Costa Rica – the Caribbean country of great natural beauty, friendly people and, of course, fine coffee — is also one of the top destinations for North Americans looking to buy a home abroad. If you’re looking to live near swaying palm trees and beautiful beaches, even just part of the year, then you’ll discover there are plenty of opportunities here — whether you want to buy a budget home or a truly luxurious mansion.
As a foreigner, you may find the home buying process in Costa Rica slightly different from how it would be back home, but the path is well trodden – an estimated 70,000 Americans have made the move already, the statistics show.
To help you understand the process behind buying a house in Costa Rica, we interviewed Mr. Joseph Emanuelli, a highly qualified RE/Max Tres Amigos Realtor in Playa Hermosa. Besides being an NAR (National Association of Realtors) registered International Affiliate, he has many years of experience working with clients from the US and Canada.
His advice helped us put together a practical guide to how you can become a property owner in Costa Rica. Briefly put, he tells home buyers to do as much research as possible, employ the right people, and not be afraid to ask questions.
1. Understand the Costs
You may know your budget but you don’t necessarily know much of it will be left for your purchase after you’ve subtracted your expenses. These are some of the extra costs that Mr. Emanuelli says you may incur:
• Agent commission: typically 6% of the agreed-upon sale price – 3% to the buyer’s agent and 3% to the seller’s agent;
• Fees paid to notary public (who officially registers a property transfer): 1–2% depending on the price of the property;
• Transfer Tax: 1.5%;
• Some legal stamps – such as agrarian, municipal and Bar Association stamps – may be required which together may cost you a few hundred dollars;
• Fees payable to your attorney and your home inspector, if you decide to hire them: see those sections below;
• Escrow Fees: these vary depending on the companies with whom you make the contract – the fees are usually split by buyer and seller.
2. Get an Agent
When choosing an agent in Costa Rica, it’s advisable to ask for references and to inquire about qualifications before you decide on the one you will work with. Preferably choose a real estate agent who is experienced in working with foreign buyers and has local knowledge of the area where you want to buy.
Mr. Emanuelli explains that there is no official MLS in Costa Rica. However, there are two realtor associations recognized by the government and both are somewhat similar to an MLS, although they don’t supply detailed comparative market analyses (CMAs) like the MLSs in North America.
One of these associations is the Costa Rica Chamber of Real Estate Brokers Board (CCCBR), which covers a lot of properties. You might like to choose an agent who is affiliated to MLSs such as CCCBR, as only they can place listings on such organisations’ websites.
Since there are several ways that agents get paid in Costa Rica, it’s best to choose one who operates strictly on a commission basis. One heads–up here would be to check that the agent you use is not also representing the seller.
3. Take a Look at the Property Market
While there is no official MLS in the country, you can still find plenty of places where you can browse homes for sale in Costa Rica. Point2 Homes has a great range of properties, and covers many areas of the country, such as Puntarenas, Guanacaste or San Jose. Better yet, you can narrow your search down to different property types, such as condos, single-family homes, townhouses, and more.
Although this happens in a minority of cases, it’s possible that a home seller may go with different agents who each have the freedom to add their own “mark up” on the property price. That’s why, it’s always a good idea to look at several websites as sometimes a property’s price can differ depending on which seller’s agent is advertising it.
4. Get an Attorney
Just like in North America, if you’d like to rest assured that you negotiated a good deal, you can also hire an attorney. Ask your realtor or somebody who has been through the same process to recommend you somebody, and also ask for referrals. Most good lawyers who are doing real estate transactions in Costa Rica, Mr. Emanuelli said, are bi-lingual.
It can be a good idea to get an attorney on board before you start looking at properties as they may spot problems at early stages of the buying process, which could save you of a lot of hassle later.
An attorney’s basic fee will be about 1-1.25% of the agreed-upon home sale price.
