Many of you reading this will have purchased a property in other jurisdictions previously, particularly in Canada or the United States. The general flow of the property purchasing process in Costa Rica is very similar to that in these other jurisdictions, but the considerations are very different.
The general flow of the purchasing process in Costa Rica involves:
- Locating a property.
- Gathering preliminary information to make an offer.
- Having a lawyer draft the interim property purchase agreement.
- Placing a deposit — customarily 10% of the purchase price — in escrow with an escrow company.
- Carrying out the legal due diligence to satisfy the stipulated conditions contained in the agreement.
- Confirming that the agreement is accepted.
- Proceeding to the closing on the agreed-upon closing date.
Since there is no regulation of the real estate industry in Costa Rica, it is very important to select a realtor who has good local knowledge of the area where you wish to purchase a property.
No formal MLS exists in Costa Rica. Accordingly, the only manner of assurance that you have been presented with the various property purchase options in an area is your realtor’s personal knowledge of existing sale properties.
Another key consideration is to select a real estate lawyer for the closing who is knowledgeable in the areas of legal due diligence to be completed in the property purchase. It’s important for the purchaser’s lawyer to review the realtor’s offer to be presented to the seller before it is signed.
The legal due diligence considerations undertaken will vary significantly between purchasing an existing fully constructed property and that of a building lot for future construction. These differences are discussed in a separate blog that I have written.
One significant difference in Costa Rica is the treatment of the closing costs. They are negotiable as a payment between the seller and purchaser, and should be addressed in the initial offer presented. Closing costs routinely approximate 4% of the property purchase price, and are comprised of the notary fees, value added tax (VAT) on the notary fees, property transfer tax, National Registry fees and escrow fees.
A Costa Rica notary public, who also must be a qualified lawyer, will attend the closing and be responsible for drafting the property title transfer deed, and its execution by the seller and the purchaser on the closing date.
In Costa Rica, the amount of oversight by various government agencies for those matters of legal due diligence is considerably less than in many foreign jurisdictions such as Canada and the U.S.
The ability to acquire the necessary information to satisfy due diligence conditions is also not as readily available. This can result in a request by the purchaser for an extension of the time limits to satisfy the due diligence conditions. The burden of conducting this due diligence falls entirely to purchasers and the lawyer that they select to represent them. The lawyer must carry it out in the correct manner for buyers to reach an informed decision on whether to proceed with the property purchase. In Costa Rica, there are no title insurance companies that carry out this due diligence process.
For foreigners making a first-time property purchase in Costa Rica, it is very important that they select the correct professionals to represent their interests on an independent basis. Purchasers should always select a lawyer to represent them, who is acting independently of the seller’s interests in all respects.
For more information and answers to your questions on diverse legal topics, visit Costa Rica Canada Law: www.costaricacanadalaw.com
See this article in the magazine