Offer to Purchase Property in Costa Rica

Purchasing a property in Costa Rica is about as easy as it can get.  Under CR law a foreigner has the same rights as a citizen, and can own property outright, fully titled, fee simple, just like in the USA or Canada.  The majority of the property in Costa Rica is titled.  The only exception to this is some of the beach front property which is called concession and is similar to a lease.  I discuss this in another blog.  You can own a property using the same vehicles as in North America.

You can put it in your personal name, into a CR Corporation, you can use a trust or a foundation, a self directed IRA or a non profit organization and you can will it to your children or your heirs.  All of this can be easily set up by a reputable Costa Rican law firm.  Unlike North America, our offers are very simple and straight forward.  Most of the time, they are 3 or 4 pages long.  None of these are 20 page documents like when you buy a house in the USA.  They are more like term sheets than long formal offers.

The first page generally details the owner’s info, the seller’s info, the property info and the purchase price.  Page 2 is your due diligent page, contingencies, closing date, fees, and arbitration clauses and items included or excluded in the sale.  The last page is the signature page.  A faxed or scanned offer is a legal document in Costa Rica, so you don’t have to be here to sign the original.  We can send you the offer by email after you get home and you can sign it and send it back once all your questions are satisfied.  We are not here to pressure you to buy.

This is a big decision and we want to give you all the time necessary to make sure this is exactly what you want to do.  Go home, talk it over, check your finances and THEN write the offer.  Don’t let anyone tell you that you have to buy this NOW.  I have always been a firm believer that if it is meant to happen, it will. 

Relax.

Upon acceptance of an offer, a secure escrow account is set up with a company that is registered with the banking authority of Costa Rica, known as SUGEF. They will act as a third party to insure that everyone is protected during the closing. Do not allow a law firm or a real estate company to accept or handle your money. ALWAYS ask for a separate, secured, registered escrow.

–>What is required to open an Escrow Account?

A deposit of 5 to 10% is placed in the escrow account as Good Faith.  This deposit is normally completely refundable during the due diligence process.  The Due Diligence period usually lasts anywhere from 14 to 21 days giving the attorney time to confirm that everything is OK with the property.  They will do a full title search in the National Registry, confirming that the property is free and clear of all mortgages, annotations, liens and encumbrances.  They will also make sure that all Municipal, National and Corporate taxes are paid up to the date of the closing and that any Homeowners fees and all utilities and service contracts are also current at time of closing.  They will also send you the Estimated Acquisition Costs so you know exactly what the closing costs will be.

During the DD period, we can also order a home inspection if you so choose and any land surveys or engineering work, as well as getting quotes for construction, renovations, repairs, landscaping or furniture / interior decorating.  There are many qualified professionals here in the area that can assist us with these matters.  Anytime during the DD period, the buyer has the option to cancel the contract and get their deposit back with No penalty.  At the end of the Due Diligence period, assuming there are no issues with the property, the deposit becomes Non refundable and stays in escrow until time of closing, to be applied towards the purchase price. 

Most closings in Costa Rica are anywhere from 30 to 60 days after the date of the offer.  A few days prior to the closing, the balance of the purchase price and all the closing costs (minus the deposit) will be wired to the escrow account.  The third party escrow will make sure that everyone is paid at closing, after all the proper documents are signed and delivered to the National Registry.  This ensures and secures everyone involved in the transaction: The seller, the buyer, the agent and the attorney.  Generally $1,000 is held back from the seller for a period of 30 days to ensure that any and all utility bills that are the responsibility of the seller are paid so that the new buyer does not inherit last months electric bill or cable TV bill.

Upon the successful closing, the attorney will send you copies of all the closing documents, translated into English, as all legal documents in Costa Rica are in Spanish obviously.  The actual deeds themselves have a lot more technical language in them than the purchase offer as they are the final document that will be presented to the National Registry to confirm ownership.  The buyer and seller do NOT need to be present at the closing.  The law firms can be given the ability, using a Special Power of Attorney granted by the buyer or seller, to represent you at closing and close on your behalf.  There is a small fee to draw up the Special Power of Attorney but it is usually substantially less than an airline ticket.

Recently a new law has been introduced to help reduce the potential for money laundering in Costa Rica. Every buyer must sign an affidavit that states the money came from legitimate sources. It must be signed in person in front of a Costa Rican notary. It is preferred that this is signed at the time of the closing. If you write the offer while you are here in Costa Rica, we can have this affidavit signed before you leave. It not, you need to plan to either come back for closing, or visit a Costa Rican consulate in your home country prior to the closing.

