Fraud? Buy property in Mallorca

Buy property in Mallorca is not a no-brainer, as the latest example shows again ….

El Aviso headlined in February 2020: “The time of windy real estate sales will soon be over”. At that time, the Association of Real Estate Agents of the Balearic Islands (API), together with other industry associations, tried to get the government to curb the proliferation of real estate agents. Because since its liberalization in 2000, anyone could call themselves a real estate agent. Without examination or any prerequisites.

Politics remained inactive. Although the serious providers of the industry have repeated, among other things, also in January 2021 the demand to the policy.

And in December 2021, there was the big bang. Image: “The beautiful Ferdinand and his dirty secret”. Mallorca Zeitung reports that the alleged fraudster is said to have relieved his victims of at least 2.2 million euros, while other publications put the figure at tens of millions.

What happened?

Well, if the media coverage is correct, and in superficial knowledge of some of the people involved, I can certainly imagine it, buyers of luxury real estate were “ripped off.” Empty villas were visited. And the happy buyer was told he could (or had to…) make the down payment directly to the brokerage office. Only, in some cases, there was probably no interest in selling on the part of the owner at all…. Or already another buyer. In any case, however, the down payments, according to the authorities’ accusation, were retained by the brokerage office and presumably used for sports cars and luxury clothes.

In the brokerage office with two locations (Puerto Portals and Port d’Andratx) in the very finest location, it looked like serious business. Which probably also took place in part. Today, no one works there anymore.

Let’s go over a few points that are located between general life experience and lay legal advice. So that you do not fall for a scam!

GUCCI and G-Class are not a sign of success

It may well be that your counterpart, who drapes himself with status symbols like an advertising pillar, simply has bad taste. But it is also possible that he is trying to represent something he is not.

The really rich people I met were never flashily dressed or adorned. Accumulations of presently visible brands may be “en vogue” among the nouveau riche in the Near and Far East, but in Central Europe they tend not to be, and should perhaps even be perceived as a warning signal.

The same applies to brokers who drive up in a Ferrari or in the AMG G – class. Be granted to everyone. But has never happened to me with a successful broker. So: is this a highly superficial view? YAAAA. But even clichés always contain a grain of truth.

Greed eats brains

There are no bargains. And don’t take it personally, but even if there were, no one would offer it to you. Why is that?

“One-shot” of the heirs

The children are waiting for grandma to finally die. And then the community of heirs steps up to sell the family’s silverware. Often they have to, because the cost of maintaining them is much higher today than it was in the golden age of establishing family ownership. Or even because inheritance tax is due.

The heirs know that they can sell their inheritance only once. And have of course all heard from friends that the sold at an incredibly good price. Without taking into account that the friends but may have put more money before in the renovation of the finca. Or it is not located on a major artery … Or no high-voltage power line runs across the property …

What I want to say: When buying real estate Mallorca reigns on the seller side, of course, just as greed. Everyone wants to see as much money as possible, because nothing else will follow. That’s just the family heritage. And when the silverware is sold off, it’s gone. Item. From. And then the imagination is often greater than the viability of the market.

When buying property in Mallorca you will also hear phrases like

“Every heir would like to have at least 500.000,- Euro”.

This is simply a let’s say more emotional look at it all under the realization that this will be the last time to expect a hot shower .

In addition, Mallorcan families usually live down to earth. And stand in close family cohesion. And value land as an asset itself very much.

Sellers are greedy too

Every seller when buying property in Mallorca will try to get as much as possible for his property. That’s logical. Due to the fact that it has been going up here almost continuously for the last few decades and that every full-on has heard of at least one other full-on who has sold his villa at a great profit, every seller here wants to make the big cut first. Statements from brokers like.

At the price he can not sell, since he makes after his purchase price, ancillary purchase costs and renovation costs no good cut more

are serious. This has often worked over the past decades. And if the seller does not have to sell, he probably will not consider your serious lower but reasonable offer for buying property in Mallorca. Even if it is factually and substantively closer to the actual market value than the price he called.

I have seen many objects on the island that have not turned for 5-10 years. Because the selling price was much too high. In fact, at some point reality catches up with the inflated price. Or the famous “doofus” can be found.

why you of all people?

Then you should ask yourself, when someone offers you a supposed bargain, why you should be the lucky one.

I live here and invest professionally in real estate. And, of course, get offered a lot of real estate. So many that I ask the brokers to give me at least two or three arguments to the exposés, explaining to me why this particular object is so interesting. I often find that the brokers themselves do not know. Why is that?

The brokers in Mallorca have objects not exclusive. This means that the broker who “registers” a prospective buyer with the owners as quickly as possible “wins”. This is the name of the process by which the seller confirms that this prospective buyer is now blocked for broker xy and in the event of a sale this broker is entitled to the commission.

Unfortunately, the procedure means that there is actually no economic reason for the broker to spend as much time and detail as possible on the property. He then only risks never being able to receive a commission because another broker was faster.

