In 2005 my family and I made our first trip to Costa Rica on what was labeled as a vacation/exploration expedition to see if we liked the country enough to buy a vacation home there. To say the least we were immediately sold, and returned in less that 6 months to purchase our home in Atenas.
We had a fantastic Realtor in Costa Rica who was extremely professional and knowledgeable about the area, and showed us exactly what we wanted. The process was smooth and painless, and we closed the deal in 60 days.
We were over the moon, until a few months later when the previous owner called me to say the bank was going to foreclose on our home. The catch was we did not have a mortgage, as we paid cash for the home. To make a long story short, our attorney had not paid off our mortgage, but instead used our funds for other things.
Panic set in and with several calls back and forth, I was on a plane within 24 hours to settle the issue. Our Realtor was very supportive and in shock, as this was her personal attorney who she had recommended to us! With the help of my sister-in-law who at the time worked in the law department of the University of Costa Rica, we soon had resolved the problem and the mortgage was paid in full.
How could this happen?
Was it avoidable?
I had had years of experience in real estate, so this could not be happening to me, right?
In this case, I had dotted all the i’s and crossed all the t’s. The issue was an inside job between the bank and the attorney who had provide false documents. I am happy to say that in the end all was settled in a very fast and efficient manner.
Our job as professionals is to do our best to make sure this stressful experience does not happen to you. As a buyer you must be pro-active and informed. The process of purchasing a home in Costa Rica is not so different from that of any other country. However there are some differences that you need to be aware of.
Many times, we meet clients who have never had a previous experience buying real estate. To make your transaction a happy and pain-free one you must be informed.
So this is the scenario; you have made the trip to Costa Rica and fallen in love, just as we did. You have found the country to be your own personal paradise. Now it is time to make the move and purchase a home. What do you do? We have set forth some important information here for you to make that process much easier.
- Choose a Reputable Costa Rica Realtor. The real estate agent can make or break a deal. Hiring an agent with experience and qualifications is everything. Ask questions and test their knowledge. If your agent just hung out a shingle over night you will know.
I have been in real estate over 16 years and still learn new things everyday, but I know my business. If there is a question that I don’t have the answer to, I will be the first to admit it, but will find the answer.
- Choose a Reputable Attorney. Make sure to choose your attorney carefully. Get references, and make sure you both speak the same language, and if not, that you have a good translator and understand everything he/she says.
In Costa Rica, title companies are NOT as common as in the U.S.A. Here a lawyer is used to do the title search, create the purchase agreement, often times serves as escrow agent, and the final closer. In addition, if you choose to make the purchase using a S.A. or LLC ( more details below), the attorney will create or sell you these instruments.
- Start Your Home Search. Once you have chosen an agent, start the search. Provide your agent with as much information as possible. Details can be very important to help a good agent select properties that qualify for showing. Be completely honest with your agent up front, especially with your budget. This will save everyone time, and more often than not, save you, the buyer money!
- Narrow the Search. Once you have taken that first trip out, if the properties your agent is showing you do not work for you, stop and explain why things are not working and be specific. Be realistic, if it is paint color that is holding you back, this should be a non-issue.
Moving walls, layout or location, these things are much harder to change and are valid complaints. We believe that houses do a have a “feel” so this is sometimes not explainable, but you will know. However don’t us this as an excuse for every home.
- Make Your Offer. Once you have found the property that will work for you, sit down with your agent and make a written offer. The offer can be very simple, including information such as: purchase price, escrow amount (typically 10% in Costa Rica), closing date, inclusions (such as furniture, vehicles, etc), property description, special addendum’s, closing cost (typically split 50/50 between the buyer and seller), signatures, and dates.
Verbal offers are sometimes necessary but a written offer is always the best route, showing they buyers intent to the seller. Negotiating may take time. Be patient. Never be afraid to make the first move. Your destiny is in your hands.
- The Purchase Agreement. Once both parties have agreed on the terms of the purchase, the next step is to have your lawyer draw up the official “purchase agreement”.
At the time of signing the contract, the lawyer will do a title search and make sure the property and company (if you are buying an existing company) is clean and free of encumbrances. They are a few allowable encumbrances such as easements.
- Escrow. After the contract is signed, escrow must be made, and the terms of the contract followed. If inspections, surveys, or repairs are needed, now is the time for that to happen. Your attorney and real estate professional can help you arrange these things.
- Taking Title. In Costa Rica, there are a few ways to take title. You may take title in your personal name, in a S.A. (company) or LLC (limited liability company). Your lawyer can explain these options in detail, but we always suggest making the purchase in an S.A. or LLC, as to limit your liability and often times reduces the cost of closing.
- Walk Through. On the day of closing it is important to do a final walk through of the property. Make sure everything is as it should be. Are all the items agreed on to stay with the house there? Have the agreed upon repairs been made? Is there any damage that did not exist before? Once you are satisfied with the walk through, it is time for the attorney to close the deal.
- Closing. At the time of closing your attorney will do another title search to make sure nothing has been recorded on the property during the contract period. Once everything has been verified, all documents and books are signed, then monies are transferred. In the case of buying an existing S.A. the only transfer will be that of shares of stock.
The property is owned by the S.A. or LLC thus no deed is transferred, only the ownership of the S.A. or LLC. From the day of closing it will take about 8 business days for the new owners to show up officially recorded as the new owners.
- Closing Costs. Closing costs can vary from transaction to transaction. Typically speaking attorneys fees are 1.25% of the purchase price. Transfer taxes and stamps are 2.5% of the recorded property value. If the property is already in a S.A. or LLC , then only the stocks are being transferred, there are no transfer taxes or government stamps involved, so the 2.5% does not apply.
To start a new S.A. or LLC, your attorney will generally charge between $350-$500 and will take about 3 weeks to be registered and ready to use. If you purchase a “shelf” S.A. or LLC, one that has been created to sell, off the shelf, then you can expect to pay between $450-$600, and it is ready to use immediately.
Are you feeling overwhelmed yet?
There is no need. Take your time, do your homework, and let the real estate professionals that you have chosen do their jobs and make the buying process as painless as possible. Buying a home is a big deal.
Buying a home in an exotic land is an even bigger deal. It is imperative that you are informed. With a little bit of due diligence, your only job will be to find the property of your dreams, sign the papers, send the money, and start living the “pura vida”!
Buying Your New Home in Costa Rica. 11 ‘muy importante’ tips for beginners.
Article/Property ID Number 3364
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