Escrow

Escrow is an arrangement where an independent trusted third-party receives and disburses money and/or documents for two or more transacting parties, with the timing of such disbursement by the third-party dependent on the performance by the parties of agreed-upon contractual provisions.

It is recommended that retirees and other foreigners set up an escrow account when purchasing property in Costa Rica. A deposit submitted at the signing of the purchase agreement should be held by an escrow agent. An escrow agent is basically a person who has submitted to a substantial background check by the Superintendencia General de Entidades Financieras (General Superintendence of Financial Entities, SUGEF…sort of like our SEC) and is certified to hold money on behalf of a third party. Often the lawyer of one party or another is certified by SUGEF as an escrow agent, and often the seller’s lawyer holds the deposit.

This system has some obvious problems. The lawyers representing both sides in the transaction are not really neutral third parties. The idea is that, as escrow agents, they will remain honest because they have a reputation to uphold. But escrow agents are not regulated other than through a background check and authorization, so if you feel uncomfortable having one of the lawyers handle the escrow, you might want to bring in a third-party, neutral entity to do it, like a title insurance company.

As far as fees, escrow agents usually charge either a fraction of a percent of the deposit or simply keep the interest accrued while the deposit is held. Either way, the fee typically comes out to a few hundred dollars.

Sales agreement or purchase option for retirees

Once the seller and the buyer have agreed on a price, the buyer can do one of two things to bring to deal closer to the final handshake. One, the buyer can sign a purchase option and put down a non-refundable fee, usually a percentage of the value of the property that can vary greatly depending on the situation. The purchase option gives the potential buyer exclusive right to buy the property within a certain amount of time, essentially taking it off the market. A buyer would opt for a purchase option if he or she needed a period of months to investigate and guarantee the feasibility of a large development or to line up large-scale financing. The money put down for the purchase option is non-refundable.

The second thing the buyer could do to bring the negotiation to a close is put down a deposit and sign a sales agreement: a document of several pages, usually drawn up by your broker, that lays out all the terms of the purchase. The terms should include not only the agreed-upon price, payment timetable, and property description, but also any mitigating circumstances, financing arrangement, and the closing date. On that note, there are two main things to keep in mind.

First, as mentioned above, it can take time to get money to Costa Rica. Before you sign on the dotted line, make sure the sales agreement allows for this, or that your money is available. Most sales agreements call for a deposit from the buyer (usually 10%, but that amount, like anything else in the transaction, can be negotiated) that allows anywhere from a week to several months to line up the payment.

The second thing to keep in mind is that you will need roughly another 30 days to carry out the rest of the due diligence process. If the preliminary due diligence went off without a hitch, it shouldn’t take your lawyer or due diligence professional much longer to finish the background check on your property. The contingency in the sales agreement should state that your deposit is refundable should your due diligence background check turn up any deal breakers, a clause that should be as broad as you can make it to cover all eventualities. (The seller will want to make it as narrow as possible.) How much time you need for due diligence also depends on what you’re buying. A new condo will require only the briefest background check, while a 300 hectare plot destined for high-density development will take considerably longer. You will also need to request more than 30 days for due diligence should you have a special case like a Maritime Zone concession or an IDA property. In that case, consult your lawyer..

Investment in Costa Rica are still possible

As far as the human side of the negotiations, negotiating with a Tico land owner versus negotiating with a professional developer are two distinctly different experiences. Business negotiations in Costa Rica are quite circuitous, and if you decide to take part, you will be expected to drink a lot of coffee and begin meetings with long, winding discussions on the weather, family, and other such niceties. It can be pleasant once you get used to it, which you might as well do, because though language barriers may cut down the chitchat somewhat, American-style aggressiveness and brusqueness will get you nowhere.

This is perhaps the most important thing to keep in mind when going into a business negotiation with a Tico, especially in rural areas. If you are an impatient or pushy person and have a difficult time containing yourself, it might be a good idea to find a bicultural broker who can handle the negotiations on your behalf.

Negotiations will, of course, have a different quality if the seller is a developer – local or foreign – with product to move. Developers have a set range in which they will negotiate, and it’s a range that varies depending on the newness of the development. Make an offer and see what happens. Newer developments will be anxious to get some sales on the board and their sales staff are probably more likely to come down in price. One advantage of buying a place still under construction is that you can negotiate the interior, including the fixtures, cabinetry, floor, lighting, and even appliances. If the developer doesn’t want to do things the way you like them, you can negotiate the furnishings right out of the contract and do them yourself once you take possession.

One final caveat to negotiating with Tico landowners is that though you can usually talk the “gringo price” down, it depends on the landowner’s motivation. Some property owners simply slap a se vende sign on the front gate after seeing their neighbor rake in a million bucks. They’re not motivated to sell the property, but they will if the price is right. Oftentimes, however, their expectations are unrealistic and you won’t be able to negotiate that seller’s price down much at all. In that case, it’s best to move on.

