What is the Procedure to Write an Offer and Close?
Purchasing a property in Costa Rica is about as easy as it can get. Under Costa Rican law a foreigner has the same rights as a citizen, and can own property outright — fully titled, fee simple, just like in the USA or Canada.
The majority of the property in Costa Rica is titled. The only exception is some of the beachfront property, which is called “concession” and is similar to a lease. I discuss this in another blog. You can own a property using the same vehicles as in North America.
You can own property in your personal name or put it into a Costa Rican corporation that you form. You can also use a trust or a foundation, a self-directed IRA or a non-profit organization. And you can will it to your children or your heirs. All of these ownership options can be easily set up by a reputable Costa Rican law firm.
Unlike in North America, our offers to purchase property are very simple and straightforward. Most of the time, they are three or four pages long. None of these offers are 20-page documents like when you buy a house in the USA. They are more like term sheets than long, formal offers.
The first page generally details the owner’s information, the seller’s information, the property information and the purchase price. Page 2 is your due diligence page, with contingencies, closing date, fees, arbitration clauses and items included or excluded in the sale. The last page is the signature page.
A faxed or scanned offer is a legal document in Costa Rica, so you don’t have to be here to sign the original. We can send you the offer by email after you get home and you can sign it and send it back once all your questions are satisfied. We are not here to pressure you to buy.
This is a big decision and we want to give you all the time necessary to make sure this is exactly what you want to do. Go home, talk it over, check your finances and then write the offer. Don’t let anyone tell you that you have to buy this now. We have always been a firm believer that if it is meant to happen, it will.
Upon acceptance of an offer, a secure escrow account is set up with a company that is registered with the banking authority of Costa Rica, known as SUGEF. They will act as a third party to ensure that everyone is protected during the closing. Do not allow a law firm or a real estate company to accept or handle your money. Always ask for a separate, secured, registered escrow.
A deposit of 5% to 10% of the purchase price is placed in the escrow account as good faith. This deposit is normally completely refundable during the due diligence (DD) process. The DD period usually lasts anywhere from 14 to 21 days, giving your attorney time to confirm that everything is OK with the property. This will include a full title search in the National Registry, confirming that the property is free and clear of all mortgages, annotations, liens and encumbrances. Your attorney will also make sure that all municipal, national and corporate taxes are paid up to the date of the closing, and that any homeowners fees and all utilities and service contracts are also current at time of closing. The lawyer will also send you the estimated acquisition costs so you know exactly what the closing costs will be.
During the DD period, we can also order a home inspection if you so choose, and any land surveys or engineering work. In addition, you can get quotes for construction, renovations, repairs, landscaping or furniture / interior decorating. There are many qualified professionals here in the area to assist you with these matters.
Anytime during the DD period, buyers have the option to cancel the contract and get their deposit back with no penalty. At the end of the DD period, assuming there are no issues with the property, the deposit becomes nonrefundable and stays in escrow until the time of closing, to be applied towards the purchase price.
Most closings in Costa Rica are anywhere from 30 to 60 days after the seller accepts your offer. A few days before the closing, the balance of the purchase price and all the closing costs (minus the deposit) will be wired to the escrow account. The third-party escrow company will make sure that everyone is paid at closing, after all the proper documents are signed and delivered to the National Registry. This ensures and secures everyone involved in the transaction: seller, buyer, agent and attorney. Generally, $1,000 is held back from the seller for a period of 30 days to ensure that any and all utility bills that are the seller’s responsibility are paid. This ensures the new buyer does not inherit last month’s electric or cable TV bill.
Upon the successful closing, the attorney will send you copies of all the closing documents, translated into English, as all legal documents in Costa Rica are in Spanish, obviously. The actual deeds themselves have a lot more technical language in them than the purchase offer, as they are the final document that will be presented to the National Registry to confirm ownership.
Presence not required
The buyer and seller do not need to be present at the closing. The law firms can be given the ability, using a special power of attorney granted by the buyer or seller, to represent you at closing and close on your behalf. There is a small fee to draw up the special power of attorney, but it is usually substantially less than an airline ticket and can save you a trip that you might not be able to make due to your schedule.
Recently, a new law has been introduced to help reduce the potential for money laundering in Costa Rica. Every buyer must sign an affidavit that states the money came from legitimate sources. It must be signed in person in front of a Costa Rican notary. It is preferred that this is signed at the time of the closing. If you write the offer while you are here in Costa Rica, we can have this affidavit signed before you leave. If not, you need to plan to either come back for closing, or visit a Costa Rican consulate in your home country before the closing.
Many times, though, the buyers choose to be here for closing, so they can celebrate afterwards! You are now the proud owner of a little piece of paradise.
Welcome to pura vida. Congratulations!