Hola, como le va?
a la orden!
Que le vaya bien!
After just a few weeks in the city, you’ll start to hear these phrases over and over. and over. This is Paisa speak, for “how’s it going, can I help you, and wishing you the best” – respectively. If these phrases sound foreign to you – it might be time to brush up on your Spanish – Check out this article for where to study Spanish in Medellín.
However, when it comes to real estate, there’s a world of terms that are far from the ordinary. They won’t be uttered during a typical taxi ride or friends sharing a tinto. But they are very important for anyone dealing in real estate to understand. Here are 15 spanish terms you should be familiar with if you are going to invest in real estate in Colombia.
#1: PROMESA DE COMPRAVENTA
Okay, this one is pretty basic. Meaning “bill of sale”, or, more literally, “sales promise”, this is the document that outlines the purchase agreement between the buyer and seller. This is an extremely important document and must be carefully studied before signing. Many of the terms that follow in this article will be contained within the promesa de compraventa and having one that is airtight is the best step you can take to protect yourself as you consider an investment in real estate in Colombia.
#2: LAS ARRAS
“Downpayment” in English – this is the term used to describe the financial commitment that takes place upon the initial signing of the Promesa de Compraventa. A typical real estate transaction locally will have two important steps:
- Sign the promesa and pay las arras, which are usually between 10-20% and can be negotiated. And,
- Pay the remaining balance for the property on the day that the deeds are transferred into your name (la escrituración)
It’s really important to note the difference between las arras and the cláusula penal, as they are frequently confused. The reason for this confusion is that they are often the same amount. But while las arras refers to the amount paid to the seller upon signing the promesa, the clausula penal is the amount stipulated for breach of the contract.
Let’s look at a simple example – the sale of an apartment for 500 millones COP. It would be common to pay 20% down, or 100 millones. If the clausula penal here is the same as las arras, which is typical but by no means mandatory, in the case of seller non-compliance (that is, non-delivery of the property on the agreed date), the seller would be obligated to return las arras of 100 millones COP and pay an extra 100 millones penalty for breach. However, freedom of contract dictates that both of these amounts are negotiable separately. Thus, in the above scenario, you could pay las arras (downpayment) of 20%, but have the clausula penal stipulated as 10%, 20%, or 30%, or any other amount you agree to with the seller.
Especially in these uncertain times, a lot can change between the date a promesa is signed and the date the property is due to be transferred, and understanding these important differences and having them properly negotiated and included is crucial to protecting yourself.
While what I have outlined here is typical in a real estate contract, foreign investors should always read their particular contracts very, very carefully to make sure that the language of them doesn’t deviate from the norm. That is, not all promesas are going to use terms as clear as las arras and cláusula penal; rather, the contract might use language that describes a particular term which refers to las arras without specifically mentioning it. If Spanish isn’t your strong point, this might be the time to hire a trusted bilingual real estate attorney.
Related Terms: cláusula penal, la escrituración
#3: PARA ESTRENAR
Whether it’s for a pair of sneakers, or a luxury apartment, estrenar simply means brand new – no one has ever used it before. When used in the context of clothing, it essentially means ‘to debut’, as you are going to show it off to the world for the first time. One Colombian tradition is to estrenar new clothes around December, which is why El Centro is always packed that month. The same concept applies to real estate – if a property is described as para estrenar it simply means no one has ever lived there before. It is worth noting that culturally, I think Colombians give more importance to this feature in an apartment than many foreigners might. Conversely, I have noticed, Colombians seem to care less about being on the top floor / having a penthouse than foreigners do. Which leads us to our next Spanish term…
#4 TAPAR LA VISTA
Tapar means to cover or block, so in this sense, it essentially means “block the view” and it is used in this context: to what extent can future construction ruin my view? If a view is important to you, you might confirm with your realtor “y no se puede tapar la vista, cierto?” which confirms that it is less likely that a giant high rise will pop up across the street.
A related term is registro, and when referring to real estate locally, registro refers to the people in other apartment buildings that can see into your balcony and into your apartment. If there is a huge apartment building adjacent to you and close, you might say, “tiene mucho registro” – basically – lots of people can see my balcony – it is not very private. If you want more privacy – ask for it like this:
Quiero balcón grande que no tenga registro.
