Real Estate Solutions

Real Estate Purchase Guide Print
Costa Rica

REAL ESTATE PURCHASE GUIDE


By  Roger A. Petersen
Attorney at Law


Copyright by Roger A. Petersen.  This article may not be copied or reproduced in any manner
without the express written consent of the copyright holder.


You have heard about Costa Rica – you came and visited Costa Rica and liked it and now you are ready to own a piece of the Pura Vida lifestyle.  I have developed this summary of the Real Estate Purchase process to help you understand the process a bit better and hopefully make your transaction a smooth and pleasant experience.  My most important message is that it is essential to a successful real estate closing in Costa Rica to ensure constant communication between the real estate agent, the parties to the transaction  and the Closing Attorney.
 
1. The Role of the Real Estate Agent

Generally the Real Estate Agent is an agent for the SELLER of the property since this is the individual that pays the real estate commission. If the Real Estate Agent has a signed contract with the client that is a Buyer to represent them as a “buyers agent” then the agency relationship changes and the agents fiduciary duty must be to the Buyer. In my view the real estate agent should make it clear from the outset for which party they are acting for. A knowledgeable real estate agent will have all the legal information on the property at the time they take the listing from the Seller.   This should include a title report, copy of the property survey map, property tax basis and inventory items of the home that is being sold.

2.   Negotiating the Price, Terms and Conditions of the Property Purchase.

If you are using a Real Estate agent then they will submit any offers to the Seller and submit counter-offers to the Buyer as the case may be.  If you are negotiating on your own or using an Attorney then this part of the process is up to you.   

3.   Preparing the Purchase Contract.

Assuming that the Seller has accepted your offer and you are both ready to move forward the next step of the process is to prepare a Purchase Agreement that will set out in detail the terms and conditions of the purchase.
This step can get a little tricky.  The two most typical pre-sale contracts in Costa Rica are the Reciprocal Promise to Buy and Sell (Promesa Reciproca de Compra Venta) and the Purchase Option (Opcion de Compra) . These contracts do not formally pass title of the property from the Seller to the Buyer but set out the terms and conditions that must be satisfied prior to closing and establishes the obligations of both the Buyer and Seller during the due diligence period of the transaction.   
I started this section by indicating that this part was tricky and the reason is that many real estate agents in Costa Rica have adopted their own forms from fill in the blank forms used in the United States.  Some prefer these forms because they can take a deposit from the Buyer and have the Seller sign as well without having an Attorney involved at that point of the transaction.   Although these forms are “Americanized” they legal system where they will eventually be litigated, The Costa Rican Court system is not – as such it is always recommendable that the agreement leave as little as possible up for interpretation – cover all the points fully -  To avoid any pitfalls some Real Estate  agents prefer to have the Attorney involved from the beginning and have the Attorney prepare a formal all encompassing Buy-Sell Agreement. I highly recommend that Buyers pay special attention to transactions that include an inventory in a house or those that require certain construction or repairs to be done to a dwelling prior to closing. This must be spelled out in very detailed form so that each party is clear on what to expect. We have seen Purchase  Agreements that result in bickering and fighting at closing table because the  Buyer expected more than the Seller thought he had to give.

4.  Establishing Escrow When Possible

In real estate transactions that I handle I prefer to designate our escrow company as the escrow agent for the earnest money deposit. Some Sellers will accept this while others will insist that they require the deposit in their possession. This is so because the concept of escrow is relatively new to Costa Rican real estate transactions and has become You will have to treat this on a case by case basis. Regardless, the conditions of escrow and disbursement of the earnest money deposit to either the Seller or the Buyer needs to be fully addressed and understood by all parties to the transaction. On many occasions we find contracts that are vague regarding the disbursement of the earnest money deposit and vague as to what constitutes a breach of the closing terms and conditions of the agreement.

