Guys In The Zone: Costa Rica Real Estate

I think that in every real estate transaction that I have been involved in here in Costa Rica, the buyer has opted to use a Costa Rica corporation to purchase the property. I have explained the pros and cons various ways when asked, but I don’t think that I have ever put it as well as an e-mail that I was just copied on from one of the San Buenas Golf Resort partners. I include it here for the benefit of readers of this blog.

The bottom line is you should always conduct business in CR via a corporation. There are definite tax and liability implications. Canadian residents are lucky…any income earned outside of Canada is not taxed by Canada. The US is different, all income, regardless of where it is earned, is taxed. CR and the US do not have a tax treaty, so you will pay the CR government 30% and the US government 35% if the shares are in your name.
(Read the rest of this entry.)

A great example of how to go about buying a piece of land in Costa Rica

I thought that it might be interesting to catalogue the recent visit, well actually the current visit, of The Smiths. Their visit is very representative of what are perhaps the bulk of my presentations. From their upper budget limit of $200,000 for raw land, to their purpose for the purchase: they hope to relocate to Costa Rica in the coming years, a consideration of their experience will likely be a help to other who are looking to buy land in Costa Rica.

Using the Internet, Mr. Smith did the research on the Dominical and Uvita area real estate agencies and their listings. Mrs. Smith studied the geography of the area and what the various zones are called. They wrote to me asking for 3 references, which in fact isn’t so representative of what most prospective buyers do, but I think is a very smart idea.

To digress for a minute, all us real estate folks down here in Costa Rica are not licensed. There is no policed nor enforced procedure for buying land in Costa Rica. Consequently, (Read the rest of this entry.)

Down and Dirty:

• Pick your real estate agency
• Pick and Consult with your agent
• View properties
• Make an offer either in writing or verbally through your agent to the seller
• Negotiate the price and terms
• Get signed Offer To Purchase document to lawyer that outlines the details of the deal so that he/she can draft the Purchase and Sale agreement
• Deposit 10% with the accepted offer. The deposit is “non-refundable” with the exceptions of the contingencies mentioned in the offer. The deposit is held in escrow until closing.
• Due Diligence period
• Close

If you want to know specifically about any of the above details without reading through this entire 3 part article, please click on the bulleted point above to go directly to that information.
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Go and View Properties:

Once we have identified the purpose that the person(s) have in looking to buy land in Costa Rica, the agent will consider this as he directs them to the available properties that suit their interest.

I have always found it interesting to watch the process of land selection. I think that we all come down to Costa Rica with some pre-conceived notions of what we want, and for most of us, these change after we’ve stood on a few properties. Our marketplace is, for the most part, coastal mountain terrain. It’s hard to arrive here knowing what these properties are like; they are quite unique, even on a global scale.

Throughout the consultation and property viewing, the buyer is asking questions, getting informed, and making decisions. They are considering the various value affecting features of the property such as: the view, the access, proximity to neighbors, proximity to the beach, golf course, waterfall, how much breeze there is, the jungle, and so on.

Most buyers of land in Costa Rica are not all that familiar with the peculiarities of the land. However, most have had experience in land transactions somewhere, and that familiarity of basic good business is helpful. Basic good business practices are the same everywhere. The broker should be an open book with respect to the properties, “full disclosure” being the key words here. You should get the sense that your broker wants you to know everything that he knows about the property, good, bad, and indifferent. If you don’t get that sense from your broker, get rid of him/her and find another one.

When their property is found, it is time to move on to –
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I get lists of question from time to time due from people who want to move to Costa Rica. I normally refer them over to my forum on Dominical.biz. But this time I didn’t. Instead, I wrote Vickey back and answered her questions, but I have taken the liberty to post the interchange here to my blog. I think that some of the readers of this blog will find it helpful.

Hello Vickey,

I have interspersed some answers below.

Hi Ben,

I would like to get some advice from you.

When we visit CR how much time should we take to visit the Uvita area to see where we would like to live?

My initial visit to Costa Rica was for 3 weeks. From that I chose this area. I then lived in the area for 11 months prior to purchasing. Since it seems that you have already selected the Uvita area, you are miles ahead. When you get here, we can get together and do some serious consulting. This usually involves breakfast and/or lunch, a few cups of coffee and some serious talk talk, so that I can get a good understanding of what it is you are looking for. I will then do my best to familiarize you with the zone and where I think its all going. Then we’ll go out and put our feet on some of the properties. This frequently has the effect of helping to define the strategy.

