The Buying Process
How to Buy Property in Costa Rica
Many of our clients have questions regarding how to buy property in Costa Rica and the legal process associated with the purchase of property in Costa Rica. This article is intended to give you a general overview of that process.
Visit the Country
The first step to buying property in Costa Rica is to visit Costa Rica! While not legally necessary, KRAIN highly recommends that each of its clients visit the country before buying property here. KRAIN is happy to arrange travel plans to Costa Rica and to develop itineraries to assist its clients in determining which part of Costa Rica is best suited for them. View KRAIN’s You Fly, We Buy Program. We are excited for you to see the beauty and lifestyle that Costa Rica has to offer.
Identify the Property
The next step in the purchase of a property is for the potential buyer to identify the property that he or she wants. KRAIN assists the buyer in this process by identifying and reviewing all of the available property in the area, narrowing the lists of available properties to those that best meet the potential buyer’s needs, and advising the client on the true market value of such properties based on comparable sales data in the area.
In Costa Rica, and unlike other countries, there is no unified Multiple Listing Service (“MLS”) that all brokerages subscribe to determine the fair market value of a property. Rather, in Costa Rica there are two, independent MLS service companies, and they do not share information. In advising their clients on how much to pay for a property, most Costa Rica real estate brokerages use only one of the two MLS service companies (and some brokerages utilize neither, due to lack of funds to pay for these services). KRAIN is one of the only brokerages that utilizes both MLS systems currently in place in Costa Rica. KRAIN’s longstanding and strong relationship with both MLS service companies ensures that KRAIN’s clients (1) have all of the data available regarding the true market value of a property and (2) can use such data to their advantage.
KRAIN accompanies the buyer to each property showing in order to answer all questions and to advise—utilizing KRAIN’s combined 25 years of experience in the industry—on the benefits and pitfalls of the potential purchase. In the case of buying a lot with no existing home, KRAIN advises its clients on exactly how much of the land can be used for building, any setbacks that need to be adhered to, and whether any encumbrances exist to prohibit or deter building. Although typically conducted later within the due diligence period, KRAIN can arrange to obtain the property’s survey plan (also known as the “Plano Catastro”), the Use of Land Certificate (also known as a “Uso de Suelo”), and a property title check from the National Registry before an offer is even submitted.
Submit an Offer
Once we have found that perfect property, the next step is to submit an offer, in the form of a “Letter of Intent” (also known as a “Purchase Proposal” or “Option to Purchase”). The Letter of Intent includes the basic terms of the offer, including the property description, the general parameters of the purchase (the purchase price, the payment structure, and the amounts to be held in escrow), and a closing date. It is common for the buyer and seller to negotiate upon the price of the offer. Once the general terms of the offer have been orally accepted, the Letter of Intent is signed by both parties. This Letter of Intent will provide the attorneys with the general outline to draft a formal Sale and Purchase Agreement.
Execute the Sale and Purchase Agreement
Once the Letter of Intent has been signed by both parties, KRAIN submits the Letter of Intent to the chosen attorney, so that the attorney may draft a Sale and Purchase Agreement (“SPA”).
Although the parties can always agree otherwise, in a typical purchase where the buyer is paying cash for a property, the buyer customarily appoints his or her own attorney to draft the SPA and other closing documents. KRAIN has many legal contacts throughout the country and is happy to recommend qualified and reputable attorneys upon request. Typically, the cost of the attorney is split 50/50 by the buyer and seller.
Exceptions to the above rules exists where there is seller financing. For example, when a large part of the purchase price is being financed by the seller and a mortgage is required to guarantee payment, the seller may request that this or her attorney draft required documentation and/or that the buyer bear the cost for drafting such documents. If the ratio of the transaction is 50% cash and 50% seller-financed, it is common for the seller’s attorney and buyer’s attorney to jointly draft the required documentation, in what is known as “co-notariado.” Read more about financing options.
