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Buying Property In Panama 101
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This article was written by Susan Guberman-Garcia and featured on panama-guide.com on December 8, 2004. Nothing has changed since then. Her advice is as current now as it was then because ,fundamentally, her opinion is sound and solid. She is not a Panamanian lawyer, a real estate developer, or a real estate agent.She has no property currently for sale and do not plan on having any for sale in the future. She writes from her perspective as an expat who lives in Panama, and who has bought and sold property here. Her husband and her own both ROP and titled property, in the Bocas archipelago and live on Isla Cristobal. This is simply a summary of what they have learned from their experiences and those of others they have talked to,including their own lawyers. It is just one person's opinion, so take it with the proverbial grain of salt and rely on your lawyer for advice in real estate transactions.
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Don't be in a hurry
Know what you want
Understand the differences between TITLED property and RIGHT OF
POSSESSION ("ROP") property
Protect yourself against squatter claims
Dealing with real estate agents
Planned communities – Things to watch out for
The transaction
Don't be in a hurry
It's a buyers' market, and you will not find "bidding wars" like you
may in the USA. Look at lots of properties before you buy. If you
are looking at rural or island properties, make sure you see it during
the rainy season. If its not elevated, it might be a swamp. Don't
fall prey to "buy now" syndrome. Never give in to the temptation to
give a seller or agent a deposit check on the spot even if you think
you've found your dream property. (See below). Most people advise
expats to rent for awhile before buying anything. I think that's real
good advice (even though we didn't do it!)
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Know what you want
Make a checklist of what is important to you. Some of the things you
might include are:
1. Do you want to be near the ocean? Or do you prefer the mountains.
2. Heat vs. coolness. Do you want a tropical climate or a temperate one?
3. Urban vs. rural: Do you want to be in a city, or within a short
commute of one? Or do you want a more rural environment? How
important is it to be close to shopping, movie theaters, etc.
4. Do you have medical issues that require you to live near high
quality healthcare facilities?
5. Do you have specific hobbies that you want to be able to enjoy near home? Like surfing, scuba diving, mountain hiking, birdwatching?
6. Do you have a sailboat? Do you need protected water access?
7. How far do you want to be from neighbors? Do you want nearby
neighbors or quiet seclusion?
8. Do you want a ready made house, condo, etc.? Or do you want to buy raw land and build to suit yourself?
9. Do you want a "planned community" where there are rules and restrictions (see below) or do you want to be free to build and live as you like?
10. What is your budget? Include maintenance and transportation costs in your budget. For example: If you live on an island you will need to buy a boat. Is that in your budget?
…and lots of other things to consider also. The above are just a few,so you get the idea. If you don't know what you want, you will need a lot of time to find out what it is. Visit the different parts of the country and spend at least a couple of weeks in each. Talk to as many people as possible about what they like and don't like.
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Understand the differences between TITLED property and RIGHT OF
POSSESSION ("ROP") property
Titled property means you own the property. Right of possession means that you own only the right to occupy the property. You can sell that right just like you can sell titled property, but you are only conveying what you own, no more, no less. Understand that because you don't actually own ROP land, you cannot use it for collateral on a mortgage and you cannot use it as a qualifying investment for a residency visa. And if you fail to take action after you buy to demonstrate your "occupancy" of your land (fencing, signage, erecting some kind of structure), you may find yourself dealing with squatters' claims later. ROP ownership, like titled ownership, is (or at least, should be) documented and recorded but with a different government agency. This does not mean you should
never buy ROP land, it just means that you have to be careful and know what you are buying and why you are buying it before you buy. One more thing: you must pay property taxes yearly on titled land, but not on ROP land.
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Protect yourself against squatter claims
Like most countries, Panama law recognizes "squatters rights" to land under certain circumstances. If you are buying rural land, make sure you walk every inch of it before you sign, to look for signs of human habitation. If you see anything that indicates that anybody except the owner (the person who is selling the land) is living on it, or farming it, don't buy it. If the owner tells you "that's my cousin Jose, he'll move before we close," that's a red flag. Unless your lawyer obtains Jose's signature on a document that says he has no claim to the land and doesn't own it, you have a problem. This is especially important if you are buying ROP land, but is also necessary to prevent subsequent squatter claims to titled land.
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Dealing with real estate agents
There are all kinds of real estate agents in Panama. Some are very nice, honest people, and some are aren't so nice and honest. But even the honest ones are operating from a very different rule book than agents in the USA, and things that would get your real estate license yanked in the USA are legal here. Be aware of the following:
1. There is no multiple listing service (MLS) in Panama. If anybody
tells you otherwise, they are lying and probably a crook.
2. Real estate agents are usually unlicensed and even if they are licensed, the business is virtually unregulated by the government.
3. Real estate agents in Panama, with few exceptions, do not consider themselves "fiduciaries" and don't think they have a duty towards you, the potential buyer at all. In fact, they often don't think they have a duty to their own client, the seller, either! Beware of a practice that is banned in the US but frequently used in Panama: "Net pricing." Net pricing means the agent will ask the seller what he wants to get out of the property and then list the property at a number far above that, pocketing the difference. If you like a particular piece of property, ask the agent if he is using net pricing. He may lie, but if he squirms and looks away or won't answer, insist on an offer conference with the owner if you want to make an offer.
