Difference between a bank guarantee or via Autopromoción - Part 2

Different payment processes when purchasing a property in Spain.

In Spain, developers (also referred to as promoters) use several payment structures. Your property purchase in Spain should not become a nightmare. That is why we believe it is important to inform you thoroughly, allowing you to weigh all advantages and disadvantages before making your decision.

1. Bank guarantees.

In this case, the developer owns the land. The developer remains the owner of both the land and the property until the title deed is signed. At that moment, ownership of the land and property is transferred to you. Every interim payment you make is covered by a bank guarantee. This is an insurance policy that the developer must take out in case of bankruptcy. All payments made up to that point are protected.

Example purchase €300,000 + 10% VAT

Reservation: €6,000 (this deposit is the only amount not covered by a bank guarantee)

1 month (purchase contract): 20% + 10% VAT (= €66,000) – with bank guarantee

4 months: 20% + 10% VAT (= €66,000) – with bank guarantee

Title deed: 60% + 10% VAT - €6,000 (= €198,000)

For a completed property, the developer can no longer legally obtain a bank guarantee. Naturally, this is no longer necessary.

Advantage: This is a very safe way to purchase a property. Your money is protected at all times.

Disadvantage: If the developer goes bankrupt during the process, you will not lose your money, but you will not yet be the owner either. A new contractor may be found to complete the project at the same price, although this could cause delays. Alternatively, you may choose to start looking for another property that suits you.

2. Escrow account.

In this model, the developer chooses to finance the entire project in advance and does not use your interim payments. However, as proof of your ongoing commitment, after signing the purchase contract you must make several staged payments into a blocked escrow account managed by the notary. The developer receives all funds upon signing the title deed. Here too, the reservation deposit is the only amount paid directly to the developer. The developer remains the owner of the land and property until the title deed is signed.

This process is very similar to the bank guarantee system and therefore has the same advantages and disadvantages.

3. Autopromoción (self-promotion/self-development).

In this ase, we visit the notary twice because you immediately become the owner of the land and the utility connections are registered directly in your name.

The developer then builds on YOUR LAND, making you officially your own promoter. All subsequent staged payments correspond to the progress of the construction works (for example foundations, concrete structures and shell construction, electrical/plumbing installations and windows, final finishing). Each payment is supported by an architect’s certificate confirming that the phase has been completed according to the required standards. You are therefore the owner of all structures built up to that point. Once the property is completed, the title deed is signed and you become the owner of the entire home.

Example purchase €500,000 + 10% VAT

Reservation: €6,000

Land purchase: 30% + 10% VAT (= €165,000) – title deed before notary

Foundations: 10% + 10% VAT (€55,000) – architect certificate

Concrete structure & shell: 10% + 10% VAT (€55,000) – architect certificate

Electrical works, plumbing & windows: 20% + 10% VAT (€110,000) – architect certificate

Final finishing: 10% + 10% VAT (€55,000) – architect certificate

Title deed: 20% + 10% VAT - €6,000 (€104,000)

Advantage: You already own everything you have paid for and you are guaranteed the location of your dreams, an important part of finding the perfect match.

Disadvantage: Price risk – if the developer goes bankrupt during the process, we will need to find a new contractor willing to complete your home. Such contractors are often in a strong negotiating position, which may result in additional costs. It is then your choice whether to proceed immediately or later, while still retaining your dream location.

Of course, Tanto Más, together with its law firm, carefully checks the background of all developers. We verify that they are sufficiently solvent and have taken out the necessary insurance policies (bankruptcy coverage, 10-year liability