Before You Buy...

Buying Real Estate in Portugal, Key Differences

If you have been following our journey you know one of the things I miss about the U.S. is owning our own home. And yes, we have spent a fair amount of time looking at towns, neighborhoods, properties and trying to understand the process. There are a few key differences…

One of many realtors in Cascais.

Before I Begin

Permit me to state the obvious.

• I am not an attorney (in Portugal or anywhere else…thank goodness);

• I am not a notary (in Portugal a public official involved in the process);

• I am not a real estate agent (in Portugal or anywhere else…though I always thought I would enjoy selling real estate in the U.S.); and

• To date, we have not purchased real estate in Portugal.

So if you are looking for every possible detail related to the process and pitfalls, I am not your girl. I will, however, share some anecdotes from others that have gone through the process and some key differences we have observed.

Who Owns the Property

Portugal law stipulates the distribution of property upon death. For the vast majority of Portuguese, there is no need to pay a lawyer to create a trust or even write a will. In the case of real estate, if you die, your spouse and children get it. That’s right if your spouse dies and you have one child, you get 75% of the property (i.e. your original 50% share plus half of your deceased spouse’s share) and your child now owns 25%.¹ When the surviving spouse dies, the child(ren inherits the rest). If you have two kids it is equally split two ways. If you have eight kids, eight ways. Simple and clean.

While ownership of the property may seem simple, it can lead to some difficult challenges. A friend recently agreed to purchase a property inherited by a brother and sister. A price was agreed to, and her attorney started to draw up the agreement. (Unlike in the States, there isn’t a lot of fine print on the document your realtor has you sign when you make an offer. In the States, this form outlines the laws of the prevailing state and has a bunch of fill-in-the-blanks (eg. the buyer has 10 days to do an inspection, 30 days to secure financing, 45 days to close, etc.) Instead, in Portugal, a verbal agreement is often made and the lawyers go about drafting a “Promissory Agreement”.

There may be what is called a “Reservation Agreement”. A small deposit (€1000-5000) is made to hold the property while contracts are being hashed out. To the best of my knowledge, my friend did not have a Reservation Agreement. Many people don’t. Anyway, over a few weeks, the Promissory Agreement was hashed out, and she arrived with a check in hand, to sign the Agreement. The sister showed up. The brother did not. Nor did he answer his phone. (Weasel!) My friend learned that another offer came in after her offer was verbally accepted. The sister felt her word was her bond. The brother did not and preferred the second offer. He was able to scuttle the deal by refusing to come to the table.

What made this especially difficult, for my friend, was the fact that this was the second time she thought she had purchased a home but couldn’t execute the Agreement. In that case, she was attempting to buy a home that was part of a messy divorce. Of course, messy divorces happen in every country.

Promissory Note

In reading the above, you may be thinking, “Why does it take weeks to write a binding Promissory Agreement”? Part of the answer is that there isn’t “Title Insurance” in Portugal. When you hire an attorney to represent you in a real estate transaction he has several important jobs:

1. Ensure you can legally buy the property, that you can inhabit it, that the buildings have been permitted, etc.;

2. Ensure that the Sellers own the property and can sell it to you;

3. Make certain that there is no debt on the property. If there is a lien on the property that is not satisfied, you assume that debt with the property; and

4. Document other points of negotiation such as inspections, closing dates, etc.

Completing this can take time. Keep in mind, that there are many old buildings in Portugal. In fact, in looking at one property when I asked when it was built I was told, “Well someone started paying taxes on it in 1935…but likely it was built before that. Tax collection wasn’t really good back then.” When I asked about permitting, I was told “It is not provided with any habitation license, having been built before the year 1951”. Interesting….

Odd, but True

It would seem if you can complete the Promissory Agreement you are through the roughest part of the deal. You see in Portugal, the deposit you put down on the property when the Promissory Agreement is executed (often 10-20%) is forfeited by the Buyer if he fails to honor the Agreement. However, if the Seller fails to honor the Agreement, he must repay twice the deposit to the Buyer.

While that may offer some comfort, there is one more thing to keep in mind. Unless other arrangements are made, traditionally funds exchanged with the Promissory Agreement are not “Held in Escrow” by a third party. The funds go directly to the Seller. While the law is clear, no one wants to be suing someone in a foreign country to recover a deposit should the Seller renege. The good news is there are ways in which a lawyer can hold the funds for you until settlement…you just need to know to ask.

Be Brave

None of the above is meant to dissuade anyone from buying real estate in Portugal. We certainly are hoping to purchase a property very soon, and many of our friends have already taken the plunge. We know many couples who bought their homes while still in the States via FaceTime videos. While we did the same thing when we bought our home in California…somehow it seems scarier when it is in a different country. But so far, their houses are great and there haven’t been any negative surprises. You can buy a home in Portugal, it just takes a bit of research and patience.

1. I realize this seems very strange to Americans. Why would a child own part of the property while a parent is still alive? But if one does not have a will, that is the way property is distributed.