And if you want to ensure that beautiful view will be unobstructed for many years to come:
Quiero una vista hermosa que no se pueda tapar.
These are important considerations. A friend of mine has a penthouse in Laureles that had a gorgeous 270 degree view of the city until the house next door was purchased and a 10 floor building popped up that decimated his view.
How can you be sure? Well, generally they don’t knock down buildings to construct new buildings – generally they will buy up houses. So if there is a 4-8 story building that doesn’t block your view – it’s pretty unlikely they’ll knock it down and build something bigger. The term used for this is una vista consolidada (the view is established).
Also, a major factor in this is the municipal code. Many parts of El Poblado are already congested and city planners have scaled back the amount of high-rise permits they offer. So it might be such that a place you want to buy will have a view but the seller’s agents promise you that none of the lots nearby will ever get permission to build high rises around them. Perhaps. In that case you’ll want to turn to term #5…
Related Terms: Registro, vista consolidada
#5 PLAN DE ORDENAMIENTO TERRITORIAL
#4 mentioned briefly the Municipal Code, which locally is referred to as the Plan De Ordenamiento Territorial. Often abbreviated as POT, these are the rules that are stipulated by the city council (Concejo de Medellín) and establish many things, including rules that must be followed when new construction projects are considered. How tall can a building be? How close to certain roads or streams may a constructor build? These answers, and much more, are contained in the POT, which is valid for 12 years. The current POT was approved in 2014.
How is this relevant to a prospective property purchase? Well, for example, among many, many other factors, the POT determines how tall certain buildings can be in different parts of the city, which can determine whether a new construction project just down the street is viable or not. See #4. It can also give clues about which parts of the city are destined to become parks, bike lanes, or metro lines, which can affect future property values.
Click here to see the most recent POT for Medellín. It is worth noting that Envigado, Sabaneta, and all other municipalities in La Valle de Aburrá have their own separate POT’s.
Related Terms: Concejo de Medellín, indice de construccion
#6 CONTRATO DE CORRETAJE
Corretaje can be loosely translated to ‘brokerage’ in English, so this is like a brokerage agreement – its the agreement used to protect a realtor from being cut out of a deal which they have brought together.
One thing expats might find strange about the local real estate market is that exclusivity contracts between realtors and sellers are exceedingly rare. Have you ever seen four or five different signs hanging from the same balcony? Its because four or five different agencies are all trying to sell the same place. A contrato de corretaje is used to protect the agency that ultimately finds the buyer – by ensuring that they are not subsequently cut out of the deal. Basically, the language will say something along the lines of:
“If XYZ Seller’s agency finds a buyer, and the buyer ultimately buys your place, you may not seek to exclude XYZ Agency from the negotiation”.
This type is signed between a realtor and a seller.
Conversely, a contrato de corretaje may also be signed between a buyer and a realtor – saying something like:
“XYZ Agency will search for properties for you, and if you decide to buy a property that XYZ agency presents to you, you may not exclude them from the negotiation and ultimate sale.”
Note the difference between these contracts and what is typical of exclusive real estate agency contracts in North America: In the case of the seller, the seller’s agent is only protected if they bring the buyer. In the case of a buyer signing one of these agreements, the agency is usually only covered if you decide to buy a place that they show you. So it is wrong to think of this as an exclusivity agreement. The local standard for these contracts is not to be exclusive, but to simply prevent the agency being cut out of specific deals that they themselves have cultivated. Is a local agency seeking to have you sign a contract of this type? Check the language of the contract to make sure it is not exclusive. If you find a place on your own, you might not want to be beholden to the agency.
While google translate will tell you that this word simply means “west”, when referring to real estate in Medellín it is talking about the apartments relation to the sun. An apartment advertised as sin poniente means the sun won’t beat down on the apartment during the hottest hours of the day. The opposite phrase, con poniente, isn’t ever advertised because it is generally not a desirable feature. If you’re worried about how the Antioquian sun might affect your future leisurely time on the balcony, ask your realtor for an apartment que no tenga poniente.
#8 PRESTA MÉRITO EJECUTIVO
This is a legal term that is critical to have in any Promesa de Compraventa you might sign. It protects the complying party of a real estate agreement in the case of non-compliance of the other party. Put simply, it could save you years of legal troubles should the opposing party not comply with the terms the promesa that you sign with them. Take a look at any promesa de compraventa you might have. There should be a term that says something like this:
Este documento presta merito ejecutivo….
