You will need to determine where the closest grocery store is located and if they have the items you need.

If you travel a lot, you’ll want to be close to an airport.

You may not be able to get fast internet or any internet or cable tv service in some areas. Yet other areas have fiber optics and you can get 100-600mbps internet speed.

You’re not just buying a house, you’re buying a neighborhood so it’s important that the surrounding houses are of equal or greater value to yours or you could have a hard time selling later.

Because there is not an active MLS system in Panama, it is very difficult to determine value.  You should not rely on what the real estate sales person or the seller tells you: instead, you should do your own due diligence.  it takes time to learn property values so that’s another reason to wait at least 6 months before buying.

RENT FIRST!

I highly recommend that you rent for at least 6 months before you even think about buying anything in Panama. In that time, you can be sure you like the area.  You will have time to keep track of the sales price of homes in the area so you will know the “right” price to pay when you do decide to buy.  During the 6 months that you’re renting, you will get to know a lot of people and get referrals for good and honest real estate agents and consultants.  You’ll also likely hear about a few sales people to stay away from.  You may hear about a hot deal before it is listed with a real estate agent.  If you are moving to Panama, it will take about 6 months to get your permanent residency Visa which is another reason to wait 6 months to buy.

Panama RentalsSpeaking of listings… many properties you see for sale do not have an exclusive listing with one agent or company.  Instead, the seller has told all the real estate sales people in town that they will pay a commission to whoever brings a qualified buyer.  With this arrangement, you are likely to see the same property at many different prices on many different real estate websites.

If you are from Canada,  do not assume you can trust real estate sales people from Canada.  If you are from the USA, do not assume you can trust real estate sales people from the US.  Ditto from Europe, etc.

Panamanians are excellent real estate agents!  There are a lot of really good expat real estate sales people.

If a real estate sales person goes to church, claims to be a Christian, frequents the Panama forums or Panama Facebook groups, it is NOT a sign that they are trustworthy… the could be just trolling for the next sale/commission.

Getting a mortgage is more difficult in Panama but it can be done. You’ll need at least 20-30% down.  And you’ll be required to get a life insurance policy for the amount of the loan and name the bank as the beneficiary so they get their money one way or the other.   Most loans will require payment in full by the time you turn 70 years old.  Some builders offer short term (5 year) seller financing.

There are a lot of really great real estate agents and sales people in Panama. ­­­You’ll meet some of them during a Panama Relocation Tour.  But there are also some unscrupulous real estate sales people in Panama too.  Buyer beware!

EXAMPLES OF REAL ESTATE FOR SALE IN PANAMA

 

playa dorado panama$85,000 Two bedroom Two bath gated community next to the Pacific Ocean.
Many community amenities including, pools, club house, lake with paddle boats,
BBQ areas, tennis, golf. Only 5 minutes to Westwind Mall and 40 minutes to
Panama City

 

 

 

 

burica panama view

 

Only $125,000 for an ocean front house. Two bedroom two bath fully furnished.
This property is a bit isolated but has an amazing beach and views.   It is fully furnished
See house picture in the heading.  Check out the view off the deck.  Seller financing available.

 

 

Puerto Armueles real estate

Fixer Upper for $55,000 – 4 bedroom 3 bath on a x-large fenced lot with a lot of fruit trees.
Only 5 minute drive to the beach.  Needs about $10,000 in repairs will be worth $125,000
when completed.   This is in a neighborhood which was the executive housing for Chiquita
banana in Puerto Armuelles, the most affordable beach town.

 

 

gorgona ocean front condo

 

$159,000 Ocean front condo. Three bedroom, Two bath, fully furnished.  Amazing views
and ocean breeze.  This is 2 miles to Coronado which has a hospital, many grocery stores,
restaurants and more.  And it’s only one hour to Panama City

 

 

las tablas for sale 69000

 

 

$69,000 in the cultural center of Panama, Las Tablas.  Three bedrooms two baths.
Unfurnished.   Fenced yard.  Great neighborhood

 

 

 

 

 

 

boquete panama house for sale

 

$145,000 fully furnished 3 bedroom 2 bath 2 living area mountain home near Boquete.
Great investment property or place to live.  Seller financing available.  Ten minutes to downtown
Boquete or 20 minutes to David.

 

 

 

volcancito panama two houss

$199,000 for TWO houses.  The main house is a two bedroom two bath, fully furnished.
There is a one bedroom furnished rental casita next door for instant income.
This property is 8 minutes to downtown Boquete.

 

 

 

 

DON’T LEAVE YOUR BRAINS AT THE BORDER!

rentals PanamaWhen you see that gorgeous ocean or mountain view and a house priced much less than you’d pay where you live now, don’t get so excited about the opportunity that you forgot to do the normal due diligence before buying real estate.  Always get the property inspected.   Never sign any documents or give anyone any money until your attorney has had a chance to review everything.

One other word of caution – don’t buy real estate then leave town trusting someone else to get repairs done or to build your house.  You should be present while a house is being built or when repairs are being done.

 

 

NOTE:  Panama Relocation Tours does not sell real estate.  During a tour we will show you several rental properties just so you can get a general idea of what you get for your money in different areas and different price points. We will introduce you to trusted real estate sales people during the tour.  Panama Relocation Tours does not accept commissions or “kick backs” for any real estate sales or rentals.