Generally you’ll find a fairly ordered deal process in areas of the country where there is vibrant activity in the expat real estate market.
However, it still ain’t Kansas!
There are marked differences in the way things operate down here versus the States.
Over my years of orchestrating real estate deals in Costa Rica, I have observed a few commonly repeated mistakes.
If you want your Costa Rica deal to go smoothly, you’d do well to follow the advice below…
Don’t Get Lawyers Involved at the Offer Stage
Offers, called letters of intent (LOIs) in Costa Rica, are informal documents. Your agent should certainly be capable of preparing one. If not, get another agent. There is no good reason to have an attorney get involved at this stage. Once there is an accepted offer in place, then an attorney, usually the buyer’s, will prepare a contract. We call that an SPA, which stands for “Sales and Purchase Agreement.” Once that’s in place, the LOI becomes irrelevant, for the most part.
Understand and Comply with Local Deal Customs
In every area there are certain deal customs that your real estate agent should inform you of. For instance, in my area it is customary for the buyer to make a 10% (of the full purchase price) deposit. This deposit has to be made a certain time after the SPA is last signed, usually within 14 days of signing.
Also, in my area it is customary for the “pure” closing costs, which consists of the transfer tax, stamps and notary fee (usually a bit more than 4% of the total deal price) to be split 50/50 between buyer and seller.
Now, you can always negotiate something different. But don’t be surprised that your seller is expecting that local customs be followed. To try and negotiate something contrary will be going against the grain and could produce a failed negotiation.
Also, as an aside, I think I should state the obvious that you shouldn’t try to change the basic terms of the deal that you agreed to with the LOI in the SPA. That smacks of bad faith negotiation and could crater your deal. The SPA should tack what was agreed to in the LOI.
Use an Escrow Company to Handle the Money
Costa Rica’s banking laws make it downright impossible for an expat whose legal status in Costa Rica is via a “tourist visa” to bring into the country the amount of money necessary to close a real estate deal. To do that, you will generally need to use an escrow company. There are numerous licensed companies doing business in Costa Rica.
Not only do they help you legally manage the process of bringing substantial sums of money into the country, but they also participate as a third-party who will be solely responsible for handling the money and making payments appropriately at closing. I’ve never seen a deal go smoothly when the parties have tried to avoid using escrow. And, many times, they end up having to utilize one after their attempt at not doing so has failed.
If Needed, Have Your POA in Place Early
Many expats will close their deals while absent from the country. This is indeed possible with the use of a power of attorney. This can get a bit complicated, but suffice it to say that if you’re going to be closing with the use of a POA, make sure it is ready to go well ahead of the closing date. In other words, don’t wait to the last minute on this one!
Make Sure Deal Timelines Are Being Followed
The SPA will set forth timelines for the completion of various milestones on the road to closing. Chiefly, there’s a timeline for completing due diligence, typically 30 or 45 days. There’s a timeline for opening escrow and making your deposit, typically 10 or 14 days. And there’s a timeline for closing the deal once positive due diligence is acknowledged, also typically 10 to 14 days. In other words, once the 30 or 45 day due diligence period is over and you as the buyer have stated your desire to proceed to closing, you will have x number of days to prepare and close.
It’s a good idea to be cognizant of these timelines and make sure that parties are following them. If they need to be extended, an amendment to the SPA will generally be required. Also, it’s a good idea for the SPA to state the timelines in terms of either working days or calendar days.
Don’t Wait for Your Major Due Diligence Inspections to be Scheduled
There are various inspections a buyer might choose to undertake for due diligence. However, the two most common are the home inspection and survey. In our area, there are good home inspectors and surveyors to choose from. However, the good ones are all super busy, especially these days. Therefore, it’s a good idea to get these services contracted for and scheduled immediately after the SPA is signed.
Don’t Blindly Rely on Your Agent or Attorney to Get Things Done
It’s always a good idea to know who’s responsible for getting things do ne on the way to closing and when they’re supposed to be done. And then it’s an even better idea to follow up and make sure those things are indeed done as expected.
If You’re Using a Corp, Have it Created Well Ahead of Closing
Some expats get a little too eager about setting up a corporation even before they’ve identified a property to purchase. That’s neither necessary nor a good idea.
A corporation can be set up relatively quickly and your attorney can do so in your absence. While there are good reasons to use them to take title in your purchase, these days there are annual red-tape requirements that have to be complied with. You don’t want to be stuck with having to spend money to legally maintain a Costa Rica corporation, even when you don’t really need to.
In my opinion, I would wait until later in the due diligence stage, when it looks like your deal will indeed close, before you form the corporation. However, keep in mind that having a corporation in place is one way to close via a POA while not being present in Costa Rica. So, while I’m advising you to wait to form one, don’t wait too long!
Have Your Money Ready to Go Well Ahead of Closing
I don’t know how many deals I’ve seen get delayed because the money is not in escrow, fully credited by the Costa Rica bank, and ready to be used for the closing. Costa Rica banks are incredibly bureaucratic. It’s one of the facts about Costa Rica life that will drive you nuts as a newly minted expat. Make sure you have jumped through all the hoops to have your money ready to go on the closing date. That’s the main reason for that 10 to 14 day period from the end of due diligence to closing. Use that time wisely!
Be Available on Closing Day!
Even if you don’t plan to attend the closing, by all means be available by both phone and internet at the appointed time. Even if you have given someone a POA to sign for you, you will still need to sign documents at closing. Chief among them are the Funds Release and the Closing Statement. Those two documents show how the money gets distributed by escrow and the escrow company will want your signature on these, not the POA’s. If they can’t get ahold of you, your deal won’t close.
Also, things can and often do go awry at closing that require your attention. So, don’t be out on a boat in the middle of some lake with no phone or internet service! I use that example because it just happened during a closing. Everyone was sitting around the table waiting for the seller to sign the aforementioned documents by DocuSign from the States. However, the seller was nowhere to be found!
I’m sure I could come up with a few more tips, but those I listed above are ones I see often getting in the way of a smooth deal.
