Selling residential real estate: requirements, costs, taxes and useful tips

In recent years, the alternative of selling naked home ownership has become increasingly popular. This method allows owners over the age of 65 to gain liquidity by selling their home while still living in it for the rest of their lives. So how can you sell your home without giving up your lifetime use of it? The key is to understand that full ownership of real estate is divided into two parts: the right of use and naked ownership. The former is the right to use the property, and the latter is the property itself. Thus, it is possible to sell ownership of a home but not the right of use and enjoy it for a lifetime.

There are many companies in Spain,''specializing in this type of transaction

And since the beginning of the year, there's even a real estate franchise created by consultant Eduardo Molet. Molet himself recalls that "we've been saving for years to buy a home. The combined savings of people over 65 years old in Spain in real estate is six times more than the savings in private pension funds, and at a certain age it is time to annuate these savings". He insists that "our seniors say that they want to continue living and enjoying life in their home with their belongings, comforts and memories until they die, even if they are very old and need home care or are dependent". Therefore, "we need to normalize the idea of using accumulated''saving for retirement through real estate, as opposed to the inheritance culture that has bound us to the idea that a house is only for inheritance by our relatives'.

According to Pablo Vidal, senior associate tax lawyer at Lexpal Abogados

"The gradual aging of the population and the peculiarities of the real estate market related to the current economic situation have increased the gap between income and real estate values. For this reason, more and more elderly owners are beginning to sell their properties, retaining their lifetime use rights to enjoy an increase in the value of their properties in life." In light of the growing number of seniors who are considering selling the exposed property of their homes''to generate additional income, and the interest of investors and individuals in buying residential real estate, we will look at the main aspects of such a transaction, from the need to have it notarized to prevent future problems, to the taxes each party must pay, and the allocation of the costs of maintaining this housing.

General considerations

The first thing to remember is that the seller of the naked property must be at least 65 years of age, although the age accepted for this type of transaction usually ranges from 75 years of age and up. In addition, usually such transactions are limited to properties located in large cities such as Madrid, Barcelona, Palma de Mallorca, Bilbao, Valencia, Seville, Alicante or Las Palmas, a''the product is still unfamiliar.

Another factor to consider is that the sale of a nude property is not at market prices, but at a discount. The range of possible discount is quite wide (the price reduction can be around 20% to 60%), depending on the location and characteristics of the property, as well as the seller's age and potential life expectancy. In general, the older the owner, the less discount is applied to the price and vice versa.

The mere existence of a discount is, however, an advantage to the buyer, whether an investor or an individual, because he or she can purchase the property at a lower price, although he or she will not be able to enjoy it temporarily (until the death of the seller, who remains the beneficiary of the lifetime entitlement''use). As emphasized by real estate consultant Eduardo Molet, it is "a profitable option for the investor because he acquires the property at a very low price, and in the medium or long term has full ownership of the housing for which he paid very few years ago," and it is also "an investment in social terms, because it helps seniors to solve economic problems". In the case of investors, there is interest from a wide range of profiles, from real estate investment societes and investment departments of companies, to investment funds or family groups of owners, to professionals, executives and entrepreneurs who have savings that they do not need in the near or''medium term, and who wish to profit from long-term real estate investment. And, according to Moleta, it is also an interesting alternative for those who "want to buy an apartment of certain characteristics that at the current market price he could not buy, but will be able to buy it in the future," she means.

Finally, experts remind that the transaction must be formalized in front of a notary.

And registered at the property registry to prevent future problems and obtain all legal guarantees. "Public execution before a notary and registration in the property register are part of the right of use, and without the registration of this right of use, it does not exist '\''for everyone'\''\''," Lexpal reminds us'Abogados. It is also necessary to consult specialists in the field to carry out such transactions in order to avoid the main risk that both parties may face: the formation of the terms of the transaction, which will be reflected in the sale and purchase agreement and the constitutive document on the right of use.

Payment alternatives

Another factor to consider is that there are several ways to accomplish this transaction, depending on the form of payment agreed to by the parties. Here are the alternatives:

• Single payment.

Taxes to be paid by the seller of nude property

As a rule of thumb, explains Savier López Villaecia, Tax Director at Sanauja Miranda, "the sale of a naked real estate property represents a change in the asset structure subject to personal income tax (IRPF). If there is income, that income will be taxable under that tax, unless any exemption may apply,''for example, on the sale of the bare property of the principal dwelling of a taxpayer over 65 years of age.' In other words, if it is a primary residence, the seller is exempt from taxation on 100% of the potential gain that such a transfer creates, and this exemption applies to severely disabled taxpayers. However, if it is a secondary residence or if the senior citizen does not meet the requirements set by the taxing authorities, he or she will have to pay tax on the gain realized on the transfer of the property.

There are also taxes that are imposed on the income earned by the seller of a nude property. In this regard, Mar Villa, director of customer service at Grupo Retiro, recalls that "persons over''70 year olds, as lifetime payments, will have 92% of the income they receive exempted, whereas in the case of temporary payments, the exemption depends on how long they receive the payment and ranges from 75% to 88%'.

Taxes to be paid by the purchaser of a nude property

In addition to being able to agree with the seller on the payment of council tax on the increase in value, the buyer is bound to pay Immovable Property Transfer Tax (ITP) at two different points in time. As Lexpal Abogados explains, "one at the time of acquisition of the naked property and the other at the date of termination of the right of use (usually after death). "

The distribution of housing costs

Although the transaction is always subject to negotiation and agreement''parties, as a rule, the costs of utilities, current repairs, land and property taxes, as well as part of the property insurance (risks and civil liability) is covered by the person living in the house.

According to Eduardo Moleta, "the buyer does not worry about breakdowns or wear and tear of the housing, taps, plumbing, appliances, heating, electricity..., as maintenance and repairs are provided by the resident." When it comes to the purchaser of a nude property, according to senior associate attorney Lexpal Abogados, "he or she should assume the cost of utilities (including possible surcharges), major repairs and the share of insurance on the property (construction)." Although this is the most common scenario, Vidal argues,''rights. In any case, the user should understand that his main responsibility is to keep the item of high attention in good condition, cover the maintenance costs and return it to the original state in which he received it. "

On the other hand, the Director of Client Services at Grupo Retiro reminds the seller, before deciding on this formula, to analyze the different alternatives that exist in the market that allow to obtain liquidity through the property, such as reverse mortgages, property life annuities or sale with guaranteed rent, and emphasizes that depending on the age and needs of the seller, location and features of the property can be''consolidation of full title, "taking into account the difference that may exist if the buyer is a natural or legal person depending on the type of sale of the naked property'.

On the other hand, the Lexpal Abogados emphasize that the buyer has the right to "demand that the real property be transferred to him if there is a substantial infringement of the rights of the seller of the naked property to the detriment of the acquirer" because "the duty of the right holder is to preserve the property". In any case, they emphasize that during the negotiation of the sale price of the nude property, a recent appraisal by an official appraiser is recommended.

They also recommend that the buyer, in addition to financially analyzing the transaction, perform all''checks specific to the sale of real estate (title, encumbrances, debts, etc.), especially regarding the ongoing costs associated with the property.

In any case, real estate consultant Eduardo Molet asks not to treat such transactions indifferently or harshly. "It is an action by which a person improves his quality of life and receives money that he can dispose of as he sees fit (travel, care, help his family) and to another and another, guarantees him a home and improves his purchasing power. Naturally, the laws of the market come into play to determine the price, and age is taken into account," he concludes.