Many times though, the buyers choose to be here for closing, so that they can go out with me afterwards and CELEBRATE.  You are now the proud owner of a little piece of paradise.

Welcome to Pura Vida.  Congratulations!!!!!!

Are there Costa Rica Property Appraisals ?

Technically, there are appraisers in Costa Rica, but the reality is that they have no idea what they are doing, especially at the beach. Because there are very few mortgages given on Costa Rica property, and almost NONE to foreigners, there has never really been a need for an appraiser. The few that exist are mostly for farm land, where they comp everything on a square meter price, based on the last farm that sold. A Square meter price doesn’t apply when you are dealing with the type of land we are, as the lots vary drastically from development to development. For instance, a ¼ acre lot down a dirt road, and not in a gated community, is worth substantially less than one that is located on a golf course. And a lot with a gorgeous volcano view, although the same size, has a higher value than one that doesn’t. Put that lot on top of a mountain, looking at the ocean, inside a beautiful community and it has a tremendous more upside. Also many lots are located on a hill, where 75% of the total land size might be down the side of a cliff. So what is important is the size of the building pad, and the quality of the view, not necessarily the overall size of the lot. I have seen ¼ acre lots sell for 5 times what an acre lot sold for because the smaller lot had the “million dollar view.”

When it comes to houses it can be even more difficult to properly appraise it, as homes are built with many different finishes, nice bathrooms, fixtures, kitchens, furniture, pools and construction quality compared to others. And a newer home usually has more value than an older home as there might be maintenance issues that need to be addressed. On top of it, there is no formal MLS as I have mentioned in other blogs. So you cannot just click in an address and see what the house sold for down the street. And even if you knew, the homes are all completely different, each one unique and special. It is not like the USA where you have track home builders who cookie cut the same home over and over. Also, in certain areas of Costa Rica, property has a much higher value because the infrastructure is better, there are more amenities in the town, you are closer to the airport and hospitals, and there is more demand from buyers, as the market is hotter in those places. A 3000 square foot house in Laguna Beach California is worth 10 times what that same size house is worth in Bakersfield or Riverside and maybe 30 times what it is in Idaho or Kansas.

So how do you know you are getting a good deal when you are shopping for your little piece of paradise? Good question. This is why it is imperative that you work with a professional full time real estate agent. Make sure the agent is a legal resident of Costa Rica and a licensed agent with CRGAR (Costa Rica Guanacaste Association of Realtors.)  Ask for referrals and references, as we know the market better than anyone. Personally, I can tell you about almost every single Costa Rica property in the area. Who built it, when it was built, how long it was on the market, who owned it, what it has sold for and if there were ever any issues that might be hidden now.

Since there are no appraisers, we as agents get asked to do this when it is needed; for Self Directed IRAs, income tax filings, family trusts etc and unfortunately when there are deaths and divorces. So how am I able to comp a property then, you ask? Here is how.

If it is a condo, where there are others exactly or very similar it is easy. We know the market; we know what has sold and what is on the market now, so we can compare it too similar units with similar finishings and furniture.

Same thing with a piece of dirt or a lot. We can see what another lot, with the same view and location has sold for, and informs you if the property you are looking at is priced correctly.

Houses are a little more complicated and this is where we really come in to play. I tell my clients all the time, that the way to know if you are getting a good deal on a house is to figure out the replacement value. We determine what the price of the lot would be. We have a very good feel for what new construction costs, as we are involved in many construction projects in the area. So if you can buy a house that is finished, for less than a new one then you are getting a good deal. We have to factor in what repairs need to be made, and if new furniture or appliances need to be purchased. And we can find out if there are any maintenance issues with a good inspection by a reputable contractor.

If it is a brand new spec house, then most buyers are willing to pay the same price or even a little more, as it saves them the 12-18 months it takes to design and construct a home to completion. If a brand new house is complete and being sold for 350k most people will buy it, over building it to save $15-20k. You can start enjoying your second home right away, and many times make that in rental income in the time the house would have taken to be built. Remember though, the most important point is that you get the house that YOU WANT. This is your dream home, your Pura Vida, your little piece of paradise. You have worked your entire life to finally get to this point. Don’t lose it over a couple of dollars. Don’t buy one Costa Rica property over the other just because it might be a little better deal. In the end, negotiate the best price you can for the home you want, and then buy it and start living your life. It is too short already.

Trust me, after a year of sitting in your pool, relaxing and drinking a cocktail, you won’t care any more about those couple extra bucks.

COME ON DOWN BABY!