Are there other areas between San Jose and Uvita that we should visit to get a good feel for CR?

That is a tough question to answer since the Dominical / Uvita area is so unique to the country. The other areas between San Jose and Uvita are either inland along the Panamerican Highway, or they are along the coast to the north of us. The coastal highway passes through Jaco, Quepos, Manuel Antonio, and numerous developments all along the way. What makes our area unique is the mountains come down to the sea. Also, we are one of the last areas of the country to get developed, so there is still that wonderfully jungly feel around these parts.

Coming down the Panamerican to San Isidro, and then over to Dominical and down to Uvita involves driving over the Cerro de la Muerte which is a stunningly gorgeous area, but it is HIGH and cold. So the areas along this route between San Jose and San Isidro are WAY different than what you might be looking for, if your choice of Uvita as a nesting spot is any indicator of your preferences.

Coming down the coast and through Jaco and Quepos/Manuel Antonio, you’ll pass through areas that are hugely popular with expatriots. You just might want to do that route and see what you think. Jaco is super developed with malls and a definite festive feel. Manuel Antonio of being (arguably) the number one tourist destination in Costa Rica. So again, if your selection of Uvita as where you might like to live is any indicator of what you’re looking for, I suspect that you’ll find these areas to be too U.S.-like.

Are there “good” and “bad” areas to live like in the U.S.?

Not really, but around San Jose yes.

How can we get info on the area itself since we are not looking for tourist info but rather living info?

I’d humbly have to direct you to read up on my site Domincal.biz. The forum there is full of information, although lately it has fallen into a bit of a slump, largely due to me being distracted with real estate. But I think that you’ll find the information to be useful to you.

How did you come to live in the area?

Please check out my story at: http://www.dominical.biz/about.htm

Is there a good source to get a detailed map of the area?

There is a map being made as we speak by the local equivalent of the chamber of commerce. It isn’t in print yet though.

What is the average cost of breakfast, lunch, and dinner?

The sodas, which are where you get the typical Costa Rican cuisine, offer up a great breakfast for around 1,500 colones, which is just under $3.00 at the moment. With coffee and juice, you’re probably around $3.25 for breakfast. Lunch will run you around 2,500 colones or a little over $4.00. There are getting to be some nice places to eat in the Dominical to Ojochal area. I love La Parcela, and Exotica, neither of which I have well represented on my site yet. But this letter is going to motivate me to get them posted. There is also a very nice Italian restaurant in Dominical. You can check them out by clicking here.
Also there is a good Thai restaurant in Dominical, but it also isn’t yet listed on the site.

How can we find someone to give us a Tico’s tour of the area rather than a tourist’s tour so we can see the area where we want to move?

I don’t honestly know. I think that you’ll find our initial consultation to be enlightening though. Perhaps from there we’ll have a better idea of how best to proceed. Do you speak Spanish?

While looking at your website we have fallen in love with the “lushness” of the area especially the water features on the properties. My husband is excited as he misses his native country of the Philippines.
Are there certain areas that are less developed and therefore better “deals”?

Yes definitely. The area between Dominical and Uvita has been, for the most part, bought up. There is a the occasional lot there. We’re seeing more and more condos and beach view villas going in in that zone. Its getting pricey. Uvita still has some decent choices, but they are going fast. South of Uvita in Ojochal and further south is where there is a lot of wide open space and wilderness with some excellent values. Large parcels of land (3 - 4 acres) with ocean views for around $200,000, all utilities included.

Are there areas you highly suggest and ones we should shy away from?

These is so personal that I’ll know more after we talk a bit. Not trying to be evasive, but there is no area in my zone here that I would caution you against. It boils down to what flavor do you like? Chocolate or vanilla?

Do you suggest that we subscribe to a newspaper? If so, which one? Online are there any or can we get one sent to us?

A.M. Costa Rica
Tico Times
Costa Rica Today

You should also join the number one newsgroup for Costa Rica expats. You can get to it by going to Costa Rica Living Yahoo! newsgroup.

Muchas gracias. (Is that correct for this closing?)

Perfect.

When visiting a new country, its such a treat to be able to speak the language and interact with the locals. Now add to this, the ability to “speak the language of the particular business venture that you wish to engage in whilst in that country.

