How To Close On A Foreign Property Purchase
A couple of friends have taken possession of new-construction apartments recently, both in Panama.
Actually, they haven’t taken possession quite yet. The developer in each case has informed them that the apartment in each case is ready to be turned over, meaning it’s time for the buyer to close.
But both these friends have been around enough to know not to take a developer at his word.
One came to Panama City a few weeks ago to do a walk-through of his apartment in Trump Tower and to make a punch list in advance of taking possession of the unit. The developer told him that they were “so busy with closings” they couldn’t allow him to go see his apartment unless he was ready to close. The elevators, they explained, were “reserved” for closings only.
He told them he’d see them later. “I’ll be back when I can do a proper inspection…and then we’ll talk about scheduling the closing,” he explained as he booked his return flight to the States.
Common sense, right? You want to see what you’re getting before you pay for it. But you’d be surprised how many people buying property overseas don’t bother with a walkthrough or a punch list before closing. If you’re making a purchase long-distance, a walkthrough before closing means another trip to the country. Maybe you don’t really have time. Maybe you don’t feel like it. But, take my word for it. Not making time for a final in-person inspection could turn out to be a big and costly mistake.
Pre-construction purchase contracts in Panama, for example, generally call for a final payment when the developer obtains his occupancy permit. The trouble is that a developer can get an occupancy permit before the units in his building are actually habitable. One new 25-story building I looked at when we were shopping for office space to rent had its occupancy permit, but the elevators weren’t completely installed.
When my apartment in Bayfront tower was built, the developer contacted me when he got his occupancy permit and told me it was time to close. I scheduled a visit for a walkthrough…and found that the bathroom floors weren’t in place and that other tile work was unfinished. My punch list was long. It took them a few months to complete all the items on it. I didn’t close until they did.
The key is the contract. Most contracts for a pre-construction purchase include a penalty clause if the buyer doesn’t close on time. “On time” is usually some number of days after you’ve received notice from the developer that he has his occupancy permit. This is the important point. If your contract is written so that the occupancy permit is the trigger for the final payment, you’ve potentially got a problem. Rather, you want the contract written so that you can hold back some amount until the property is actually completed–that is, ready to move into.
Earlier this year, another friend found himself in a situation where the developer had obtained his occupancy permit and was pushing for the closing even though, my friend discovered, neither the apartment nor the building was ready to be lived in. My friend is a developer himself so he knew not to allow himself to be bullied by the strong-arming tactics of the builder. He turned the tables on the guy, telling the developer he was going to hold back from the closing some percentage for every month of further delay until his apartment and the building were both in fact ready to be occupied.
You can’t always count on being able to pull off something like this, though, so it’s important to protect yourself up front by making payments contingent on verifiable thresholds. And the only way to verify the thresholds have been met is to go to see the place yourself…or to send someone you trust to inspect for you.
Because you aren’t going to get the developer to do much for you once you’ve paid…and once his crews have left the site.