Q: I am trying to buy a fixer-upper house in downtown Puerto Vallarta, directly from the owner. He says that it is standard practice here to give the seller a deposit in order to guarantee the sale and is asking for $10,000 USD. Is this safe?
- Joe, Pittsburgh

A: No way Jose! We have an old saying in our office, it is: "Don't leave your brains at the border!" Now Joe, if you were going to buy a home in the steel city, would you give the owner cash before closing? Of course you wouldn't. (Or at least I hope you wouldn't.) In the event your transaction does not close, it would be difficult, expensive and time consuming to recover your deposit.

For that reason, the standard practice here is to draft a formal contract of sale, which both buyer and seller will sign. This contract should state the agreed price and terms of the sale and stipulate that any deposits shall be made to a neutral third party escrow account established specifically for the transaction. There should also be provisions to return your deposit if the transaction does not close, as well as agreed upon penalties in the event one of the parties fails to comply with the terms of the contract.

There are several established financial institutions that are able to handle escrow accounts here, First American Title, Stewart Title and Monex are some of the most common. Typically the buyer is responsible for the cost of the escrow (approximately $500 USD per transaction) but this is a small price to pay for the peace of mind that your money is in a safe place. These fiduciary institutions have the legal responsibility to guard your deposit and not release it unless both you and the seller agree in writing. In the event of a dispute, a judge would rule on final disbursement.

For new construction, it is common to give the developer a deposit with the sales contract and make progress payments as the building is being constructed. For this reason, you want to make sure that the necessary plans and permits are in place and the developer has a sound business plan and proven track record.

You should also ask for a completion bond in order to guarantee your deposit, or insist that your deposits remain in an escrow account, only to be released upon certain pre-established stages of completion. Please note that Spanish is the binding language in the sales contract, (with English translation often provided as a courtesy) so I strongly encourage you to enlist the expertise of a bilingual local Realtor who is a member of AMPI.

Joe, I hope you can see that the days of unprotected real estate investments in Puerto Vallarta are long gone, so "Don't leave your brains at the border!"

Do you have a question about Real Estate in Puerto Vallarta? Just ask!