Pura vida, compadres! With a focus on Costa Rica real estate, Episode 7 features our impressions on topics like–
The Rainy Season
Property Prices
Seller Financing
The NEW Forum
Thanks for watching and following us on Dailymotion, Facebook, Twitter, and our websites– www.GuysInTheZone.com, www.hotcostaricarealestate.com, www.Dominical.biz, and www.Uvita.biz.
Disclaimer: the following is not necessarily what some sellers of Costa Rica real estate want to hear.
It was sometime in 2008 when the world changed. Our globalized economy demonstrated, for the first time, the extent to which we (all us humans) are interconnected. When one falls, we all lose our balance.
Some of the bigger economic minds in the US got going with an illusionary slight of hand called “derivatives” and in so doing, yanked the rug out from under the U.S.’s, and then the world’s economies.
Costa Rica land sales stopped. Here in the southern pacific zone many of the agencies have closed up shop, and the surviving agencies went 9 months with no business.
Why “no” business instead of “low” business?
2 reasons:
The fall of the world economies was rather sudden. The prices on our real estate here in The Zone were high. All of a sudden our prospective buyers were standing flat footed with not much money, no real way to get money, and even if they could get money, land was expensive.
The above 2 reasons that explain our 9 month freeze on the real estate business here in The Zone have both seen some activity and change. Prices have come down by 30% – 50% across the board, and this has stimulated the market. If this isn’t obvious to you, dear reader, it may be that you have been cruising websites and listings by sellers that don’t want to lower their price, but instead wish to wait for the market to come back up. (or you may have seen one of the numerous and un-maintained sites from now defunct Costa Rica real estate agencies)
About the “Hold Out” or “Old World” Sellers:
Their listings in the various real estate agency’s web site databases likely pre-date the fall of the world markets. Sellers who insist on pre-fall pricing are finding it harder and harder to find an agency to list their property. (One of my peers at a competing agency told me recently that they had rejected 9 listings in 3 days.) (more…)
Welcome to our full video Talk Show format! In addition to this new look, we share new information on Costa Rica real estate including, a recap of 2009, recent activity in the southern Pacific zone of Costa Rica, and new issues for buyers and sellers. This post comes in advance of the new www.GuysInTheZone.com website, where you can find all of the best resources for the area in one place. The most notable addition to our new site is the forum. It’s there to give us all a place where we can discuss the various topics that are going on around The Zone. To all our readers, watchers, and listeners, thank you for your questions and comments, and please feel free to get involved over at our new forum.
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Costa Rica – 1999:
Highly Desirable Lifestyle
The year that I arrived here with my family. There just weren’t that many Gringos, or foreigners of any flavor really, in Costa Rica’s southern pacific zone. Many of the foreigners that were here shared a similar idea. Land was so cheap that you could buy several hectares (one hectare = 2.47 acres) of land, cut off a piece, and sell it for nearly what you put into the whole piece. I used to call this “The Costa Rican Formula”.
If you think back over any real estate cycle anywhere on planet earth, lets say San Francisco, or Denver, it started out with families owning large tracts of essentially valueless land. Governments typically gave land away at this stage of the cycle. Homesteading laws had some rather liberal restrictions that, if followed, enabled a family to take possession of the large tract of land. These families then used the land to live on and sustain themselves.
Costa Rica real estate was in that part of the “the cycle” a surprisingly short while ago.
I say this to help establish the paradigm here. We are early in the cycle. The majority of my career has been selling raw, undeveloped land. To this day there isn’t a large selection of houses, but there are getting to be more all the time. We are simply heading into that phase of the cycle.
“The Costa Rican Formula” is the obvious way to develop and make money on land. Buy a larger piece, cut it into smaller pieces and sell them. It is so obvious in fact that it enjoys a very brief period of the real estate growth cycle.
For the purpose of this article, I’m not writing about big developers that buy and develop large parcels. I’m referring to your normal joe, back in the day, slopping into an 8-ish acre piece of land. Then, they find out that they can cut off 3 of those 8 acres and bahdah-bing bahdah-boom, they own their 5 remaining acres for free. (more…)
I’m going to go out on a limb here and define some specific points that we at Guys In The Zone use to evaluate a property. At the moment, this practice tends towards the black arts since the basis for land values in the zone went right off the cliff with the rest of the world’s economy.
Jesse over at Green Leaf Real Estate has come up with a rather interesting formula for property evaluation: take what was paid for the land and add 25% annually, and then reduce that number by 40% to get today’s market price. I find this technique to be ingenious, not so much for it’s accuracy, (that would be a subject of much debate), but due to the fact that Jesse actually came up with a method for evaluating land that sounds like it’ll put you somewhere in the ballpark.
The problem is, we’re not sure where the ballpark is these days.