So I just have to read every synopsis. And get a picture. And Google Maps endeavor, if I’m lucky enough to find the address. But whenever I am offered a real bargain, there are simply reasons for the low price! Either a new construction project garnished with “ocupas” (squatters). Or the often hyped bank sales. But beware, these are all issues where the price discount is justified. Because getting rid of the “Ocupas” is a rocky long road. Somewhat easier for private individuals, extremely time-consuming and lengthy for companies that invest professionally. And the bank loans that are sold on do not guarantee at all that you will end up being the owner. You buy a loan. That is served either. Then you are virtually a private bank without real estate. Or operates the public auction. Where perhaps another interested party buys your dream property away from you.

“what an outside third party is willing to pay”

Experts know I’m talking about market value here. In contrast to the capitalized earnings method, in which the value of a property is determined using rental income, for example, the market value is a highly variable value. Because this is where soft factors take effect. If, for example, the developer of the new villa in Port d’Andratx was so smart as to have his new building furnished with Missoni furniture and the nice Russian oligarch couple finds it totally “wow”, then the absurd asking price of 18 million euros is suddenly the realistic market value. Even if a serious calculation would say: 3 million land + 3 million construction costs + 2 million profit for the developer is only 8. But the “outsider third party” just came around the corner and added 10 million. For the furniture, which may have cost 500,000 euros.

Mallorca as a seller’s market

The simple main reason why there are no bargains: There are too many interested parties.
And it is extremely unlikely that only one broker happens to know about a good property. And he just happens to know only you and just happens to want to do something good for you. Probably not impossible, just very very unlikely.

People buy houses, especially vacation properties, emotionally. When a property is well done and ready for occupancy, it is never a bargain. Because it is easily marketable even at a high price in a seller’s market. If there are any bargains at all, they are occasionally investor-owned projects that require extensive renovations. But here, too, the potential profits for the investor are usually already anticipated in the inventory prices. So there too, in such a hot market, there’s little potential to make a killing!

So don’t be blinded when Mr. “Gucci” comes around the corner and offers you the dream of a house in Portixol in the first place for 1 million. There is no such thing. And if he then asks for a deposit on his account: Hands off and to the police.

Buy property in Mallorca safe?

Buying property in Mallorca or real estate transactions in general in Spain work differently than in Germany. However, the role of the broker is relatively identical, as this is now largely harmonized by European law.

How do I find a broker?

We have already covered this topic in the first part. In short, there’s nothing wrong with betting on the familiar names. But: please google first. Look at Google Maps, look at Facebook. If you don’t find anything there, hands off. If you don’t find clearly predominantly positive and also enough reviews, fingers off.

Otherwise, the brokerage fee is usually negotiated in advance with the owner, so you have only limited influence on it. And, assuming you are serious, you must of course also find your broker likeable and credible. Just please: Don’t ask him for a lawyer or for a civil engineer. You could have the misfortune that someone is recommended here who doesn’t look that closely.

How do I find a lawyer?

That’s a good question! I would generally recommend not using a lawyer recommended to you by a broker. Why? I know countless honest good brokers. But, unfortunately, a few cases where there is a bit of a merry-go-round between brokers and lawyers, where the lawyers don’t take their review assignment very seriously. For this, get customers from the broker again and again. And the brokers themselves are even involved in the property development companies.

There, of course, the unsuspecting buyer will never get the objective and serious advice he needs. And that’s how one or the other bad purchase has come about. In principle, I think it makes sense not to mix the different interests of the parties involved:

The broker is desperate for the deal to fly. Only then will he get his money. This is his right, but it does not make him the most objective advisor, even if he tries hard.You should pay the lawyer so that he always gets his money. Even if it does not come to the purchase. So that he can advise you objectively. And does not have a vested interest in the deal going through.

We have a similar, but of course different law in Spain than in Germany. And in the autonomous region (comparable to a German federal state) of the Balearic Islands, there are of course also state laws or formations of national law into state norms. This includes especially points like nature and environmental protection, so that not only a good knowledge of Spanish real estate law is important for your lawyer. But also a very good knowledge of Mallorcan customs.

In the beginning, I worked with German lawyers because it was easier for me linguistically. In the meantime I work with two Majorcan law firms, because I have the impression that the local conditions are sometimes even better known there.

However, I am honestly “biased”, because in the meantime my wife looks after the German clients in a law firm as a German lawyer. I do not want to be suspected of using the guidebook here for surreptitious advertising. Therefore, I do not recommend anyone here, but recommend you: Google and ask friends who have already bought successfully. But in any case: Google each partner before you decide.

“Arras” or “promesa de compraventa”.

Most often, the seller still wants to move out. Or you need time to get funding up and running. Then an option contract (“contrato de arras”) or a promise of sale (“promesa de compraventa”) is negotiated between the lawyers, the content of which is largely identical to the later notarized purchase contract. The option contract does not have to be signed in front of the notary, the signatures of both parties are sufficient. This is the main formal difference when buying property in Mallorca compared to Germany.

