pretty sunset in Cabo San Lucas
We’ve been talking about the more affordable properties in Cabo, and there are tons of them. But there is something not so affordable about snapping one of them up: the closing costs. Here in Mexico the buyer is responsible for all closing costs, and they can’t be financed. On large properties it’s no big deal, but as purchase price goes down the closing cost as percentage of purchase price goes up. Why? The fixed costs such as bank fees, foreign affairs permit fee, and title search fees are significant. It is true that the 2% federal acquisition tax, municipal fees and others are on a sliding scale but those fixed costs add up. Although the Notario’s fee is also on a sliding scale they have a minimum fee. And, although the closing cost on an affordable home is indeed less than that for a luxury home it is a much higher percentage of purchase price. Since we can assume the buyer is on a budget it’s very important to take these expenses into consideration and factor them into the decision process.
As an illustration, I ran a closing cost estimate for three properties: a $50,000 home, a $500,000 home and a $5,000,000 home. Although the five million dollar home pays vastly more than the others ($131,835) that amount comes to just over 2% of the total purchase price. Nothing to worry about there. The $500,000 home pays $20,445 or about four percent. But the $50,000 home pays $8,305, which comes to almost seventeen percent of the purchase price!!! So now you see why you should sit down with your real estate agent BEFORE you get in the car and discuss your budgetary constraints and how they will affect the amount you can afford to invest. This is not a pleasant discussion and one that many agents are reluctant to initiate. But imagine the disappointment of having your offer accepted and then finding out you can’t afford to buy after all. Better to determine that at the outset.
There is very little that can be done, legally, to mitigate paying closing costs. Yes, there are some schemes out there but in the big picture legally and safely owning your home is of utmost importance. And to my knowledge very few of those schemes will yield the buyer clear title. When in doubt, it is a far better strategy to plan ahead and either lower your purchase budget or defer buying until you can pay to do it the right way.
Just my opinion….. what’s yours?
Carol Billups is Broker/Owner of Cabo Realty Pros. She has enjoyed working with both buyers and sellers for over eleven years and still thinks hers is the best job on earth. She is also the real estate columnist for Los Cabos Magazine. You can read more of her articles on the website blog http://www.caborealtypros.com. You can reach her from the U.S. or Canada at 1-760-481-7694, or in Cabo at 044-624-147-7541. You can listen to our 24/7 broadcast on http://www.livecabo.net for a mix of happy music, weather reports and local information.
© 2012 Carol S. Billups
Real Estate In Cabo 