If this is included, and the opposing party does not comply, you can take the contract before a judge and ask for him/her to order immediate compliance. This could mean the delivery of the property, or, at least, the payment of the cláusula penal as described in #2 above without undue delay. It allows for execution of the contract or immediate realization of the monetary penalties.
However, if this clause is not included, you must bring a lawsuit against the seller, and the process to go through all the legal channels to realize your rights could take years. The most nefarious types of sellers (or seller’s agents) will try to get you to sign a contract without this language, happily collect your down payment, default on the delivery of the contract and then try to outlast you through legal channels. Don’t let this happen to you.
#9 RETENCIÓN EN LA FUENTE
This is the tax paid by a seller upon sale of the property. It is one of the gastos notariales (notary expenses) that form part of the closing costs of a property transaction. The other notary expenses are outlined in the picture below. This tax is paid upon the entire sale price, not just on the appreciated value of the property. The tax paid on the appreciated value of the property is discussed in #11.
Pre-Dial is the term locally for property tax. It is typically paid in quarterly installments, although some municipalities offer a slight discount if you pay the entire year all at once. The amount that is owed in Pre-Dial depends on the value of the property, the estrata (from 1-6) in which it is located, and the municipality.
Those used to paying property taxes in North America or Europe will likely find the amounts here to be quite reasonable. For example, I have a place worth about COP 700 Millones and my quarterly Pre-Dial payment is just COP 800,000. However, there was a big uproar in rural Envigado when the pre-dial rose fairly significantly from 2018 to 2019
#11 GANANCIA OCASIONAL
Time and again, we have witnessed cases where the seller seeks to put a different amount on the deed than the actual amount paid. This was common practice in Colombia for a long time, and although it still exists today, the practice was made illegal through La Ley 1943 del 28 de diciembre de 2018.
The reason they will try to do this is they will seek to avoid the ganancia ocasional (capital gains) taxes they will have to pay. In addition to La Retención de La Fuente (from #9) being higher, they’ll have a higher ganancia ocasional to report to La Dian. Currently, this is taxed at 10%. But many sellers have owned the property for decades, so, for example, their tax basis for the property might only be COP 100 Millones and they are now selling it for COP 600 Millones or more. Thus, even at 10%, they are in for a large tax bill, and will seek to avoid it.
If you are a buyer, absent a massive discount on purchase price, there is absolutely no benefit to doing this, as you will face the tax liability in the future. But the practice is so widespread that many sellers will view it is a huge concession if you don’t agree to do it – and instead have the sale price and deed price as the same.
Need another reason not to do it? Your promesa and public deed will include an oath that literally says “I certify that the price agreed is real and has not been subject to an outside pact for a different amount than indicated here.” So if the seller is pressuring you to put a lower amount on the deed – you can simply respond that you’d rather not commit the crimes of falsifying a public document and lying under oath (bajo gravedad de juramento). While it may seem obvious to avoid this, the practice has been widespread in Colombia for decades and has only recently been made expressly illegal; old habits die hard and many local sellers will tell you that you can do this and ‘no pasa nada’.
Note 1: Those seeking to flip properties here in Colombia should know that there is a different tax classification upon selling based on how long you hold the property. The timeline is two years – that is, if you sell a property in less than two years, the proceeds that you make on the property will be classified as ordinary income (here, renta liquida) and the tax will depend on the bracket you are in. (Source: Articulo 300, Estatuto Tributario). Colombia’s tax system is surprisingly similar to the United States – they also have brackets from 0% to 35% and a progressive system. If you hold your property for more than two years, then the tax paid on appreciation is classified as a ganancia ocasional and the rate is 10%. All circumstances are different, and it depends on the rate you’ll be taxed individually, but it often makes sense to buy a property, rent it for 1.5 years, then renovate it and sell it for the big profit, after the two years have passed. (Or, in reverse, buy it, renovate it, rent it for 20-22 months, and then sell it)
Note 2: There is also an exemption on this tax if the proceeds are used to purchase another home that you will live in (also the same as the US tax code).