5. Pre-Closing Considerations

The Purchase Agreement that was signed between Buyer and Seller will stipulate the date by which the Buyer must close on the property.   Prior to the date of closing the real estate agent should obtain from the Seller all necessary documents that will be required by the Attorney at closing and coordinate with the Buyer to retain the services of those professionals required to complete the due diligence and/or conditions set forth in the Purchase Agreement.

i.    Utilities. Make sure the Seller is current with the payment of all utilities, Electric, Water, Telephone, Cable TV & Internet. Be sure the Seller will leave a telephone line in the property for the Buyer. There may be areas in the country where getting a new phone service installed is difficult or impossible and as such securing at least one telephone line for the Buyer is essential.

ii.    Property Taxes. Make sure the Seller has paid the property taxes and ask them to produce a receipt and or certificate that the property is current in tax payments. Don’t wait until they are at the closing table or the Seller to tell you that he hasn’t paid the taxes.

iii. Condominium Sales. When the sale of a condominium is involved the Condo Association must provide a copy of the CCR’s (Regalmento del Condominio). Also required is a letter from the Condo Association indicating that the condo unit that is being purchase is current with all fees and assessments. I also like to see a copy of the financial statement of the condominium to look at it’s financial situations. After all when you purchase in a condo you are inheriting the association as well and you would not want to inherit their liabilities.

iv. Home Inspections. If the Purchase Agreement specifies that a home inspection must be prepared prior to closing then the Real Estate Agent should coordinate the inspection with the inspector and the Seller of the property to insure it is done well in advance of closing. This way, the Seller has ample time to correct any deficiencies that would delay closing.

v. Review Home Inventory. If the property being sold includes a home and an inventory list of items it is very important for the Real Estate Agent to properly describe and list each item included in the sale. Prior to closing the Agent and the Buyer should inspect the home once again to insure that the items described in the inventory list are as warranted. You would be surprised how many misunderstanding arise at closing because of a poorly drafted and detailed inventory list.

vi. Check Zoning for the Property if Applicable. If the property the Agent is selling is raw land that will be used by the Buyer for construction then it is very important to obtain a Zoning Use [Uso de Suelo] from the Municipal Government where the property is located. This will ensure that the Buyer will be able to use the property as they intend. Some properties have use restrictions and construction coverage limitations and the Agent should be aware of these so they can explain it to the Buyer.

6.  Preparing The Transfer Deed

In Costa Rica transfer of property title can only pass by executing a property transfer deed before a Notary Public who in turn pays the applicable transfer taxes and records the property transfer deed. It is the responsibility of the
closing Attorney to draft the deed and record it. Once the recording is completed he must deliver the original document to the Buyer. If the sale is being done by way of a stock transfer of the corporation the closing Attorney will prepare all necessary documents to transfer ownership of the property from the Seller to the Buyer.

7.    All About Closing Costs

In Costa Rica closing costs are statutory, which means they are set by law.  The Closing Attorney/Notary must abide by the Fee Schedule established by the Costa Rican Bar Association (Decreto Ejecutivo No. 32493) Compliance with the minimum fee schedule is mandatory for all Costa Rican Attorney’s / Notaries.

First 10 Million Colones 2%
Excess of 10 to 15 Million Colones 1.5%
Excess of 15-30 Million Colones 1.3%
Excess of 30 Million Colones 1.0%

Bear in mind that this fee is for drafting and filing the property transfer deed. Any additional services including the drafting of purchase agreements, escrow and the like may carry additional fees.

In addition to the Notary Fee, the parties must deliver to the Notary the applicable transfer taxes and registry fees due on the transaction and these typically include: (a) Property Transfer Tax of 1.5% (b) National Registry Fee of .5% (c) Documentary Stamps of Approximately .6%

There is a common practice to transfer the stock of a corporation instead of the property itself to avoid paying the property transfer taxes. From our standpoint it is much cleaner to transfer the property outright since it involves one legal transaction filing. To purchase a corporation involves in addition to the property due  diligence it also involves some degree of corporate due diligence. Since there is no centralized corporate debt filings in Costa Rica there is no way to check for hidden liabilities. As such, when purchasing by way of a corporation the client must be advised and approve it accordingly.

If the Attorney and the Agent follow the guidelines set forth above and work together during the entire closing process the closing should be smooth. Nobody likes surprises at the time of the final closing so by dealing with all the issues set out in this Purchase Guide up from and well in advance of closing any problems that arise can be addressed so that the final closing is limited to the exchange of  funds and execution of the closing documents.   I wish you the best during your purchase process in Costa Rica.


Copyright by Roger A. Petersen.  This article may not be copied or reproduced in any manner
without the express written consent of the copyright holder.