Guys In The Zone: Costa Rica Real Estate

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.)

I was out with a client the other day. We had set up the appointment via e-mail. I had helped with getting him set up with a car rental, and we had spoken extensively via phone regarding what he was looking for so that I could have a presentation ready for his arrival.

We met, and off we went to view property. On the way to the property, we realized that another real estate agency had already shown him the property. The client was distressed. “How does this work”? “What if I want to work with you”? “Whose listing is it anyway”?

Ah, the problems caused by not having a Multiple Listing Service in Costa Rica. I feel like I bump into them every time I turn around in this business here in this country.

I have noticed that it is especially difficult for real estate buyers and investors from the States to grasp how it works here. It does work… really. It’s simply an inferior system to the MLS based system in the States.

(Read the rest of this entry.)

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.

Is there a Multiple Listing Service in Costa Rica?

As a person browsing the internet looking for Costa Rica real estate, one will have seen the terms “MLS” and “Multiple Listing Service” numerous times. What this term means when seen on a Costa Rica real estate site varies greatly from what it means on real estate sites from the United States. To understand the difference, lets consider what the North American viewers understand when they see “MLS” or “Multiple Listing Service”.

In the U.S., there is a central database of available properties for a given region. All listed properties have a listing agent. This listing agent will receive a percentage from the sale of the property no matter who sells it. This offers a tremendous advantage to the buyer since they are able to approach the realtor of their choice and know that they will be shown everything that is on the market in their price range and taste. It has the disadvantage that the listing agent of a given property may favor his own listings over what other listing agents have.

In Costa Rica, MLS or Multiple Listing Service means simply, “we’ve got a large data base of properties”. There is not really any such thing as an MLS in Costa Rica, but you will definitely see it on a good portion of the web sites that deal with Costa Rica real estate.

Why do so many Costa Rican realtors claim to offer a MLS when in fact there is no such thing? Because prospective buyers, who use the Internet, look for what they know. Many of the searches by people looking for Costa Rica real estate are executed by the searcher inputting the key phrase: “MLS Costa Rica” or “Costa Rica Multiple listing service” or one of any number of possibilities involving those keyword phrases into the search area of Google, Yahoo, MSN etc… So really it is in response to the demands of the marketplace.

There is an upside to this practice. It is that, for the most part, all realtors are going to knock themselves out to make sure that they are completely up to date with the properties that are currently available on the market. They are highly motivated to find the property that will satisfy what the client is looking for, since that is how they make their money. The U.S. counterparts enjoy 2 sources of income, one as listing agent, and the other as the seller. Costa Rican realtors get the whole enchilada. All 8% (The standard commission here. This varies depending on various factors.) of the commission since there is no listing agent.

The trick is to be informed. Costa Rica has no licensing of realtors, nor is there anywhere near the necessary organization among the realtors to achieve an actual Multiple Listing Service. Maybe someday, but in the meantime, when you see the terms “MLS” or “Multiple Listing Service” on a Costa Rica real estate website, know that this means that the realtor has a database of properties, possibly from all parts of the country, but not necessarily.