How to Buy Smart in Costa Rica
MAKING AN OFFER
The first step in the purchase process (once you have narrowed down your final investment choices) is to make an offer. With our consultants help we will draft a letter of intent to purchase (also known as a purchase proposal).
In this proposal we break it down into 3 sections:
- Buyer and seller’s information, passport and property information
- Proposed purchase price along with the terms of the offer
- Conditions of sale
With your offer in writing, this will enable us to negotiate for you and reach a basic agreement signed by both buyer and seller (before getting attorneys involved). The negotiations will consist of:
- Total Purchase Price
- Terms of Sale – payment structure and closing dates set thereafter, Due Diligence Period (investigation time on researching the property).
- Conditions – any necessary specifics or changes about the property agreed upon for the purchase.
Once the deal has been agreed upon, the terms must be legally formalized. The “offer” negotiated between the buyer and seller provides a proper outline and structure for your attorney to use.
FINDING QUALITY AND QUALIFIED LEGAL REPRESENTATION
Finding a qualified lawyer to handle real estate transactions in Costa Rica can be difficult if you don’t know where to look. The Costa Rican government has yet to institute a Barr exam or implement serious regulatory rules, penalties, or repercussions for “malpractice” by attorneys. This enables any Costa Rican attorney to practice outside of their chosen field of expertise without serious consequences. Therefore it is critical that you choose legal representation that properly qualifies as a “real estate attorney” who is established and / or referred by someone you trust.
Costa Rica Real Estate Service has over 11 years in the real estate sales, investing, and development in Costa Rica. All of our employees are either Costa Rican citizens or American expats with legal residency and many years of life experience living in Costa Rica to fall back on. In other words, our American consultants have already experienced what it is like to move to a new country and we intimately know the ins and outs of living in Costa Rica from a unique perspective – use our experience to your advantage.
If needed, our consultants will assist you in finding your attorney. We have developed relationships with several qualified attorneys, with reasonable rates and years of dependable and ethical service to our firm. We do not have any financial interests with the attorneys we refer, they simply have provided good results for our clients – time after time. Interview as many of our referrals as you like until you find one that you are comfortable working with. You can view our Legal Referrals Here.
Our goal is to provide you peace of mind knowing that your hard earned investment money is safe and secure. We are in the business of developing long-term relationships with each and every one of our clients and the foundation of that strategy begins with the understanding that we are looking out for you. We are here every step of the way.
Once the Purchase Proposal is signed by both parties the attorney will draft a Sale and Purchase Agreement (SPA) to officially and legally secure the property with the agreed upon price, terms, and conditions. Now you will be ready to set up an Escrow account.
SETTING UP ESCROW
Once you have chosen your legal representation, and both buyer and seller have signed the Sale and Purchase Agreement (SPA) you will then be ready to set up your Escrow account for the purchase. The Escrow Company acts as a neutral party to hold deposits as well as closing funds until closing contracts are finalized and signed by both buyer and seller so title transfer can be executed.
In order to set up a Escrow account you will need a copy of your passport, fill out the “Know Your Client” forms, last year’s tax returns and a copy of the Sale and Purchase contract drafted by the closing attorney and signed by both buyer and seller.
ENSURING CLEAR TITLE
Pursuant to article 460 of the Civil Code, all documents relating to an interest and/or title to real property in Costa Rica must be registered in the property section of the Public Registry. This database can be searched at www.registronacional.go.cr either with the titled registration number, known as the folio real, or by name index.
The record contains detailed information on the property, including the name of the title holder, boundary lines, tax appraisal, liens, mortgages, recorded easements, and other recorded instruments that would affect title. In addition to this resource, it is always advisable to have your attorney conduct an independent title search for further assurance of a property’s marketability.
Our Consultants are here to assist you and or your attorney on any fieldwork you feel is needed for the purchase including: Soil studies, Topographical studies, Title search, structural studies, water studies, etc.
TRANSFER OF TITLE
In Costa Rica, property is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public. By local standards the notary acts on behalf of the state; in addition, he or she must be an attorney, and may draft and interpret legal documents.
In order to close on the property, the parties involved must select a notary / attorney to draft the transfer deed and register the sale in the Public Registry (Registro Nacional). In accordance with local custom, this designation is defined by the manner in which the financial transaction is affected.