There are some common use terms here in Costa Rica in the real estate business that don’t really jive well with the exact same terms in the States. Terms such as Home Owners Association (HOA) or Development, or CC & Rs. We throw these terms around freely and I’ve come to notice that there is either a bewildered look on the face of my client, or worse, they aren’t bewildered at all but are thinking that we are talking about something entirely different than what I had intended.

For instance, a “Home Owners Association” is something that a lot of my clients are trying to get away from by moving to Costa Rica. So after having a couple of buyers run screaming naked off into the jungle at my first mention of the dread “Home Owners Association” for the particular property that they were considering, I realized that this term needed to be clearly defined early on in the presentation.

We are in the business of real estate here, and so we use terms familiar to the industry. HOA, CC & Rs, Development, etc… These terms really serve as nothing more than identifiers here of arrangements that remotely resemble their US counterparts.

• Development applies to a large parcel of land that a Developer has purchased with a view to segregating, or cutting up into smaller peices. These peices can be for commercial use or single family homes, small developments, or condominiums. So, to the North American mind, when the word “Development” is used, instead of thinking about row upon row of cookie cutter houses, think instead of what it frequently means in Costa Rica. Large multi-acre lots, with jungle all around, and buffers between neighbors. A closed water system that services just the homes within the development. Many of our developers provide certified flow ratings so that you can be assured of uninterrupted water year ’round. The developer will also provide the amount of water storage necessary to accommodate the normal demands of life for the development.
• Codes Covenants & Restrictions (CC & Rs) - are the “rules” of the HOA. I know, you’re thinking: “huh? I thought this was the land of no rules” Right you are. Nearly all the surprises with respect to what you can do with your property once you own it, are pleasant ones here in Costa Rica. There are very few, if any, zoning restrictions in many of the developments here. But, believe me, you want CC & Rs in your development. The restrictions are for things like, not allowing a nude, mud wrestling, karaoke, pig farm to be put in next door. Thats a nice “rule” right? There are none of those “you have to paint your house this color” or “your hedge can’t grow over this height” etc… The CC & Rs that I have read are, for the most part, life enhancements to the residents that are protected by them. Of course, you want to read over the CC & Rs prior to purchasing (obviously). It can happen that you are buying to put in a Bed & Breakfast (B & B) but the CC & Rs read that you can only rent out your entire house and not just a room in it. Some rather typical rules of Costa Rican CC & Rs read that, in a given development, certain lots within a development can be used for commercial purposes, or can have several residential structures on them. The norm for a lot in a development is that there can be a main house, guest house, and a pool. I’ve never seen the ability to rent out either structure in its entirety, not allowed. Anyway, here in Costa Rica (at least in our neck of the woods down here in the southern zone), the CC & Rs are something that the land owner wants. They are not intrusive and they protect the quality of life for the residents therein.
• Homeowners Association (HOA) is the group of home owners of a given development. The members of an HOA around these parts generally have 2 things on their minds: road and water. Generally, the access to a development is what we here call a “public road”, which to a North American would mean a road maintained my the local municipality. HA! not so in Costa Rica. The public roads in Costa Rica that go back into the jungle are maintained by the people that live on and/or use the road for some purpose. The entrance to the development will likely run from the “public road” into the development, servicing the various lots within the development. These internal roads can be easements (servidumbre en Spanish) or simply private roads. So what the term “public” means, even though it seems that what it would mean would be that the government be in charge of maintaining the road, it isn’t so. It is maintained privately by those that use it. So, there is no difference to the homeowners with respect to the maintenance of a public road, an easement or private road, they all cost money to maintain. Keep in mind that we are here talking about roads that have turned off of the country’s main highway system, or town roads. The government does take care of those… well, for the most part… well, sort of. Anyway, the homeowners association organizes the funding and executing of road maintenance for the development. If the public road that is used to access the development is used by other homeowners further up the road, that are not part of the development, there will likely be a “road committee”. This is strictly for the maintenance of the public road and isn’t part of the HOA.

So now all you need to do is learn Spanish and you’ll speak the two primary languages of Costa Rica’s Southern Zone, Spanish and Real Estate.

Here are some possible services that can be offered to fill that gap.
1) Market the property to other agencies, allowing them to list the property as well. They will obviously get a share of the commission if they sell it. (I’ll deal with the possibilities presented by this option below).
2) Prominent Internet exposure. The agency can put the listing on their web site and feature it so that it gets better exposure than their non-exclusive listings.
3) Real World Advertising. Depending on the property, and the agency’s normal advertising program, an exclusive lister can request that their property be mentioned on any magazine, newspaper, or other type of non-electronic advertising.
4) Pay-per-click Internet advertising. This again depends on the value of the listing. Normally this type of extraordinary marketing would be for a luxury property to justify the expense to the listing agency. This is highly effective.
5) Signage on and off the property. Directional signs leading from the main road to the property as effective as sales tool as well, but can be limited by permissions in placing the signs.

