Costa Rica Real Estate Tips

As a foreigner, Buying real estate or property in Costa Rica can be a challenge since they speak Spanish, the property laws are different than in the United States and you don´t know who to trust.

Since I just purchased a Costa Rica Home with my parents, I want to share my mistakes and teach people about what to do and not to do.

So get ready for Costa Rica Real Estate Tips!

They are several hundred real estate brokers in Costa Rica from when the economy was better and the real estate market in Costa Rica was booming.

The price of real estate in Costa Rica are still low and a bit lower than it was a year ago due to the economy however, they are less buyers now which means that the property sellers are willing to go down on their asking prices by up to 5%.

If you do a Google search, for costa Rica Real Estate you will get over 55 million search results which makes the decision tough as to whom to choose.

I looked at about 20 real estate website and a few real estate classified websites before I started making phone calls to them from the United States and ended up making appointements with 3 of them.

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Once the negotiation process of the property price has been finalized, here is what comes next:

In Costa Rica, property is transferred from seller to buyer by executing a transfer deed, or escritura before a Notary Public.

The notary public has extensive powers to act on behalf of the state. Keep in mind that the notary public must be an attorney and must be able to draft and interpret legal documents as well as authenticate and certify them.

Once a notary public has been chosen, the notary public/attorney will have to draft the transfer deed and register the sale in the Public Registry (Registro Nacional).

The local custom is that the buyer may select his or her notary/attorney to draft the transfer deed if paying cash for the property. If a purchase is financed, there are a few options for selecting the notary/attorney:

1. If a large percentage of the purchase price is being financed by the seller and a mortgage needs to be drafted to guarantee payment, the seller may request that her or his notary/attorney draft the transfer deed.

2. If a property is purchased with 50% cash and 50% financed, it is common for the buyer's attorney and seller's attorney to jointly draft the transfer deed and mortgage in a single document.

3. The last option allows the buyer to insist that his or her notary/attorney draft the transfer deed and let the seller's notary/attorney draft a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries a higher registration fee.

You have a choice of the property being purchased in an individual's name, jointly with other people, or in the name of a corporation. This decision should be based upon your situation and should be considered with an attorney.

One of the best websites to visit to get information on how to purchase Costa Rica properties is A1CostaRicaProperties.com as they have a section that gives you step-by-step information on how to look and buy real estate.

Under Costa Rican law, all documents relating to an interest and/or title to real property must be registered in the property section of the Public Registry (Article 460 of the Civil Code). Most properties have a titled registration number known as the folio real, which you can use to search the records database. The Public Registry report, or informe registral, gives 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.

Recorded instruments presented to the Public Registry are given priority according to the data and time in which they are recorded. Every situation differs, and in some cases a review of the Public registry record will not be enough to uncover all encumbrances. It's important for the buyer to have his or her own attorney conduct an independent title search rather than rely on the seller's attorney.

How much does closing cost?

Usually, the buyer and seller share the closing costs equally unless other arrangements have been made between the two. The closing costs include government taxes and fees, notary fees and mortgage costs.

Government transfer tax and registration fees include the following:

1. Real estate transfer tax. The government collects a property transfer tax, or impuesto de traspaso, equal to 1.5% of the registered value of the property. The Public Registry won't transfer a deed unless the transfer taxes and documentary stamps have been paid.

2. Documentary stamps. The government also requires that documentary stamps be affixed to the deed. These include the Municipal stamp (timbre municipal), legal bar association stamp (Timbre del Colegio de Abogados), Agricultural stamp (Timbre Agrario), National Archives Stamp (Timbre del Archivo Nacional), Fiscal Stamp (Especie Fiscal). The Public Registry also places its own tax of .05% on documents presented for recordation to the Public Registry (Derechos de Registro).

Notary Fees

The Notary that drafts the contract for sale and carries out the closing is entitled by law to a fee equal to 1.5% of the first one million colones of the actual sales price and 1.25% on the balance.

Mortgage Costs

Normally, the person who is receiving financing pays the costs of drafting and registering the mortgage instrument.

A mortgage can be created simultaneously at the time of sale by adding a mortgage clause in the transfer deed or a separate mortgage instrument can be drafted. A mortgage document pays registration fees of 1.00 colon for every 1,000 colones.

The mortgage document also pays documentary stamps. The notary public will also charge for drafting the mortgage instrument, and that fee can range from approximately .625 percent to 1.25 percent of the amount of the mortgage, depending on the circumstances involved.

The buyer should be aware that Costa Rican real estate transactions commonly operate on a two-tiered system, since Costa Rican properties have a low property tax appraisal base in relation to market value, it is a customary practice to run property sales through at the registered value, which may be substantially less than the actual sales price of the property.

In such a case, all transfer taxes and fees discussed above would apply to the registered value as opposed to its sales price, with the exception of the notary fee. Buyers should consult their attorney about the potential risks of this practice.

Registration of the transfer deed

Once all the fees have been paid, the notary who drafted the transfer deed is obligated to ensure that the deed is presented and registered in the Property Section of the Public Registry. Presentation guarantees your priority, but it does not automatically guarantee registration.

The Public Registry will not register transfer deeds unless all taxes and registration fees are included, a certified copy from the municipality where the property is located is provided certifying that the seller's property tax and municipal assessments have been paid through the date of closing. Likewise, any prior instruments that encumber the property (i.e. mortgages, liens, judgments, etc) must be lifted before your transfer deed will be registered.

Once a transfer deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed and properly sealed. Assuming no defects in the transfer deed, it should be registered by the Public Registry with 45 to 60 days after presentation.

It is therefore important to follow up with the notary to ensure registration, otherwise you will run into problems in the future when you decide to resell the property and find out your sale was not registered.