Predator Blog · December 20, 2021
Scam? Buying property in Mallorca
In this part we cover the topic of the “usual scams”. And how buying property in Mallorca works stress-free and safely!
Buying property in Mallorca is not a sure-fire success, as the latest example shows once again ….
El Aviso headlined in February 2020: “The time of shady property sales will soon be over”. Back then, the Association of Real Estate Agents of the Balearic Islands (API), together with other industry associations, tried to push through with the government that the uncontrolled growth in the real estate agent sector would be curbed. Because since liberalisation in 2000, anyone could call themselves a real estate agent. Without an exam or any requirements whatsoever.
Politics remained inactive. Even though the reputable providers in the industry repeated their demand to policymakers, among other times in January 2021.
And then, in December 2021, came the big bang. Image: “The handsome Ferdinand and his dirty secret”. The Mallorca Zeitung reports that the alleged fraudster is said to have relieved his victims of at least 2.2 million euros; other publications assume a double-digit million amount.
What happened?
Well, if the media coverage is correct—and with superficial knowledge of some of the people involved I can certainly imagine it—buyers of luxury properties were “ripped off”. Empty villas were viewed. And the happy buyer was told they could (or had to…) pay the down payment directly to the agency office. Only, in some cases there was apparently no intention to sell on the owner’s part… Or there was already another buyer. In any case, the down payments—according to the authorities’ allegation—were kept by the agency and allegedly used for sports cars and luxury clothes.
In the agency, with two locations (Puerto Portals and Port d´Andratx) in the very finest prime position, everything looked like a reputable business operation. Which presumably did take place in part. Today, nobody works there anymore.
Let’s go through a few points that sit somewhere between general life experience and layman’s legal advice. So you don’t fall for a scam!
GUCCI and a G-Class are not a sign of success
It may well be that the person you’re dealing with—who’s draped in status symbols like an advertising column—simply has bad taste. But it’s also possible that he’s trying to project something he isn’t.
The truly wealthy people I’ve met were never dressed or adorned conspicuously. Collections of prominently visible brands may be “en vogue” among the newly rich in the Near and Far East, but in Central Europe they’re not, and they should perhaps even be taken as a warning signal.
The same applies to agents who roll up in a Ferrari or an AMG G-Class. Good for them. But I’ve never seen that with a successful agent. So: Is that a highly superficial view? YEEES. But 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, nobody would offer them to you. Why is that?
The children are waiting for Grandma to finally die. And then the community of heirs steps forward to sell the family silver. Often they have to, too, because the costs of maintaining it today are much higher than in the golden days when the family property was built. Or because inheritance tax becomes due.
The heirs know they can only sell their inheritance once. And of course they’ve all heard from friends that they sold at an unbelievably good price—without considering that those friends may have put more money into renovating the finca beforehand. Or that it isn’t on a main traffic artery… Or that there isn’t a high-voltage line running over the plot …
What I’m trying to say: When buying property in Mallorca, greed naturally rules on the seller’s side as well. Everyone wants to see as much money as possible, because after that nothing else is coming. It’s the family inheritance. And once the family silver has been flogged off, it’s gone. Period. Full stop. And that’s where imagination is often greater than the market’s capacity.
When buying property in Mallorca you will also hear sentences like “Each heir wants at least 500,000 euros”. That is, let’s say, a more emotional view of the whole thing, with the realisation that this will be the last time a warm shower can be expected.
On top of that, Mallorcan families generally live down-to-earth lives. And have a close family cohesion. And they themselves greatly value land and property as an investment.
Every seller when buying property in Mallorca will try to achieve as much as possible for their property. That’s logical. Because over the last decades it has gone up here almost uninterruptedly, and every idiot has at least heard of another idiot who sold his villa at a big profit, every seller here initially wants to make the big score. Statements from agents such as He can’t sell at that price, because after his purchase price, purchase costs and renovation costs he won’t be making a good margin anymore are meant seriously. It has often worked over recent decades. And if the seller doesn’t have to sell, he will probably not consider your serious, lower but appropriate offer to buy property in Mallorca. Even if it is factually and substantively closer to the actual market value than the price he is asking. I have already seen many properties on the island that did not move for 5–10 years. Because the sale price was far too high. In reality, at some point reality catches up with the inflated price. Or the famous “idiot” turns up.