4. Real estate agents do not "cooperate" with each other (remember, there's no MLS) and will not show each other's properties. (In Bocas, they don't even speak to each other.) So do not rely on a single real estate agent for your property search. Look at their listings online and visit each agent who has a listing that looks interesting to you. They will absolutely not show you FSBO property, don't even ask.
5. Never EVER give a real estate agent money. Earnest money deposits should be handled through your lawyer (see below) and agent commissions should be paid by the seller out of escrow. If any real estate agent ever asks you for money, run do not walk in the other direction.
6. If you want recommendations for real estate agents or feedback on a particular agent, go to the various yahoo groups (many are already identified below in this article). Remember that you can join any group as a web-only member if you want to do so.This means that you can visit the groups whenever you choose and read the threads and FILES that interest you, and not have to worry about being deluged with emails. You can change your yahoo group preferences at any time to switch between email and non-email membership.
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Planned communities – Things to watch out for
1. Do not under any circumstances make an offer to buy into a "planned community" until you have read and approved all CCR's (covenants, conditions and restrictions). As in the USA, the CCR's will be incorporated into the sales contract and are binding on you.Unlike the USA, developers in Panama often take a very casual attitude towards disclosing them. If any developer tells you "the CCR's aren't written yet, don't worry, they will be simple, just sign here," walk away. One prominent island planned community in Bocas is involved in
a multiplicity of lawsuits filed by disgruntled buyers who signed off on CCR's that had not even been written yet. When they were written, they were draconian and unreasonable (according to the unhappy buyers). Don't get yourself into a situation like this. Read first (very carefully) and discuss the CCR's with your lawyer before you sign. Don't believe verbal promises ("yes, I know it says you can only have one pet, but don't worry, we won't enforce this…") as they are not binding and are worthless.
2. Be especially careful about buying into large, fancy planned communities in the Bocas del Toro archipelago (or any remote island area). The historical pattern of such developments on tropical islands is that most of the promised amenities (restaurants, shops, marinas, etc.) often never get built. If those amenities are your primary reason for buying into a planned community, make sure you investigate the developer's finances very carefully, to make sure they
can afford to build everything they are promising.
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The transaction
1. Don't do ANYTHING until you have retained a Panamanian lawyer to represent you in the real estate transaction. ANYTHING includes giving a deposit, signing a promise contract, or opening an escrow account.
2. Hire a lawyer who comes with recommendations from other expats who have used the lawyer for similar transactions. A good place to get lawyer recommendations is on yahoo groups.Do post messages asking for feedback. There are two very large yahoo groups that are good sources for asking for lawyer recommendations and feedback: Viviendo En Panama and
Americans In Panama And Panama Laws For Expats has a "File" folder with attorney recommendations and also one for attorney ads and resumes.
3. Do not hire a lawyer who has any affiliation with the seller. Conflict of interest rules for lawyers in Panama are not what they are in the USA (not sure if there are any…).
4. Get a quote for handling the transaction, including the "due diligence" that your lawyer must do to protect you against title defect and prior possessory rights or squatter claims. If you need or want a Panamanian corporation to own your property, the quote should include the initial costs and yearly fees for this.
5. If you anticipate using your property as all or part of a financial investment to qualify for a residency visa, be sure you discuss your visa alternatives with your lawyer BEFORE you buy. Remember that ROP land does not qualify. There are articles about the various ways to qualify for visas in the "Visas" folder of Panama Laws For Expats site but remember that the law is constantly changing, and such articles are only to be used as general research and preparation for meeting with your attorney.
6. The first legal document that will be created and signed by the parties to a real estate transaction is called a "promise contract" (also sometimes referred to as "preliminary promise contract" or "promise to buy." Either your attorney or the seller's attorney will draw this up. Remember that ALL LEGAL DOCUMENTS IN PANAMA MUST BE IN SPANISH. If you are not fluent in Spanish, you must have it
translated. Your attorney should be able to provide a translation (for an additional fee). Even if you and the seller are English speakers, the promise contract still must be signed in Spanish (your attorney may also have you sign the English version.) This preliminary contract sets forth the basic terms of the deal and all contingencies. For example, it should state that the sale is
contingent upon approval of the CCR's (if a planned community is involved), the approval of a survey done by a licensed surveyor, good title, no prior possessory or squatter claims, etc. etc. etc. The promise contract will state the price, the time limit for closing and a legal description of the property, and anything else you and your attorney think is important. It will also call for an earnest money deposit. Typically, it provides that the earnest money deposit (which is usually around 3% of the purchase price) is non refundable except for failure to meet a contingency. The promise contract is a binding
contract and enforceable in court. Do not sign it unless you are absolutely sure you want to go ahead with the transaction, subject to any contingencies.
7. Deposits and escrow: Your attorney and the seller's attorney should agree on how the earnest money deposit and balance of the purchase price are to be handled. All funds should be kept in some kind of escrow. The most reliable form of escrow is a local bank. The bank holds onto the money until the conditions set by the parties are met. (In the case of the earnest money deposit, it would be signing of the promise contract by all parties and approval by their attorneys) and then release the funds to the seller. The balance would be paid upon recording of the deed in the Public Registry if the property is titled. (Using a bank escrow can be tricky if you are buying ROP land; in that case it might be better to use a private escrow service.) There are private escrow companies who offer escrow services; your attorney will know about them. NEVER give the seller a check directly, all money should
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