Purchasing Property in Costa Rica is Straight Forward
Congratulations on deciding to buy real estate in Costa Rica. Purchasing Property is straightforward and easy if you are working with a qualified Realtor such as myself. Foreigners and residents have the same legal rights as national citizens when it comes to becoming a property owner in Costa Rica. I will be sure that you are protected with a detailed purchase agreement, a reputable attorney, and an escrow agent. I also can recommend home inspectors and contractors if needed. I'll be by your side the entire process and after closing.
Step 1. The Offer - Purchase Agreement
Once you find the property you'd like to submit an offer, I will write up your purchase agreement that you will sign and I will present to the Sellers' agent. I'll only need a copy of your passport and license to write up an offer.
The purchase agreement will detail the deposit amount, length of closing, who will pay the closing costs, if there will be a home inspection, the inventory that is included in the purchase and that all utilities, property taxes, HOA fees (if applicable) and all other operational expenses are paid through the closing date which is typically 5-6 weeks.
Purchase prices are almost always negotiated in US dollars. There are times when the Seller will counteroffer and we will go back and forth until we hopefully can come to an agreement. Once the offer is accepted, I will share it with your attorney, and your attorney will draft the formal Sale and Purchase Agreement which is signed at closing. The offer is legally binding, and it clearly states all conditions necessary for the transfer of the deed.
Step 2. Setting Up & Funding Escrow
Opening an escrow account will be your next step. I will introduce you to the escrow agent via email, and they will then work with you directly setting up your account. The escrow company is a 3rd party company where all monies will be held until the closing and will be distributed by the escrow agent per the signed instructions of the Buyer and Seller.
Escrow companies are regulated by the General Superintendence of Financial Entities SUGEF, which supervises financial institutions. They comply strictly with Costa Rican law and are dully authorized to administer third-party funds.
Your escrow agent will request a few documents that are necessary to open the escrow account for you and the reason for that request is because Costa Rica is subject to laws against money laundry, in which every financial institution must comply with the regulations dictated by the law.
In order to receive funds in escrow, your escrow agent will work on the compliance process beforehand. The bank reviews the documentation, issues its release, and then, funds may be received.
On a general basis (may vary depending on CR regulations and on the nature of the origin of funds) compliance documents should include:
- Copy of your passport that shows also your signature on it (please send a copy of all the pages)
- Document that supports the origin of funds used for the property purchase. This may be, but not limited to: Tax forms for 2018, W2 form or equivalent and bank statements of the last six months
- Know Your Client form (KYC) properly completed and will be sent to you in an email.
You will need to begin setting up escrow immediately and it is necessary to be funded between 10-12 days (per the offer) from the day of acceptance. Funding escrow shows the seller you have good faith in purchasing and the property will then be taken off the market. Once all of the conditions to the sale are satisfied, the escrow transfers the payment to the seller, and the title is transferred to the buyer.
Step 3. Due Diligence - Title Search
Your lawyer will then begin the Due Diligence which is the legal research of the property which will ensure there are no liens, contingencies, legal issues, that it has an absolute fee simple title can be transferred without any issue. Surveys, soil tests, home inspections, and other studies requiring professional services are included in this period. If the property is being sold with an existing company, then the research of the company for any legal contingencies will also be completed during Due Diligence.
Due Diligence usually is 21 days including weekends & holidays. The deposit is fully refundable until the end of the due diligence period. If all is good with the property, you will receive a detailed report of their findings. I can recommend an excellent English-Speaking attorney who I've worked with over the years on many real estate transactions.
Step 4. Closing
The Closing (conveyance of the deed) occurs before a Costa Rican Notary Public, who will register the property under the new company or owner. Alternatively, if the property is being purchased with an existing company, then the shares of the company are transferred at this time by a Shares Transfer Agreement. In this case, the Notary Public will make the corresponding changes to the company’s ownership in the National Registry.
Declaring the property before the corresponding Municipality for property tax purposes by filling out a simple form and presenting it along with some other documents either yourself or through your attorney
A Final Closing and Purchase agreement will be established approximately 5-10 days prior to closing to ensure all is in order. The closing documents will include, a Closing statement and Escrow agreement, (which outlines the disbursement of funds, attorney’s fees, taxes, commissions, mortgages, Escrow and title fees, and all other fees that must be paid out of the sellers proceeds prior to the seller receiving funds (a separate closing statement will be issued to the buyer and the seller with their respective closing fees)), Final Purchase agreement, and a Share transfer (in the case a corporation is purchased which holds the title). The appointed Escrow Company will be responsible for issuing payments to all respective parties and ensure payments are completed. Register final title or corporation transfer in the National Registry. Your attorney will be responsible for the final registration in the National registry to show you as the new titleholder and or manager of the holding corporation. I will always advise that in any case, you follow up with your attorney as well as request your real estate agent to follow up with your attorney until the registration is completed 100% (this process can take between 2-4 week to reflect on the national registry. However all documents are legally signed and you are officially the owner and titleholder).
The government collects a 2.5% transfer tax on all Real Estate transfers. The total taxes levied on a purchase are about 3.8% of the declared value. Nevertheless, a lot of homes are held as a corporation, so simply buying the corporation includes the Real Estate as an asset and no transfer tax is required, just a small attorney (Notary) fee of 1-1.25% of the declared value. The cost for setting up a new corporation, called a Sociedad Anonima, is about $800.00. Title insurance is also available here through Chicago Title and Stewart Title Latin America, your attorney or realtor can advise on this option.