Note 3: Ganancia Ocasional is not just a real estate term – as other ingresos, like lottery winnings, inheritances, and alimony are also classified this way.
Related Terms: renta líquida, estatuto tributario, bajo gravedad de juramento
#12 PAZ Y SALVO
Technically “Peace and Safe” although maybe more naturally translated to “safe and sound” this means that the expenses related to the property are paid up to date. For a transfer of property to happen, you’ll need as many as three different Certificados de Paz y Salvo.
- Paz y Salvo – Valorización – nothing is owed to the municipality for road works or other projects pertaining to the property.
- Paz y Salvo – Catastral – property taxes (Pre-Dial, #10) are paid for the year
- Paz y Salvo – Administracion – seller is up to date paying the administration fees (HOA) of the building. Only needed for properties within a residential complex.
Related Term: Certificado de Tradición y Libertad (history of ownership of the property and liens against it)
Note: Property ownership very often runs through families, and it is not uncommon to see a situation where you might have to divide your purchase price multiple different ways to different brothers and sisters to properly acquire it. Click here to read a testimonial about this from a friend of mine. (The most I have seen personally is a nine-way division, although I’ve heard it can be even more spread out than that.) This will be spelled out through a careful inspection of the Certificado de Tradición y Libertad.
#13 PAGO CONTADO
This is the term used to describe an all cash offer. While saying something like “voy a pagar todo en efectivo” would surely convey the message as well, you’ll sound more like a pro or a local if you say pago contado instead. Adding these two words can make even a lowball offer all the more attractive – as many sellers are used to receiving all sorts of types of offers that aren’t all cash. It’s very common in Colombia to include lower value properties or even vehicles and furniture as part of an offer, so pago contado is often music to a seller’s ears.
#14 VICIOS OCULTOS
Also sometimes referred to as vicios redhibitorios, this Spanish term translates to “hidden defects” and, while I hope that no foreign investor has to deal with these types of problems, its always best to be prepared and know your rights in case these issues arise. The Civil Code in Colombia (Article 1915) defines vicios ocultos as defects which:
- existed at the time of the sale.
- have a significant effect on the value of the property. (ie: You wouldn’t have bought it or would have bought it for much less)
- were not disclosed by the seller (or builder), and were not visible to the buyer
If the seller knows of these defects and sells you the property anyway without disclosure, you’ll not only have a right to remedy for repairs, but may be entitled to compensatory damages (la indemnización de los perjuicios)
Defects in the finishings have a statutory warranty of 1 year while defects relating to the structural damage of a building have a 10 year guarantee. The warranty runs with ownership, so even if you’ve purchased a property that is five years old, the structural guarantee from the builder (la constructora) is still valid. There is a process for making claims for these types of damages. If buying new construction (See #3 above, para estrenar) the builder is supposed to deliver a manual del propietario to you that outlines the process for making claims, should the need arrive.
Are you facing a problem like this? Click here to read more about the law and what you can do or contact us for a real estate lawyer that specializes in these types of claims.
Related Terms: la indemnización de perjuicios, manual de propietario
#15 Negociar La Tasa
Meaning ‘to negotiate the rate’ – the Spanish here is basic – but the underlying concept is really important. You should insist on doing this when transferring money into the country.
Whether it is Bancolombia or Alianza or another entity that helps you bring the money into the country legally – at the end of the day they are still for-profit companies trying to make money off you. Which is why it is a little disturbing, although hardly surprising, that there are often two different exchange rates you’ll get on money transferred: the stated rate and the rate you get if you negociar la tasa – which, in practice is simply making a phone call and demanding to get the best possible rate. This is a real example from a client of mine just a few weeks ago looking to transfer $250,000 USD:
- Bancolombia listed rate: 1 USD – 3,713.54
- “Negotiated” rate: 1 USD – 3,735
While it may not seem like much upon first glance, the difference works out to just under $1500 USD – and all for a simple phone call. Granted, due to exceptionally poor customer service, that phone call with Bancolombia may cost you a couple hours of waiting on hold, but at the end of the day I still think you’ll find it worthwhile.
Are you thinking of visiting or living in Colombia? Do you have any specific questions about investing in Medellín or surrounding area? Helping foreigners to invest safely and effectively in Colombia has been my passion for almost six years now, and I would love to offer guidance any way I can.