Here are a few important features of the property to keep in mind when negotiating real estate deals for retirees or anyone else:

• Grade: How steep is the property? Will it be hard to build on it?
• Bodies of water: While a river running through a property is a nice feature, bodies of water can be either a plus or a minus. Its presence will limit the use of the property, as there are building restrictions within 15 meters of bodies of water.
• Water source: If you need to drill a well, remember that getting water rights where there are none is a separate process. If those rights are already locked it, it will save you a potentially major headache.
• Utilities: Water and power connections to the property (or, more to the point, lack thereof) could have an important affect on the price, as they can be fairly difficult to arrange.
• Access: Is there a way to get to your property? What’s the road like? As a helpful exercise, try to imagine it with five inches of rain falling in the space of a few hours.
• Encumbrances: Does a neighbor have a right-of-way that passes through the property? Are there power lines or pipes that will restrict how you can use the land?
• View: Is it up or down? Does it look out over a the Pacific Ocean or a sea of tin roofs?
• Landscape: Cow pasture and other farm land is relatively easy to build on; forest is not, as you have to get special permits from the Ministry of the Environment to cut down trees.
• Security: Does the development include the infrastructure for 24-hour security, such as a guard shack?
• Financing: Is the seller financing the deal? Is he or she willing to accept balloon payments or some other kind of option that will better meet your needs? Does the seller need quick cash? Will you be forced to wait for any legal issues to be resolved before you close on the deal?

As far as the human side of the negotiations, negotiating with a Tico land owner versus negotiating with a professional developer are two distinctly different experiences. Business negotiations in Costa Rica are quite circuitous, and if you decide to take part, you will be expected to drink a lot of coffee and begin meetings with long, winding discussions on the weather, family, and other such niceties. It can be pleasant once you get used to it, which you might as well do, because though language barriers may cut down the chitchat somewhat, American-style aggressiveness and brusqueness will get you nowhere.

This is perhaps the most important thing for retirees to keep in mind when going into a business negotiation with a Tico, especially in rural areas. If you are an impatient or pushy person and have a difficult time containing yourself, it might be a good idea to find a bicultural broker who can handle the negotiations on your behalf.

Negotiations will, of course, have a different quality if the seller is a developer – local or foreign – with product to move. Developers have a set range in which they will negotiate, and it’s a range that varies depending on the newness of the development. Make an offer and see what happens. Newer developments will be anxious to get some sales on the board and their sales staff are probably more likely to come down in price. One advantage of buying a place still under construction is that you can negotiate the interior, including the fixtures, cabinetry, floor, lighting, and even appliances. If the developer doesn’t want to do things the way you like them, you can negotiate the furnishings right out of the contract and do them yourself once you take possession.

One final caveat to negotiating with Tico landowners is that though you can usually talk the “gringo price” down, it depends on the landowner’s motivation. Some property owners simply slap a se vende sign on the front gate after seeing their neighbor rake in a million bucks. They’re not motivated to sell the property, but they will if the price is right. Oftentimes, however, their expectations are unrealistic and you won’t be able to negotiate that seller’s price down much at all. In that case, it’s best to move on.

BY remembering all of the above and the information from Part 1 of this article and retirees and others should be able to negotiate a fair price for their retirement home.

Pricing is a tricky thing in Costa Rica. Gone are the days when retirees and investors from abroad could snap up beachfront (or even ocean view) property from a cattle rancher for $30,000. More likely today, that cattle rancher will look you up and down and ask for $2 million. He figures it’s worth a shot: You might be working for Mel Gibson, who bought a large farm in Guanacaste. That is to say, there is definitely a gringo price for everything, and it’ll probably be the first one you get quoted, regardless of whether the seller is a local or a foreigner.

The reason for this is that it often pays off. A buyer from Connecticut hears that ocean view lots abutting a national park are selling for “only” $200,000, and maybe he’ll slap down cash for one, sight unseen. Later he’ll find out that there are hundreds – even thousands – such lots, and while $200,000 is a pretty good price in Florida or Manhattan, it’s a little steep for many places in Costa Rica.

Do not be this type of retiree or investor. Make sure the price you’re negotiating over is a decent one. The increasing maturity of the Costa Rican real estate market means, first of all, that there are probably plenty of sales going on in the area where you’re looking to buy. Get those numbers (called “comparables”) from your broker before you start negotiating. And don’t settle for vague-sounding claims of so-and-so buying such-and-such a property over there for such-and-such amount. In addition to coffee, bananas and sugar cane, Costa Rica is great at sprouting rumors, but you should base your negotiating position on documented numbers whenever possible.

Second of all, the burgeoning maturity of the Costa Rican market means that there are lots and lots of options, and the convergence of an unprecedented amount of construction with a financial downturn in the United States means Costa Rica is becoming a buyer’s market. Take any hype about “one of a kind” deals that are “going fast” with a very large grain of salt. Certain parts of the country are absolutely covered with developments and “for sale” signs, and it would be a rare and precious piece of land that you couldn’t walk away from if the price were too high.

As in other real estate markets, formal price negotiations should take place through your broker. The seller’s lawyer will present the asking price and your broker responds with a counter offer that will contain all the conditions you might have for the purchase – for example, any work you want done on the property or house, the time frame for payment or financing, the deposit and length of time necessary to allow your lawyer to carry out due diligence, etc.

Remember all of the above you should be able to negotiate a fair price for your retirement home. This blog will be continued.