So if someone offers you a supposed bargain, you should ask yourself why you, of all people, should be the lucky one.
I live here and invest professionally in real estate. And of course I’m offered many properties. So many that I ask the agents to give me at least two or three introductory arguments for the exposés that explain what is supposed to make this particular property so interesting. I often find that the agents themselves don’t know. Why is that?
Agents in Mallorca do not have properties exclusively. That means the agent who “wins” is the one who “registers” a prospective buyer with the owners as quickly as possible. That’s what the process is called in which the seller confirms that this prospective buyer is now blocked for agent xy and, in the event of a sale, this agent is entitled to the commission.
Unfortunately, the procedure means that there is actually no economic reason for the agent to spend as long as possible and as precisely as possible dealing with the property. He then only risks never receiving a commission because another agent was faster.
So I simply have to read every exposé. And form an opinion. And use Google Maps if I’m lucky enough to find the address. But whenever I’m offered a real bargain, there are simply reasons for the low price! Either a new-build project garnished with “Ocupas” (squatters). Or the often hyped bank sales. But be careful: these are all issues where the discount is justified. Because getting rid of the “Ocupas” is a rocky, long road. A bit easier for private individuals, extremely laborious and lengthy for companies investing professionally. And the bank loans that are sold on do not guarantee at all that you will end up becoming the owner. You buy a loan. Which is either serviced—then you are essentially a private bank without a property. Or it goes to public auction, where another interested party may buy your desired property out from under you.
Experts know I’m talking here about market value. Unlike the income approach, where, for example, the value of a property is determined via rental income, market value is a very variable value. Because soft factors come into play here. If, for example, the developer of the new villa in Port d´Andratx was savvy enough to furnish his new build with Missoni furniture and the nice Russian oligarch couple find that totally “wow”, then the absurd asking price of 18 million euros suddenly becomes the realistic market value. Even if, with a serious calculation, you might say: 3 million land + 3 million construction costs + 2 million profit for the developer only makes 8. But the “external third party” came around the corner and added 10 million on top. For the furniture, which may have cost 500,000 euros.
The simple main reason there are no bargains: there are too many interested parties.
And it is extremely unlikely that only one agent just happens to know about a good property. And that he just happens to know only you and just happens to want to do you a favour. It’s probably not impossible, just very, very unlikely.
And it is extremely unlikely that only one agent just happens to know about a good property. And that he just happens to know only you and just happens to want to do you a favour. It’s probably not impossible, just very, very unlikely.
People buy houses, especially holiday properties, emotionally. If a property is well done and ready to move into, it is never a bargain. Because even at a high price, in a seller’s market it is easy to market. If there are bargains at all, they are occasionally projects for investors that require extensive renovations. But even here, the potential profits for the investor are usually already priced into the existing stock prices. So even there, in such a hot market there is little potential to make a killing!
So don’t be dazzled when Mr “Gucci” comes around the corner and offers you the dream of a house in Portixol in the first line for 1 million. That doesn’t exist. And if he then asks for a down payment into his account: hands off and go to the police.
Buying property in Mallorca safely?
Buying property in Mallorca, or real estate transactions in Spain in general, works differently than in Germany. But the role of the agent is relatively identical, as this has now been largely harmonised by European law.
How do I find an agent?
We already covered this topic in the first part. In short: it’s not wrong to rely on the well-known names. But: please google beforehand. Look on Google Maps, look on Facebook. If you can’t find anything at all there, hands off. If you don’t find clearly predominantly positive reviews and enough of them, hands off.