Cash: When paying cash for the property, the buyer may appoint his or her notary / attorney.
Financing: If a percentage of the purchase price is being financed, the designation of the legal representative depends on the proportion between cash and financing. 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 his or her notary / attorney draft the transfer deed.
If the ratio for the transaction is 50/50, it is common for the seller’s attorney and the buyer attorney to jointly draft the transfer deed and mortgage in a single document, in what is known as co-notariado.
In either case the buyer may insist that his or her notary / attorney draft the transfer deed while letting the seller’s notary / attorney prepare a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries a higher registration fee.
It is customary for the buyer and seller to share equally in the closing costs, although this can be modified by agreement depending on the particular transaction.
The costs associated are: government taxes and fees, notary fee, and mortgage costs, if any.
The government imposes a 1.5% Transfer Tax (Impuesto de Traspaso) based on the registered value of the property or the declared valued in the closing documents, (whatever is higher). In additional to this tax, there are 5 more taxes that must be paid in the way of Registration stamps. This amount ranges between 0.7% and 0.8%, also based on the registered value of the property or the declared price in the closing document, (whatever is higher).
The notary that drafted the contract for sale and carried out the closing on the property transfer is entitled to a Statutory Fee. In accordance with Executive Decree No. 32493, the minimum for all acts and contracts that are authorized by a Costa Rican Notary Public is determined by the following schedule, based on the actual value of the transaction:
- Up to 10 million Colones = 2%. On the excess of 10 Million Colones and up to 15 Million Colones = 1.5%.
- On the excess of 15 Million Colones and up to 30 Million Colones = 1.25%.
- On the excess of 30 Million Colones 1%.
The law also states that acts or contracts that are complex in nature may result in a 50% surcharge from the above. This fee is based on the real market value of the property. (For the purposes of this explanation and the aforementioned Decree, this is what is named as the “General Tariff”).
Please be aware that these costs are just for the transfer and ownership registration in the National Registry. If there is a balance due after closing, the registration of a Mortgage, Guarantee Trust or other kind of guarantees may be required, in which case the respective costs must be added. It is standard that the costs for these guarantees are solely paid by the Purchaser, unless parties have expressly agreed something different. If closing takes place by means of a transfer of corporate shares instead of transfer of property ownership, the costs are usually a lot lower.
When a mortgage is required, it is a customary for the person who is receiving financing to pay the costs of drafting and registering said instrument. Either the Mortgage or the Guarantee Trust may be created either in the same transfer of ownership document or in a separate document. However, it is very important to process and register them both together otherwise; one or more of the parties may be unprotected during such process. Therefore, it is very important that the same Notary be processing them.
The cost of a Mortgage is based on the declared amount due and will pay a little bit more of 0.3% of such amount in Registration Stamps. (A form of tax). A Notary Public will also charge for drafting the mortgage instrument according to the General Tariff indicated above. If the Mortgage is to guarantee a loan, the full tariff will be applied. If it is to guarantee the Purchase Price Balance, only 50% of such tariff will apply.
Closing Costs Estimate From CV Firm Legal
Costa Rica Closing Cost Calculator at CVFirm.com
The calculator will give you a general idea of what your closing costs will be. The amount may change to lower or higher values depending on certain variables. We are more than happy to directly answer any questions you may have. For more information about the legal group “CV Firm Costa Rica”, please visit our Legal Referrals page.
REGISTRATION OF THE TRANSFER DEED
Once all the fees are paid, the notary must present (anotar) and register (inscriber) the transfer deed in the Property Section of the Public Registry. This is a two step process that initially implies the presentation with the Public Registry.
At this stage all fees must be paid and any encumbrances lifted. Once the transfer deed is accepted for registration it will be returned with all the documentary stamps affixed to it and property sealed. Assuming no defects in the transfer deed, it should be registered by the Public Registry within 45 to 60 days after presentation. It is essential to follow up with the Notary to ensure the transfer has in fact been recorded.
The growing real estate market in Costa Rica offers a multitude of options for owning property in a tropical setting. No matter what step of the process you might be in, understanding the procedures involved is the best way to safeguard your investment and ensure its profitability.
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