Buying and selling a home is one of the most significant transactions in many people’s lives. However, this process is not always straightforward and may involve a series of legal, tax, and administrative procedures that must be properly managed to avoid future issues.
While it is possible to carry out a property transaction independently, having the support of a lawyer specialized in real estate law and taxation is essential to ensure that all aspects of the transaction are handled properly. A specialized lawyer can provide guidance regarding the legality of the property, tax optimization, and the necessary procedures to ensure the purchase is carried out safely and in compliance with current regulations.
In this article, we explain the home buying and selling process, highlighting the key steps you need to follow to carry it out correctly. We also show how a specialized lawyer can make this process smoother and more beneficial from a tax perspective.
What is home buying and selling, and what does it involve?
Buying and selling a home is a legal contract between two parties: the buyer and the seller. The purpose of this agreement is to transfer the ownership of a property in exchange for a previously agreed price. In Spain, the process is regulated by the Civil Code and other specific regulations, so understanding each step is crucial to avoid legal complications.
Before diving into the necessary procedures, it’s important to understand what this process involves:
- The purchase agreement: This document sets out the terms and conditions under which ownership of the property is transferred. It includes details such as the sale price, payment terms, and possible clauses in case either party fails to comply with the agreement.
- Legal review of the property: Before finalizing any transaction, it is essential to ensure that the property is free of encumbrances, mortgages, or legal issues that could complicate the sale. This involves verifying the land registry and other legal documents to confirm that the seller has the legal capacity to sell the property.
- The public deed: Once both parties have reached an agreement and fulfilled all prior obligations, the public deed is signed before a notary. This is a crucial step, as it gives legal validity to the contract and allows the property to be officially registered in the land registry.
At this initial stage of the transaction, a specialized lawyer can be extremely helpful in reviewing the contract, ensuring that the property is free of encumbrances, and assisting in the proper drafting of the documents needed to formalize the sale.
In these articles, we outline all the documents you need:
- What documents do I need to buy a property in Ibiza and the Balearic Islands?
- What documents do I need to sell a property in Ibiza and the Balearic Islands?
Steps to complete a property transaction
The process of buying and selling a home in Spain involves several essential steps that must be followed to ensure everything is done legally and efficiently. Below, we explain each of the main stages to properly complete a property transaction:
1. Negotiation and signing of the deposit agreement
Before finalizing the purchase of a property, the parties usually sign a deposit agreement (“contrato de arras” in Spanish). This contract sets out a preliminary commitment between the buyer and the seller. Through the deposit, the buyer commits to purchasing the property, and the seller guarantees not to sell it to anyone else.
There are several types of deposit agreements, such as confirmatory deposits, penitential deposits, and penalty deposits, each establishing the consequences of failing to complete the contract. It is crucial that this agreement is well drafted and the conditions are clear, as it protects both the buyer and the seller from potential breaches.
2. Legal due diligence of the property
Before proceeding with the purchase, it is essential to carry out a thorough legal review of the property. This includes verifying that the property is free of liens, mortgages, or any legal issues that could complicate the transaction. At this stage, a specialized lawyer—like ours—can help ensure that the property is properly registered and that the seller has the legal right to sell it.
It is also important to examine other aspects, such as the cadastre or the urban planning status of the property, to make sure there are no construction or zoning irregularities.
3. Obtaining a mortgage (if applicable)
If the buyer requires financing, the next step is to arrange the mortgage. This process involves applying for a mortgage loan through a financial institution, which will assess the buyer’s ability to repay, the value of the property, and other factors.
A lawyer can assist the buyer in reviewing the terms of the mortgage contract, ensuring that there are no abusive clauses and that the loan terms are suited to the buyer’s needs.
4. Public deed of sale
Once all prior requirements have been met, it’s time to sign the public deed of sale before a notary. This act formalizes the transfer of ownership from the seller to the buyer. It is a crucial step, as it ensures the legal validity of the transaction.
The deed must include all the details of the agreement, such as the purchase price, payment method, and any other conditions agreed upon by the parties. After the signing, the notary will register the document with the corresponding land registry.
5. Tax settlement
Finally, the buyer must pay the taxes related to the transaction. In the case of purchasing a second-hand property, the main tax is the Property Transfer Tax (ITP), which varies depending on the autonomous community where the transaction takes place. For newly built homes, the applicable tax is VAT. For more information about these taxes, see this article: Taxes affecting property purchases in the Balearic Islands.
Other costs should also be considered, such as notary fees, land registry fees, and potential administrative service charges.
Tax aspects of buying and selling property
Buying or selling a property is not only a legal transaction, but also involves a series of tax obligations that must be fulfilled. These taxes and costs may vary depending on the type of property, its location, and whether it is a new build or a resale. Below, we explain the main tax aspects to consider when completing a property transaction:
1. Property Transfer Tax (ITP)
In the case of purchasing a second-hand property, the main tax the buyer must pay is the Property Transfer Tax (ITP). This tax varies by autonomous community, as each region sets its own rate. The ITP is calculated based on the value of the property and typically ranges from 6% to 10%, depending on the region.