Otherwise, the commission (i.e. the agency fee) is usually negotiated in advance with the owner; you have only limited influence on that. And, assuming they are reputable, of course you also have to find your agent likeable and credible. Just please: don’t ask him for a lawyer or a structural engineer. You could have the bad luck that someone is recommended who simply doesn’t look that closely.
How do I find a lawyer?
That’s a good question! I would generally recommend not taking a lawyer that an agent has recommended to you. Why? I know countless honest, good agents. But unfortunately a few cases where a small carousel runs between agents and lawyers, in which the lawyers don’t take their due diligence assignment all that seriously. In return, they keep getting clients from the agent. And the agents are even involved in the developer companies themselves.
The unsuspecting buyer will of course never receive the objective and reputable advice they need. And that’s how one bad purchase or another has already come about. I think it makes fundamental sense not to mix the different interests of the parties involved:
The agent absolutely wants the deal to go through. Only then does he get his money. That is his good right, but it does not make him the most objective adviser, even if he makes an effort. You should remunerate the lawyer in such a way that he always gets his money. Even if it doesn’t come to a purchase. So that he can advise you objectively. And doesn’t have his own interest in the deal going through.
In Spain we have a similar, but of course different, legal system than in Germany. And in the autonomous region (comparable to a German federal state) of the Balearic Islands, there are of course also regional laws or implementations of national law in regional standards. These include, in particular, points such as nature and environmental protection, so that not only a good knowledge of Spanish property law is important for your lawyer. But also a very good knowledge of Mallorcan customs.
At first I worked with German lawyers because it was linguistically easier for me. I now work with two Mallorcan law firms because I do get the impression that the local conditions are even better known there.
But honestly, I’m “biased” there because my wife now looks after the German clients as a German lawyer in one of the firms. I can really warmly recommend both firms, but I don’t want to be suspected of using the guide here for covert advertising. Therefore I’m not recommending anyone here; instead I recommend to you: Google and ask friends who have already bought successfully. In any case: Google every partner before you decide.
“Arras” or “promesa de compraventa”
Most of the time the seller still wants to move out. Or you need time to get financing in place. Then an option contract (“contrato de arras”) or a promise to purchase (“promesa de compraventa”) is negotiated between the lawyers, and in terms of content is largely identical to the purchase agreement that is notarised later. The option contract does not have to be signed in front of a notary; the signatures of both parties are sufficient. That is the main formal difference when buying property in Mallorca compared to Germany.
Typically, a down payment of 10% is agreed. It should be such that the seller undertakes to sell to you. Or he repays the 10% AND a contractual penalty in the same amount. The other way around: if you don’t buy, the seller may keep the 10%. The 10% should be held in a notary escrow account. Or with a super reputable long-established law firm. But NEVER with the agent. NEVER with the seller. Better not with the seller’s lawyer.
Often you can also negotiate that if your financing falls through, you get the 10% back. But that can also spook the seller because he sees that his sale isn’t quite as certain as the agent previously told him.
Unlike in Germany, the notary has more of a purely executing role when buying property in Mallorca. At notarisation, he also reads the contract out loud again, but he does not deal with it nearly as extensively as German notaries do. His fee is much lower for that. The actual work here lies with the lawyers; the usual fee is 0.5–1% of the purchase price.
Tasks of the lawyer
So what exactly does the lawyer have to check?
A whole lot! The most important thing first is that the owner is in fact the owner. And that your desired property is also registered in the land registry. And specifically with the actual building structures and the correct areas. Minor deviations are normal, including between the different registers.
I already went into detail on illegal buildings when buying property in Mallorca in the first part. Here, just this much: if small things are illegal, you may be able to live with it. But if key parts of the house are not legal and also not legalisable, keep your hands off.
That is not correct. After 8 years, prosecution of the illegality becomes time-barred. But as soon as you have to submit a building application—and even if it’s only to plaster the façade—it will fail. Because your property is not legal. So the illegality remains. And it is being pursued more and more strictly. And it may make your property unsellable if you want to sell it again.
