Costa Rica – Watch Out for the Real Estate Sharks

Thinking about buying real estate in Costa Rica? It could be a great investment or your biggest headache. Read on to learn how to stack the odds in your favor.

Costa Rica does not regulate the real estate business and this leaves you, the buyer, at a huge disadvantage. All real estate agents in Costa Rica are in business for only one reason – to make money. They only make money when they sell a property. All the agent wants is your money. The expression “shark” is a very fitting synonymous for “real estate agent.” However, in my opinion, it is it is a derogatory comment about sharks.

Agents can be great people, best friends and can even be from your home country but do not trust them as the final authority with your investment money. They do not have your best interest at heart.

Here is my personal list of real estate stories (lies?) that I have heard from several agents in Costa Rica.

1. All Ticos (Costa Rican’s) are out to screw you! I have found that some are and others are not out to take advantage of you financially. After living here for a year, personally I am more leery of Gringos trying to sell me something than the Ticos. This is because I know what the Tico wants but do not know the Gringo’s true agenda. Anyone who uses such generalizations should be included in the group that they are criticizing.

2. “We don’t mark up property like other agencies…” They may not use the same % of markup (called “Net Listings” which are illegal in the US) but don’t believe them unless they will let you or your attorney talk directly to the seller to verify the asking price. There is one very well known agent in the northern central valley that has previously openly advertised that he doesn’t mark up properties when in reality he does mark up property whenever he thinks he can do so. I forgot the exact words he used but the gist was: Real estate in Costa Rica is unregulated so we can do anything we want.

3. We charge a commission to the buyer because Costa Rican’s don’t pay commission. What a line if I ever heard one! Costa Ricans are not dumb and they know that to sell the property, they probably have to pay someone to find a buyer. Is the agent double dipping? I don’t know but I am willing to bet that nine times out of ten the seller is paying someone to get the property sold and the agent is making money on both sides of the transaction.

4. You or your attorney cannot talk directly to the seller. The excuse often given is that they are afraid your attorney is unscrupulous and may steal the property or something like that. My supposition is that the agent is either marking the property up and/or charging the buyers a commission while the seller is also paying a commission.

5. “We have already done all of the due diligence for you.” When problem arises the water or electricity or the neighbors, your agent is not going to pay to fix it, rather he will say something like “Gee I’m awfully sorry, I didn’t know about that.” One agent is advertising that they have done ALL of the due diligence on their properties before they list them. If that is the case, I wonder why the property I purchased from that agent doesn’t have any water available when he stated to me that it had water on the property.

6. Your agent states that he is making a full and truthful disclosure to you. California has one of the toughest disclosure laws in the real estate industry while Costa Rica has none. One agency in the northern central valley is currently promoting a house they are building on speculation by saying Vulcan Poas is not dangerous. In March, 2006, Vulcan Poas roared back to life (it is and has been one of the two most active volcanoes in Costa Rica) and scientists are now concerned because the water temperature of the lake is some 30 degrees hotter than normal. Is this a full and accurate disclosure? Not in my opinion.

7. Your earnest money deposit is not refundable. Some agents use contracts or “letters of intent” that state that deposits are nonrefundable and that the seller receives the deposit immediately! You can and should write a purchase contract where your deposit is held in escrow and is refundable if certain conditions are not met. I strongly advise that you think long and hard about a deal if the agent says you have to make a nonrefundable deposit.

8. The seller can change his mind any time he wants and refuse to sell. Again, some agents do not know how to or do not want to write a correct contract. If you have a purchase option and have it recorded, it will be much more difficult for the seller to back out.

9. You don’t need to use your own attorney. Just read our personal experience with attorneys and you will see why it is imperative that your attorney represent you and only you.

10. You have to pay all of the closing costs. The custom in Costa Rica is to split the closing costs equally between the seller and the buyer. Of course you and the seller can agree on other terms but don’t start off by offering to pay for everything – that just makes the job easier for the agent.

11. You don’t need a new plano. Your plano is a legal survey of the property. Unless you get a new plano you will not know for certain that what you are looking at is really what you are buying. It is a fact that some fences are occasionally moved by the neighbors and a lot of older surveys are flawed.

12. Don’t worry about utilities… The previously mentioned agent and his associates use practically the same story for every lot they show to their clients – “Electricity should cost about $3,000. The road should be about $2,500 and water is right over there.” Just make sure you verify everything with the proper authorities and get real estimates from the people that will be doing the work. Don’t be surprised if you find out that the real costs for installing utilities are up to 10 times as much as the agent stated.

13. The water is safe to drink. Over 90% of the surface water in Costa Rica is polluted with gray water runoff, industrial pollution, farm run-off and human waste. Even the large “municipalidades” have problems with human waste and gas getting into their wells. If you don’t know where the water is coming from get it tested.

14. Gringos are more honest than Ticos. This is a common misconception or misplaced belief on the buyer’s part that makes them feel more comfortable parting with their money. It is really easy to fall into this “comfort trap” and believe that all Gringos are honest. The simple fact is that it is easier for a Gringo to sell property or an investment to another Gringo. Think about it – Why are all of the international time share resorts are staffed with Gringo sales people?

15. No, the lot isn’t too steep… If the property is steep you have two options: Build on piers which is more costly or: Cut out a building pad. Either way make sure you allow for adequate drainage. I have seen some lots carved out of a hillside where there is bare earth for forty to fifty feet almost straight up. Landslides are common in Costa Rica, even though it is practically all volcanic soil. Don’t think your lot is an exception unless you obtain an engineer’s opinion. My uneducated opinion is that a retaining wall just delays the inevitable. When in doubt ask an engineer, not your agent.

16. Ticos are not litigious like people from the US. This is an out right lie. There are so many suits pending in Costa Rica, some courts are backed up for up to 10 years.

17. “I am an expert on Costa Rica real estate.” Ask them how long they have been in the country selling real estate. If they have not lived here full time for at least 10 years, then they, like me, are not experts.

How do you avoid these traps? Check out Living and Building in Costa Rica at http://www.die-trying.com/html/re_truth.html.

All of these “myths” are solely my opinions and are based on situations where I have personal knowledge of the facts.

Remember, nobody, including me, cares more about your future than you do. Verify, verify and re-verify before you invest.