Due Diligence When Buying Real Estate in Ecuador

 

With no Title Insurance, no available database of comps, a different; culture, language and system of ownership – due diligence when buying property in Ecuador is of the upmost importance.

 

The first level of due diligence is to identify the property you want to purchase and come to a solid understanding of fair market value.

 

This can be a challenge. 

 

You essentially have two choices on how to go about understanding the value of property in Ecuador.  1– find a trusted professional who can help you understand valuation and walk you through the process.  2– Create your own ‘database’ of comps by seeing enough properties with similar characteristics in similar areas to start to understand what constitutes value in Ecuador.

 

If you are looking in urban areas (towns or cities) gaining a handle on valuation can be fairly straightforward.  Construction and lots (small pieces of land) have a basic price per square meter depending on their characteristics and level of quality/luxury.  For example if you are looking for an apartment in a populated area, by looking at 5 apartments and calculating the price per square meter of each apartment, you will begin to understand the value of apartments in the area you are looking at.

 

Same with lots as well as houses.

 

For rural areas and larger pieces of land, valuation can be more difficult, and prices can have significantly wider margins.

 

Land value based in traits such as; location, proximity to a paved road, infrastructure (water, electricity, access, etc.), amount of flat, quality of soil and overall utility. 

 

Focusing on an area and checking out several properties with similar characteristics can start to give you a basic idea of price per hectare in the area you are looking at.

 

Once you have a handle on the market and you make an offer or come to agreement on a price, the due diligence truly begins.

 

For this process you will need a trusted real estate professional and/or trusted attorney.

 

You must research the Title and make sure there are no liens or encumbrances.  This is done at the Property Register by requesting a ‘Certificado Simple’.  You must check the zoning (unless you are buying urban existing construction) by requesting the ‘Linea de Fabrica’ from the Municpio – this document shows any restrictions to land use.  You should also make sure there are no planned governmental or other projects in the area that could affect the property.

 

If the property is in a rural area you must ensure that you have the legal rights to your access road, the water, etc.

 

You must confirm the boundaries of your property and make sure that the legal boundaries match the actual boundaries.

 

You may also want to check with the applicable ministries to see if there are any water or mining concessions on the property you are buying.

 

Once this due diligence is done you are ready to close.

 

The closing process is initiated by submitting the closing paperwork (normally aggregated by your attorney) to the Municipio and waiting for the Municipio to process the paperwork.  This can take as little as a few days and as much as month depending on the Municpio (barring objections).

 

Once the Municpio signs off on the sale, you must pay the transfer tax and then sign the deed at the Notary.  The sale is then registered at the Property Register and the purchase is complete.

 

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