buying real estate in Panama Archives | Panama Relocation Tours

Last Updated on October 29, 2020 - by Jackie Lange

Beware of NET Listings in Panama

In Panama, some things are done in a different way than you are familiar with. A good example is 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!

Just this week, October 2020, a couple saw the same rental for $1800, $1500, and $1300. What’s the right price? The only way to know is to talk to the owner.

A few months ago, after a Panama Relocation Tour, a lady looking at a house for sale in Dolega, about halfway between David and Boquete. The real estate agent quoted the sales price at $100,000 more than the seller was asking. How did she find out? She drove by the house the next day and saw the owner outside. He told her what the right sales price was.

In North America, most houses for sale are listed as an exclusive listing. This means that one real estate office has the exclusive right to market the property. If that same office finds a buyer, they will typically take 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 offices and at different prices. A typical commission in Panama is 5-6% of the sales price.

But 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 their 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.

HOW WIDESPREAD IS THE PROBLEM? [Read more…]

Last Updated on May 7, 2018 - 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.

So, 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.

Last Updated on December 17, 2020 - by Jackie Lange

Buying Real Estate In Panama

Update October 2020: Do Not Buy Real Estate In Panama… not yet! The pandemic has caused a worldwide recession. Panama has certainly been affected too. Real estate prices are coming down and will come down a LOT more over the next year. Most of what’s on the market now in Panama now is WAY overpriced. So, it’s better to just rent for at least a year before you even think about buying anything. This also gives you time to make sure you like living in Panama and that you like the area you think you want to live in. A year will give you time to learn the market and know the “right” price to pay. Definitely do not ever buy any real estate without coming to Panama to see it first.

I’ve been a real estate investor since 1992 and have bought and sold hundreds of properties so I know real estate. I’ve also bought and sold real estate in Panama. In Panama, the whole process of buying and selling are completely different.

Most foreigners selling real estate do not have a license. Just because a foreigner has a license to sell real estate in Panama does not mean they are trustworthy. Foreigners who sell real estate without a license are considered a “consultant” or associate. A foreigner cannot be a “licensed” real estate agent 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 or rent 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.

Most expat real estate agents or salespeople have absolutely no previous experience with real estate. Yet, they want to help you make the most expensive investment of your life so they can make a commission. In many ways, Panama is like the wild wild west when it comes to real estate. There is no code of ethics. Some real estate offices insist that everyone who works in their office operates ethically, but other real estate offices do not have that policy.

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 salespeople who work legally in Panama. Avoid those who are not working legally. By the way, Panamanians do not need a work permit to work in Panama. Only foreigners need a work permit.

Neither the Panamanians nor the foreigners who sell real estate or help you buy real estate are obligated to fiduciary responsibility in Panama. 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. You would not believe the stories I’ve heard!

Some 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 salespeople 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.

Closings are handled in a completely different way in Panama. There are no title companies or escrow offices. It is customary to give the seller 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 and certainly not 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 salesperson 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.

Right 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 tens of $1,000s 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

In 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

In 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

If a property is priced right it will usually sell within six months 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 $250,000 could take two or three years to sell. Properties priced over $500,000 could take five or more 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.

THINGS YOU SHOULD CONSIDER BEFORE BUYING IN PANAMA

If 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 really hard time selling later.

Always investigate the crime situation any area you are considering buying in. You can get on Facebook to ask people who live there if there have been any break-ins, drug busts or other crime problems. Most areas in Panama have very little crime. But some areas have seen an uptick in crime.

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 salesperson 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 12 months before buying.

FINANCING

Foreigners can get financing from a bank to buy real estate in Panama. You will need to put down 20-30%. All banks will require a life insurance policy for at least the amount of the mortgage naming the bank as beneficiary. The biggest problem is that banks require most loans to be paid off when you turn 70 years old. It could take several months to get financing through a bank.

You can avoid these hassles by buying with seller financing. Some developers offer 5-year seller financing. And many sellers who have been trying to sell their house a long time will offer seller financing (or you can ask for it) if you pay a 20-30% down payment. When sellers offer seller financing, you may be able to get 0% interest. I’ve helped many people from our tours buy houses with seller financing.

RENT FIRST!

I highly recommend that you rent for at least 12 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 salespeople 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.

Speaking 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 salespeople 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 salespeople.

If a real estate salesperson 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. Scammers also frequent forums and facebook… so be careful.

There are a lot of really great real estate agents and salespeople in Panama. You’ll meet some of them during a Panama Relocation Tour and we have recommendations for honest real estate companies and agents n our Online Panama Relocation Guide It’s best to get a LOT of recommendations from locals before you start working with anyone to buy real estate.

EXAMPLES OF REAL ESTATE FOR SALE IN PANAMA

$105,000 Two bedrooms 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

Only $245,000 for an ocean front house. Three bedroom three bath fully furnished house on two acres ocean front just east of David. It also has a casita on the property which could be rented out of used for guests. Amazing beach and views. It is fully furnished

$259,000 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

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

$125,000 fully furnished 3 bedroom 2 bath 2 living area mountain home near Boquete.
Great investment property or place to live. Ten minutes to downtown Boquete or 20 minutes to David.
This one SOLD recently!

$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!

When 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.