And: if your house burns down, you can “only” rebuild it legally. So not as it may have stood. But only as it is legal. Does that happen every day? No. But if it happens to you, it’s just bad luck.
Then there are even more complicated issues when buying property in Mallorca that are often only regionally important. For example, the zone around the Tramuntana mountains enjoys very strong protection. There is nature conservation and flood protection.
So, for example, you can’t (any longer) build next to a riverbed. Which is quite sensible, as the storms have shown us. But if it is the only legal place for the pool, then you might even get permission from the city administration. But the pool is still illegal. Only the lawyers who deal with transactions in such areas know that.
With condominiums it is very important to review the bylaws of the owners’ association (“Comunidad”) and the minutes. And to check whether there are payment arrears. The same basically applies to arrears on the property 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, they may also want to show you their importance. In the phase when the lawyers are talking, my recommendation to you is: stay on it. Talk to the agent. Talk to your lawyer. A lot of transactions fall apart before the option contract is signed, either because the fronts harden through the lawyers or simply because another buyer—often presented by another agent—comes around the corner and simply adds another chunk on top.
What I don’t mean to say: agree to everything. But if the ownership is clear—and your desired property is ideally legal—then there is really only one genuine point of contention: the warranties.
Warranties are often only of real value at all when buying property in Mallorca if they come from reputable developers. Because most of the time you are buying from owners’ associations of investors or a project SL and then you have service addresses for the lawsuit in northern Norway … And in court, the table of Spanish construction costs is used for comparison. As a rule, that is much less than it actually costs to remedy the defect, especially on a luxury property. And even more importantly: many things that may be poorly built or also stupidly planned are obviously crap. But not a defect.
As a rule, I buy properties that haven’t been renovated. The seller doesn’t want to guarantee anything. Sometimes we manage to get him to at least declare that he is not aware of any defects. Or that the structure is in order. But honestly, with the properties we buy, that’s secondary.
For you, who probably wants to buy a new build or a newly renovated property, the quality of the construction execution when buying property in Mallorca is of course a very decisive factor.
In my estimation, around 70% of properties have been built or remodelled relatively poorly.
You can often already see that from the “finish”, i.e. how the final elements were installed, e.g. tiles, built-in cupboards and similar externally visible parts of the structure. More expensive and harder to fix, however, are issues such as: quality of the windows, quality of the installation of heating and/or air conditioning. Here it can definitely make sense to require the seller to let you carry out tests with specialists on various appointments, for example to determine whether the control via the KNX bus system works at all. And whether the system is even dimensioned sufficiently for hot summer and cool winter days. There are specialised engineers for that, whose advice I would definitely seek, at least for a larger property. And: make the effort. Buying property in Mallorca in a safe way is a lot of work. It takes time. But it’s worth it!
You can often already see that from the “finish”, i.e. how the final elements were installed, e.g. tiles, built-in cupboards and similar externally visible parts of the structure. More expensive and harder to fix, however, are issues such as: quality of the windows, quality of the installation of heating and/or air conditioning. Here it can definitely make sense to require the seller to let you carry out tests with specialists on various appointments, for example to determine whether the control via the KNX bus system works at all. And whether the system is even dimensioned sufficiently for hot summer and cool winter days. There are specialised engineers for that, whose advice I would definitely seek, at least for a larger property. And: make the effort. Buying property in Mallorca in a safe way is a lot of work. It takes time. But it’s worth it!
Otherwise, the general advice from the first part applies: keep your eyes open when buying property in Mallorca and bring in experts!
What I mean is: better to check, check, check. Than to hope afterwards that any warranties can be successfully enforced. And if you have really checked thoroughly, better to see the transaction through successfully than to demand “wild” warranties from the sellers.
But that is very clearly a decision you have to make yourselves. It’s hard for anyone to advise objectively there. Don’t make too many compromises, but don’t be too stubborn either. As always in life 😉
Have fun with the rest of your search, and hopefully a successful one, for your dream property!
Arnd