The attorney will draft the formal Sales and Purchase Agreement (an “SPA”), which details the property and legally secures the property at the agreed-upon price, terms, and conditions. Once the parties execute the SPA, the escrow is ready to be deposited and the due diligence period begins.
Set Up Amounts in Escrow
After the SPA is signed by both parties, the buyer needs to deposit the agreed-upon sum in escrow. KRAIN works with several reputable escrow companies throughout the country and is happy to refer these companies upon request. To establish an escrow account, the buyer will need a valid passport, a copy of last year’s tax returns, and a copy of the executed Sale and Purchase Agreement. The buyer can also expect to fill out various “Know Your Client” forms required by the banks. The escrow company acts as a neutral third party to hold the amounts in escrow (as well as any amounts deposited for the upcoming close of the property), until the contracts are finalized and signed by both parties.
Once the SPA is executed, the Due Diligence Period begins. Within this time frame, the buyer, through its attorney and agents, will need to conduct all necessary or desired inspections of the property, including a home inspection, soil tests, topographical studies, structural studies and water studies. KRAIN has a trusted group of field professionals to handle these inspections if needed.
Also during this period, the attorney must conduct a title search to ensure that the property has a clear title. The attorney will, among other things, search Costa Rica’s public National Registry, or “Registro Nacional.” By law, all documents relating to an interest in or title to real property must be registered in the property section of Costa Rica’s National Registry. The Registro Nacional contains the specific details of the property, including the title registration number (or folio real), name of the title holder, boundary lines, liens, mortgages, tax appraisals, recorded easements, and any other recorded documents that would affect title. The attorney will also conduct an independent title search for further assurance of the property’s clear title.
The attorney will obtain an updated survey plan and a Use of Land Certificate (or Uso de Suelo). Any previously unknown building requirements, setbacks, encumbrances, liens, etc., must be discovered by the attorney and addressed by the parties.
If both parties wish to move forward at the end of the due diligence period, the closing is scheduled.
Attend the Closing
Typically, both the seller and buyer, along with their respective agents and attorneys, will personally appear at the closing. While a personal appearance is not legally necessary—so long as a proper power of attorney is executed—KRAIN recommends it clients personally appear at the closing. At the closing, the attorney will bring a recently-drafted transfer deed (or Escritura), which is necessary to transfer Costa Rican property from the seller to the buyer. This deed must be executed on front of a Notary Public. (In Costa Rica, the real estate attorneys are also notaries, so the attorneys’ presence fulfill this requirement.) If not a full cash purchase, a mortgage will also need to be executed. (In this situation, the transfer deed and mortgage are often drafted together as a single document.)
It is typical for the buyer and the seller to share equally in the closing costs, although the parties can agree that all closing costs be financed by one particular party. These costs include government-imposed transfer taxes and fees, notary fees and registration of mortgage costs, if applicable. Learn more about Closing Costs.
Sometimes the property being purchased is held by a corporation, rather than by an individual. In this case, a Share Transfer Agreement is executed in lieu of a transfer deed. Read more about buying property held in a corporation.
Register the Transfer Deed
After the closing, the attorney will need to engage in a two-step process to notify the government and the public that the buyer is the new owner of the property. First, the attorney must present (called “anotar”) the transfer deed to the Property Section of the Registro Nacional. At this stage, any remaining fees must be paid and encumbrances lifted. One the transfer deed has been accepted by the Registro Nacional, it will be returned to the attorney with all of the proper documentary stamps and seals affixed to it. The attorney must then register the transfer deed (called “inscriber”) with the Registro Nacional. Registration protects the buyer’s right to the property against third parties, and so it is important to follow up with the attorneys to ensure that this process is completed and that the property is registered under the buyer’s name. The time frame for registration is approximately 45 to 60 days after presentment.
Register with the Local Municipality
The final step in purchasing a property is to register the newly-acquired property with the local municipality for tax purposes. This can be done easily by the buyer or the buyer’s attorney. The buyer usually needs to present the closing documents, bring his or her passport, and fill out a form to register the property.
Congratulations, you are now an owner of your Costa Rican dream property!
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