More about #1:
The listing agency should promote the property to other agencies, doing that grunt part of the listing work that would normally be done by the seller themselves. In order to appeal more to the other agencies, a creative commission structure can help to stimulate things.

For instance: The listing agency could offer to pay a 6% commission to the selling agency, and keep 2% for the listing agency. Sellers should keep in mind though that doing an exclusive listing correctly is time and labor intensive on the part of the agency. Reducing the listing agent’s share may not be the best way to go about this. The seller wants the listing agency to be motivated to share the listing.

The lack of the MLS results in the real estate agents being accustomed to the full 8% flowing into their agency. So any deviation from this can have a negative effect. The ultimate marketing formula is for all agencies to receive the full 8% while still making it worth the listing agency’s while.

Obviously the seller can simply be willing to pay a 12% commission in the case of another office selling the property. Some might feel this to be a bit steep in the commission department though.

So what can a lister do that wants to have the benefit of the exclusive listing?

The listing agency should have in mind the standard and try to reach it’s level of efficacy in getting the property marketed and sold.

I suspect that some day we will have an MLS here in Costa Rica, but until then we will see a diverse mix of policies that vary from office to office of how best to serve the people and still have good business take place.

The absence of an MLS or Multiple Listing Service causes an interesting challenge for those that would like to sell a property in Costa Rica (I wonder how many articles I have started with those words). In the U.S. you simply list your property with your favorite real estate agency and voila! Your property is listed in a huge database of properties for your area that all of the real estate agencies have access to, and your property gets represented in the fullest way possible. You’ve got your listing agent that represents you, the buyer has his/her representation from their agent, and everybody’s happy. Not so in Costa Rica.

In Costa Rica when you tell your real estate agent about your listing, that is usually where it stays, within that agency. I have seen cases where agents don’t tell others in that very same agency about a hot listing. The reason for this is simple; they want the sale, and consequently, the whole commission. In Costa Rica real estate there is no “listing agent” and no “selling agent”. This difference seems to be really difficult for our North American clients and sellers to understand. Understanding the difference though, can make all the difference in successfully selling your property.

Setting the Standard
The standard for selling a property in Costa Rica is to get all of the real estate agencies to list and show your property. There are a number of ways to go about this. Perhaps the most common method is this: the property owner makes up a flyer that features a photo or photos of the property, along with the details of the property ie. size, distance from the main road, electrical service, water, any distinguishing features about the property such as creeks and waterfalls. The prevalence of wildlife is helpful as well. Describe the view and if its quiet or not. Is there financing? Is there a Home Owners Association (HOA)? Are there Covenants, Codes, & Restrictions (CC & Rs)? Oh, and the price as well.

Its not a bad idea to make a number of copies of this flyer and emplasticate them. It might be good to have 2 versions, one that has the seller’s contact information on it and one that doesn’t. The one that doesn’t will be more likely used in the office to present to property to prospective buyers.

The seller then visits all of the real estate offices, or the ones of their choice, and distributes these flyers. Then a regular visit, say on a monthly basis, is a good idea. This keeps the agents mindful of your property, and insures that all agents within the agency know about your property.

Most of the agencies will ask that you fill out a “Non-Exclusive Listing Agreement”. This document will give all the details of the listing, and will also state clearly the commission percentage so that there is no confusion at closing. 8% is the norm in Costa Rica’s southern zone for single family lots and houses. This can vary for farms and luxury properties.

OptionsYou can give an exclusive listing to your brokerage. This sets things up as though there were an MLS in Costa Rica. What this means is that they become the listing broker, and that if the sale takes place during the term of the exclusive contract, the brokerage will receive a percentage of the sale, or all of it if they sell it in-house. The concern with this is that the exposure that your property gets on the market might be limited since your agency might decide to not tell the other real estate agencies about it.

I like to mention the standard so that we can use it as a – well, as a standard by which we measure the effectiveness of the other options. The Standard option above sets the bar and really represents the level of market exposure that can be achieved by an enterprising land seller in Costa Rica. It is against this standard that we need to compare all other marketing of a given piece of property.