Rod & I have been working more with the other real estate agencies in The Zone as we move towards a more cooperative real estate profession. John Wieland of Coldwell Banker invited us out to look at a couple of houses in Ojochal and we got to listen to how he addressed the question “what’s my house worth?”. He answered: “you can follow the market, be right at the market, or lead the market”. To “follow the market” would be to realize that others have dropped their price and so you follow suit. “Be at the market” would be to stay in the trajectory, up or down, that you feel the market is in. Now, to “lead the market” means that you anticipate the market and blaze a trail with new prices that are compelling to the type of buyers that we now are seeing here in the zone. In today’s “down” market, this means doing extraordinarily low pricing to get a timely sale. (more…)
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Episode Two, “Seller Options and How to Evaluate a Property”
All Listings mentioned by number can be referenced by going to www.HotCostaRicaRealEstate.com and inputting the number into the “Property ID” field.
We welcome your comments. Be brave and just do it. Click that “Comments” link below and jump in!
- Ben and Rod
In my previous article I considered the workings of the standard Costa Rica real estate model – the Open Listing.. If you haven’t read it (and would like to) you can by clicking here.
I have been a bit negative about exclusive listings in the past. My attitude towards these is now changing and, if anything, I’d say I’m a bit positive towards them now – with caveats.
The Exclusive Listing is a hybrid business model between the existing Costa Rica non-MLS model, and the Multiple Listing Service model that so many are accustomed to in the U.S., Canada, and elsewhere. I have recently learned that England does not have an MLS and, get this, that Mississippi doesn’t have an MLS. The point about England came from a reliable source. The one about Mississippi was chit-chat. I did a cursory study of the Mississippi matter on the internet and found a little bit of information but it’s still unconfirmed.
The exclusive listing attempts to provide buyer/seller representation in the Costa Rica market place.
The Way it Works
You approach your favorite real estate agent. You give that agent the listing for your property. That agent then takes the full responsibility of marketing your property so that it receives the broadest possible exposure. Sounds good right? Well, it is, but…
(more…)
I have written about the nature of our marketplace and the listing options open to sellers. Its not a pretty site in this non-MLS (Multiple Listing Service) marketplace. The seller is confronted by the decision to personally market the property to each of the real estate agencies in the area (Open Listing), entrust one agency to the task (Exclusive Listing), or go it alone with a For Sale By Owner. Here are the pro’s and cons of the options.
Open Listing: this is the type of listing that is considered the norm here in the non MLS model. The seller walks into my office with a packet of information on their property. I ask a number of clarifying questions: access, water, electric, phone, Internet, view, privacy and of course, price. Provided the answers to these questions indicates that the property is sellable for what the seller has in mind price wise, we set up a time to go and view the property. We visit the property, take photos/videos and then the listing goes onto my website.
This generally pays 8% commission to my agency.
The seller then goes down the road to the next agency and does it again.
Pros of the Open Listing: The agencies are motivated by the full commission. Right now the inventories of the various agencies are ripe with great listings. When a prospective buyer comes into the office, or starts up a dialogue via e-mail about their search for property, the well-intentioned, but commission motivated agent is going to gravitate towards the full commission listings first. This is a weighty point that will not be fully dealt with until we have a fully functioning Multiple Listing Service here in Costa Rica.
If you think it through, the seller has no actual representation in the marketplace. For that matter, neither do the buyers. You’ve got seller, buyer, and a commissioned sales person in the middle trying to make a deal happen so that he/she gets paid. Not the best of business models, but it’s ours and somehow it works.
Cons of the Open Listing: (more…)
As all of our sellers (who were once buyers) know, value is one of the most important elements for any investor, never more so than now. In years past, headroom for appreciation was a given. Land was relatively cheap and on the rise compared to the rest of Costa Rica. In fact, many investors purchased multiple properties at that time.
We now find ourselves in a more mature market with more discerning buyers and subsequently some properties sitting unsold for an extended period of time. Due to the recent economic downturn we see an increasing desire to move something now. This is a different approach to the “let’s put it on the market and see what happens” mindset of years past. We have now hit the lull so commonly experienced in a previously booming market. Seller financing has allowed more buyers to secure a property, as well as, partially alleviating the financial pressure on many sellers. (For more information on seller financing, see Ben’s article “Do You Have To Be Rich To Own Land In Costa Rica?” ) In any case, for those sellers who seriously need to sell this high season, list price has fast become the key element in the sales process.
Ben and I always strive to create win-win deals. We love those clients who are not limited by a hard-ceiling budget; however, our impression is these liquid investors will probably not make up the majority, moving forward. Most prospective buyers who approach us (either online, as a referral, or as a walk-in) have a budget of $XYZ. We start by showing them the best value in that general price range. More often than not, we only have one or two days to spend with them. This limited time frame means a seller’s property may not make it in the first circuit, or “A” group. When the “A” group is exhausted, then we move to the “B” group, which include equally stunning properties at a slightly higher list price.
I describe our listings in this way not to get our sellers to lower their list price necessarily, but to understand that if they need to sell their property, list price is key to getting the property shown. Ventanas Oasis (listing #299) is one example of a fantastic ocean view listing priced to sell. Without a prospective client taking the drive to your property, standing on the dirt, and blending their vision with the features and possibilities, you have virtually no chance of getting an offer. So, our suggestion is to leverage the next few months with a list price that will get your property shown and sold.
Ben and I are available to answer any questions for buyers and sellers regarding comparable pricing, as well as, the best properties available in the southern Pacific zone of Costa Rica.
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.
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