It is important to note that this tax must be settled before signing the public deed of sale.
2. VAT on new-build properties
In the case of purchasing a newly built property, the applicable tax is Value Added Tax (VAT). The VAT rate depends on the type of property but is generally 10% for new homes. In some specific cases, such as the purchase of officially protected housing, a reduced rate may apply.
VAT is paid directly to the developer or seller and must be declared and settled at the time of purchase.
3. Stamp Duty (AJD)
This tax applies to the signing of the public deed and, in general, to the formalization of notarial documents. The Stamp Duty (AJD – “Impuesto de Actos Jurídicos Documentados”) applies to both new and second-hand property purchases, although the rate varies depending on the autonomous community.
The AJD is calculated based on the value of the transaction and usually ranges between 0.5% and 1.5%, depending on the region.
4. Additional costs
In addition to the taxes mentioned, there are other additional costs to consider when buying or selling a property, such as:
- Notary fees: The cost of the public deed of sale, which depends on the property’s purchase price.
- Land registry fees: After signing the deed, the property must be registered in the Land Registry, which involves an additional cost.
- Administrative service fees: If a gestoría (administrative agency) is hired to handle the legal and tax procedures, this service will also incur a cost.
5. Tax benefits and exemptions
In some cases, there are tax benefits that can help reduce the buyer’s tax burden. For example, certain buyers may qualify for tax deductions when purchasing a primary residence, or may be eligible for exemptions from ITP or VAT if specific requirements are met.
A specialized lawyer can advise you on the best ways to optimize the tax burden of the transaction and help you take advantage of any available tax benefits.
Why work with a specialized property lawyer?
The purchase and sale of a property is a complex transaction that involves various legal and tax aspects. While it is possible to handle a property transaction independently, having the assistance of a lawyer specialized in real estate law can make a significant difference, ensuring the process is safe, efficient, and problem-free. Below, we explain why hiring a lawyer is strongly recommended when buying or selling a property.
1. Personalized legal advice
A lawyer specialized in property transactions can provide you with personalized legal advice tailored to your specific situation. From signing the deposit agreement to executing the public deed, the lawyer will ensure that all documents are correctly drafted and that all applicable legal requirements are met.
In addition, an experienced lawyer can identify any irregularities in the property documents or contracts, helping you avoid potential future issues such as legal disputes over ownership or urban planning status.
2. Thorough review of the property
One of the most important roles of a lawyer in a property transaction is the legal due diligence of the property. The lawyer will verify that the property is free from encumbrances such as undeclared mortgages, ownership disputes, or any other legal issues that may affect the transaction.
3. Tax optimization
A key aspect that a specialized lawyer can address is the tax optimization of the transaction. Depending on the type of property, its location, and other factors, different taxes and costs may apply. A tax lawyer can help you:
- Reduce your tax burden by advising you on applicable taxes, such as ITP or VAT.
- Take advantage of available tax benefits, such as exemptions or deductions for the purchase of a primary residence.
- Ensure proper tax filing and payment to avoid penalties or surcharges for late or incorrect payments.
4. Administrative and notarial procedures
The purchase of a property involves various administrative and notarial steps, which can be complicated without proper knowledge. A specialized lawyer can manage these procedures, ensuring that the deed of sale is properly formalized before a notary and that all necessary registrations are completed in compliance with legal regulations.
In addition, the lawyer will coordinate with other professionals—such as notaries or administrative agents—ensuring that the entire process runs smoothly and without errors.
5. Prevent future legal issues
The property transaction doesn’t end with the signing of the deed. It’s essential to ensure that all legal and tax obligations are fully addressed to avoid future problems, such as disputes over ownership, title issues, or penalties for non-compliance with tax regulations.
A specialized lawyer not only ensures that the process is done correctly but also provides peace of mind and legal certainty, protecting your rights throughout the entire transaction.
Secure your property transaction with a specialized lawyer
Buying or selling a home is one of the most important decisions you can make, both legally and financially. While the process may appear straightforward, it’s essential to consider all legal, tax, and administrative aspects involved. A specialized lawyer in real estate, planning, and tax law will not only help you manage each step but also ensure that the transaction is carried out efficiently and in full compliance with current regulations.
From the signing of the deposit agreement to the tax settlement, having the support of a lawyer will help you avoid errors and complications. Additionally, a specialized lawyer can provide strategies to optimize your tax obligations and ensure that all administrative and notarial procedures are completed correctly.
If you are considering buying or selling a property, we invite you to contact us for personalized legal advice and to ensure the entire process is carried out successfully, safely, and cost-effectively.