Why would a seller want to do an exclusive?
The benefits are that, since we don’t have a multiple listing service here in Costa Rica, it takes a lot of feet-on-the-ground effort to keep the agencies mindful of the listing. To do the printouts, the initial visit to the agencies, subsequent visits, perhaps on a monthly basis, requires more than many land owners have to offer. Having a single point of contact here that does all of this for you is attractive to some sellers. Also, it may be that the seller has built up a trusting relationship with an agency and so would like to deal exclusively with them, effectively insulating the seller from the other agencies.

Why would an agency want an exclusive listing?
One might wonder at this question, thinking that the answer is obvious, but really its not so. As a real estate agent here for a number of years I can honestly say that I’m not real quick to offer to represent a property on an exclusive basis. It’s a lot of work. If I get the listing in a non-exclusive, general market sort of way, and I think that the property is a good one, I can probably sell it quickly to a client in my database, and get the whole commission without having to do any of that extra work. So, to answer the question: “because it might make good business sense”.

I might be in that “trusted” position with a client, in which case there is a certain sense of responsibility to continue to represent my client. If their desire is for me to market their property on an exclusive basis, I’m on it.
It also might make good financial sense to do the exclusive. With the exclusive listing, the listing agency is guaranteed a percentage of the sale, no matter who makes the sale.

The Objective
The objective then of the listing agent will be to make up the difference between the standard, and just having the listing in one house. To repeat: listing your property with an agency doesn’t guarantee that other agencies will know about the listing. There is a gap that the listing agency should try and fill with extraordinary marketing services.

My next article will deal with the mechanics of how to do a successful exclusive listing.

How can one be sure that they are seeing all of the possibilities that fit their real estate criterion?

There is no MLS here in Costa Rica. Its too bad. The MLS system in the US came about due to the needs of the customer, not the vendor of real estate. It truly is a superior system. But, having said that, all is not lost. One just needs to understand the Costa Rica system a bit and then make the best of it.

All of us real estate brokers want to have all of the available properties we can in our inventory. It is every agency for themself. So, we spend a good bit of our time driving around in the mountains and along the coast, scouring the countryside getting those oh-so-valuable listings. There is, as of this writing, a good amount of inventory in our portfolios. However, it is the good stuff that is getting scarce. A real estate agent here knows when he’s got a good thing. It is akin to falling off a log to sell a good listing here.

So, how can the land buyer feel that they are seeing whats out there? One is to be thorough with your web search. There are several really good Costa Rica real estate websites out there. Get familiar with the sizes and prices, what influences the value, and so on. Then, pick your agent.

I think that this is one of the more important steps, if not the most important. You want someone that is concerned about getting you your property. This is Costa Rica Real Estate, unencumbered by licensing and any sort of a qualification process. So the onus is on the buyer to be able to discern what is, in fact, going on. Understanding the system helps.

Since there is no MLS, the seller of a property will likely want to list their property with all of the real estate agencies. This is one of the inconveniences of our non-MLS system. The sellers have to manually make sure that all agencies know about their property and are up to date with pricing and availability, not to mention things like lot lines, water, electric and road systems for each property.

In the event that a seller doesn’t want to do all that, they may opt to give an exclusive listing to an agency. This is usually because they have had a good experience with the office, or more likely, with someone in the office. This may affect things a bit though since the seller will likely still want to spend the normal 8% commission on the sale of their property. So, it is conceivable that the other real estate agencies will be dis-incented to show a property that some other agency has an exclusive on. If they show you a property where they might only get half of what they would get by showing you another one, they/we might be tainted.

I would like to think that I am above all that, and maybe I am. But I suspect that all of us real estate agents down here in Costa Rica would say that we are. One would hope that their primary concern is getting the client the property that is right for them, regardless of how the commission is split up.

Once again, we come back around to the buyer using discernment. Although, this really is what we do throughout most of our days here on good ole Planet Earth. Costa Rica real estate isn’t the only arena that we are on the watch for those who are truly interested in our well being so that we can do business with them, and conversely, watching to avoid those that don’t seem like our welfare is all that important to them.

So to answer the question, I think that the way to feel that you are getting to see the options that could potentially be right for you, is to ally yourself with a real estate professional that works in the area that you are interested in, and that demonstrates an interest in your success here.

Real estate in Costa Rica is an ongoing process. Once the sale is made, it is frequently followed by a huge life change, that of re-locating. It is nice to feel that you’ve got an ally in the process.