5. Find a Home Inspector
A home inspector can help you spot any problems with a house that interests you early on in the buying process. That’s why even if you are told you don’t necessarily need to spend your money on hiring one, you should still ask your agent or attorney to recommend you one.
Mr. Emanuelli says that you won’t find a home inspector who is actually licensed by the government, but there are some very good ones out there, who can be relied upon.
The inspection fee you’ll need to pay will be a flat charge of a few hundred dollars, depending on the size of the property.
6. Set up a Purchasing Company
Foreigners usually purchase property here using a Costa Rican LLC. This has the additional advantages that it provides a form of liability protection, it is easier to sell the property subsequently, and it is easier to deal with any legal or governmental issues. Costa Ricans themselves set up such companies for several different types of purchases.
You can find out more about setting up an LLC in Costa Rica here.
7. Get Funding
Banks in Costa Rica rarely give loans to foreigners, so your main alternatives are either to pay for the property in cash or try to secure a loan back at home. Although before the financial crisis many banks agreed to give out loans for foreign real estate purchases, the situation has changed since, so the best thing to do would be to turn to a professional for more advice.
Back to your few options of securing a local loan, in Costa Rica there are a few private financial companies which may offer you one, but interest rates are not close to what you’d expect in North America. Scotia Bank Costa Rica offers loans to foreigners, but the maximum amount they will finance is $200,000 USD and you’d better have a great credit rating from your home country, says Mr Emanuelli.
In addition, owner financing is sometimes available, and they’re usually structured like this: a 30% down payment, a 5% interest rate, amortized over 20 years, but with a final ‘balloon payment’ payoff in 3-5 years. This type of arrangement incurs additional fees.
One good piece of news may be that all property sales in Costa Rica are in US$.
8. Visit Some Properties
Once you finished these steps, you are in a good position to actually visit some of the properties that have taken your fancy!
9. Make an Offer
Once you found the property of your dreams and your “team of local professionals” agree that it’s a good purchase, you can present a written, signed offer to the seller or the seller’s agent. In Costa Rica, the offer is usually presented in the form of a document known as a Purchase Sale Agreement (PSA).
10. The Purchase Sale Agreement
The Purchase Sale Agreement (PSA) is written up by the real estate agent. Certain things must be put in the PSA after the negotiations have finished: selling price, the time line to the closing of the deal, items of conveyance such as furniture, artwork, appliances, and so forth. It should also have all the contingencies and the due diligence period specified in it.
If both parties agree, the PSA can be written in English. If the seller speaks only Spanish, an official translator will then be employed to make an official version in Spanish for the seller.
11. Pay the Deposit
Most Initial Deposits are fully refundable and are 10% of the agreed-upon purchase price. The funds are wired to a legally registered escrow company, and in accordance with banking laws all funds are held by them.
The person making the deposit needs to fill out a few forms and to supply the following: the last 2 years of federal tax returns, copies of their current passport and driver’s license, and proof of some utility services in their home country to confirm their address there. Depending on the escrow company used, the deposit may be deposited in the US, but most such companies are in Costa Rica.
Sometimes sellers will ask that the funds are deposited with their attorneys, but Mr Emanuelli strongly advises against this. You should only use an escrow agency registered by “SUGEF” (Superintendencia General de Entidades Financieras – the banking and regulatory commission of Costa Rica), or a law firm’s escrow service that is legally registered with SUGEF.
Depending on how the PSA was structured, in most cases the initial deposit is returned to the buyer minus escrow fees as long as proper notice to terminate was given during the due diligence period. This will be stipulated in the PSA.
12. Close the Deal & Move In
Most deals are closed within 30 days, but this largely depends on the buyer and their financial arrangements.
Closing the deal usually takes place in the office of the buyer’s attorney. The people who must attend the closing are the buyer’s attorney and either the seller or the seller’s attorney; the realtor representing the buyer should also be there out of respect for their client. The buyer does not have to be present unless purchasing the property in their personal name, but most attend anyway.