Usually a deposit of 10% is agreed. It should be so that the seller commits to sell to you. Or he pays back the 10% AND a penalty of the same amount. The other way around: If you don’t buy, the seller gets to keep the 10%. The 10% should be in a notary escrow account. Or with a super reputable long-established law firm. But NEVER with the broker. NEVER with the seller. Better not with the seller’s lawyer.

Often you can also negotiate that if your financing fails, you get the 10% back. But it can also startle the seller, because he sees that his sale is not as dry as the broker told him before.

Unlike in Germany, the notary has more of a purely executive role when buying property in Mallorca. He also reads the contract again when it is notarized, but does not deal with it as extensively as German notaries do. In return, his fee is also much lower. The actual work here lies with the lawyers, the usual fee is 0.5 – 1% of the purchase amount.

Tasks of the lawyer

What does the lawyer have to check?

Quite a lot! First of all, the most important thing is that the owner is also the owner. And that your desired object is also registered in the land register. And with the actual building structure and the right surfaces. Slight variations are normal, even between the different registers.

To illegal constructions when buying real estate in Mallorca I have already gone into detail in the first part. Here only so much: If small things are illegal, one may be able to live with it. However, if decisive parts of the house are not legal and also not legalizable, leave them alone.

“After eight years, it’s legal”

That is not so true. After 8 years, there is a statute of limitations for prosecuting illegality. But as soon as you have to submit a building application – even if it is only for plastering the facade – it will fail. Because your object is not legal. So the illegality remains. And it is being pursued ever more rigorously. And perhaps makes your property, when you want to sell it again, a slow seller.

And: if your house burns down, you can “only” legally rebuild it. So not as it may have stood. But only as it is legal. Does this happen every day? No. But if it happens to you, it’s just stupid.

Then there are more complicated issues when buying property in Mallorca, which are often only regionally important. For example, the zone around the Tramuntana Mountains enjoys a very strong protection. There’s nature conservation and flood control.

So, for example, you can’t build next to a riverbed (anymore). Which is quite reasonable, as the storms have shown us. But if it’s the only legal place for the pool, you might even get permission from the municipality. But still, the pool is then illegal. But only the lawyers who deal with transactions in such areas know this.

In the case of condominiums, it is very important to check the statutes of the community of owners (“Comunidad”) and the minutes. And to check if there are arrears. The same applies in principle to payment arrears on the object itself, e.g. taxes.

Sometimes lawyers negotiate very strictly when buying property in Mallorca, because on the one hand they want to protect your interests. On the other hand, maybe they want to show their importance to you. At the stage when the lawyers are talking, I recommend that you stay tuned. Talk to the broker. Talk to your lawyer. Many transactions fall through before the option contract is signed, either because the lawyers harden the fronts or because another buyer, often presented by another broker, comes around the corner who simply adds another layer to the deal.

What I don’t want to say is agree with everything. But if the property is clear. And your desired object is ideally legal, then the only real point of contention is actually the guarantees.

Warranty often worth nothing

Guarantees are often only from reputable developers when buying property in Mallorca at all value. Because most of the time you are buying from owners’ associations of investors or a project SL and then have delivery addresses for the lawsuit in North Norway … And in court, the table of Spanish construction costs is used for comparison. This is usually much less than it actually costs to fix the defect, especially on a luxury property. And more importantly, many things that may be poorly built or even stupidly planned are obviously crap. But just not a shortage.

I usually buy unrenovated properties. Since the seller does not want to guarantee anything. Sometimes we manage to get him to at least declare that he knows of no defects. Or the structure would be fine. But honestly, that’s secondary to the properties we buy.

For you, who probably wants to buy a new building or a newly renovated property, the quality of the structural implementation is of course a very decisive factor when buying property in Mallorca.

My estimate is that about 70% of the properties are relatively poorly built or remodeled.
This can often be seen in the “finish”, i.e. how the final elements have been installed, e.g. tiles, built-in cabinets and similar externally recognizable parts of the building structure. But more expensive and difficult to cure are issues such as: Quality of windows, quality of installation of heating and / or air conditioning. Here it may well make sense to ask the seller to let you perform tests with experts on various dates, for example, to determine whether the control via the KNX bus system works at all. And whether the dimensioning of the plant is at all sufficient for hot summer and cool winter days. There are specialized engineers for this, and I would definitely seek their advice, at least for a larger property. And: make the effort. Buy property in Mallorca in a safe way is a lot of work. Costs time. But it’s worth it!

Otherwise, the advice from the first part generally applies: Eyes on when buying property in Mallorca and consult professionals!

My point is: better to check, check, check. Than to hope afterwards that any guarantees are successfully enforceable. And if you have really checked thoroughly, rather look to complete the transaction successfully than demand “wild” guarantees from the sellers.

But that’s clearly a decision you have to make for yourself. It is also difficult for someone to give objective advice. Don’t compromise too much, but don’t be too stubborn either. As always in life 😉

Have fun with the further and hopefully successful search for your dream property!

Arnd