How do you buy real estate in Costa Rica?

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The Buying Process

Purchasing

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Home Inspections

The home inspection itself is one of the most important steps in the due diligence of involved with purchasing Costa Rican real estate. Hiring a professional home inspector will aid in the creation of your own assessed value. This is important because the municipality, the home owner and the real estate agency may not provide the best assessment for your interest. Home inspectors can be found all over Costa Rica and it is ideal to find one independently of your real estate broker.

Home inspections last a few hours and they mostly look for pests, structural damage and potentially dangerous wiring and utilities. It usually takes another day to write up the comprehensive report regarding, water shut-off, electrical issues and other fundamentally important aspects of a property that one may not consider. They can give you a great all around sense of what the property has and does not have to offer. This can save a great deal of money when looking at the consequences of over paying for a property.

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The Buying Process

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Attorneys

The most important step in the purchasing process is to find the right attorney. It is advisable not to use the seller's or broker's attorney and find an independent agent instead. A solid choice for an attorney should specialize in real estate, ensure that the contracts serve your interests and requirements and protect you throughout the entire real estate transaction. To enable yourself, follow these steps to ensure a smooth and successful real estate buying experience:

Make sure that your identification cards, driver's license and passport, are with you and current. Double check to make sure your passport was properly stamped for your visit. Upon finding the property that you would like to purchase, negotiate the conditions and purchase price with the seller through your broker, find out how the seller would like payments to be made and make a "good faith" deposit to be leaned against the closing of the real estate transaction. Have the seller put in writing all of the things to be included with the property. It is imperative that any pre-closing documents are signed and included if necessary. Obtain a registered plot map (plano catastrado) from the National Registry (Registro Nacional) that clearly shows the property that you would like to buy is the one you are getting per the contract. If the map is not current, hire a topographer to survey the plot again. Plot maps can be found in the registry section, Map Registry Department of the Property Registry (Catastro) of the Registro Nacional.

Each and every Costa Rican real estate plot has a registration number or matricula de folio real located at the Registro Nacional. The registration number is crucial for finding much of the information that you will need from this point on. The numbers on the code correspond to the folio real number, the province number and the number of individuals who have rights to that property in that order! 999999-1-001 is property number 999999 in San Jose (1) with one owner (001). Armed with this information, you have a huge check point at which to decide whether your seller and agent have been upfront with you and if you should continue. The next step is to investigate the public record with the registration number to obtain: a registered survey, property location, boundaries, ownership type, declared value, assessed value, liens, and encumbrances that could influence property transfer.

At this point in the process the seller may want an earnest money or a pre-closing deposit. This is not a point where you are ready to have money exchange hands. One way to assure the seller is to create an escrow or trust with your attorney. Do not engage in a transaction with the seller.

The next step is to review the transfer deed (escritura). It is executed by signing with you the buyer along with the seller and notary. The deed must then be recorded in the notary's records and a copy must be sent to the Registro Nacional for official registration. After the notary submits the deed with the Registry, it can be empowered through annotation. This helps to avoid potential liens and encumbrances by lawfully notifying the state that the deed is being registered enabling that to take precedence over other documentation that may surface.

At the Registry, the deed is verified, corrections are made at this time if needed and it is registered under the name of the new owner. The annotation gives three month's protection. The deed should be presented as quickly as possible to benefit from the protection assuring that no other deed or limiting documentation can be presented and affect the property rights you expect to have.

Now all stamps, taxes and notary fees should be transferred to the seller and the state accordingly. Upon payment and satisfying all these conditions, the deed must be registered within one year of the presentation date or else the state will void it! Once you register the deed, verify that it was properly registered by asking for a copy of the closing document (testimonio) that should be signed by the registrar and entered electronically to their records identifying you or your company as the legal owner. After this is completed the transaction is complete and you are officially the owner of Costa Rican real estate!

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The Buying Process

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Survey Map

The survey map with the owner's name and the specific properties registration number is located at the Catastro registry. There is one master map and the property of interest should be noted, to specs, in its exact location. This map gives size, boundaries and the exact location of the land and structures contained. It is mandated by law, that all transfer deeds have a survey map complete with a unique reference number.

Be advised that the notary may not verify that the land you expect to buy is the land noted by the survey map that will be involved in the transaction. This is where a bait and switch can be used and it is in your best interest to verify the consistency yourself! The information on the survey map may not be congruent with the Registro report either. Independent surveyors can help alleviate this problem as well if you are unsure how to handle this. This problem can come up when a property owner has made changes to the land that are not indicated in the registered deeds such as adjusted measurements and even ownership changes!

While reviewing the physical property and the legal climate surrounding it, you should also Stake out the boundary lines. (replanteo) Have a surveyor come out to the the land and mark boundary lines with stakes. It typically costs $500-$900 depending upon the size of the property. Often times owners of the property do not know their exact boundaries and the real estate agent typically only knows what the seller told them which can potentially be inaccurate.

A good lawyer will aid you in this process. Making sure you are 100% sure about what you are buying and what it entails makes these steps a great move for a prospective real estate buyer in Costa Rica.

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Registration

All property must be cataloged and accessible in the Public Registry of the National Registry. Over 99% of all properties are registered this way. To register a condominium, the Propiedad Horizontal section is used and to register beach front the Registro de Concesiones de la Zona Maritimo is used. The Public Registry Report (Informe Registral) gives all of the information regarding Costa Rican Real Estate using the unique title registration number or the folio real: title holder, mortgages, boundary lines, easements, declared value, property tax appraisal, liens and encumbrances.

Register the transfer deed once all the fees have been paid. It is the responsibility of the notary who composed the transfer deed to make certain that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry. Regardless, it is vitally important to follow up because of the stakes. Presentation secures that you are first in time and first in rights for the properties ownership and uses. Presentation does not guarantee that registration has been completed properly. To ensure that registration with the Public Registry is executed and the transfer deed is registered you must make sure that: all taxes and registration fees are included, a certified copy of the deed provided by the municipality where the real estate is situated is given verifying that the seller's property tax (bienes inmuebles) and municipal assessments (impuestos municipales) have been paid all the way through the closing date. In addition, any encumbrances like unpaid mortgages, liens, or unsettled judgments must be cleared prior to the registration of your transfer deed.

Upon proper presentation and registration of the transfer deed, the Public Registry will accept the deed for registration. The original documents will be returned to you sealed and stamped. The timeline for public registration is 45 to 60 days after presentation if there were no errors on the deed. If this is not done you must contact the notary to make sure registration was done properly. If not, then you will necessarily run into problems when you try to sell or improve the real estate.

Navigating the Registro!

Beachfront (Concesiones de la Zona Maritimo Terrestre)
Commercial (Seccion Mercantil)
Condominiums (Propiedad Horizontal)
Bank Mortgages (Hipoteca)
Bond Mortgages (Cedulas Hipotecarias)
Plot Registry (Catastro)
Leases (Arrendamientos)
Public Works Concessions (Registro de Concesiones de Obra Publica)
Presented but not yet registered (Diario)
Maps (Mapeo)
Scanning Department (Escaneo)
List of power of attorney and people affected by outstanding liens (Personas)

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Closing

Costa Rican real estate closing costs are traditionally shared between the buyer and the seller. Before the transfer deed can be added to the Registry, all closing conditions must be satisfied: notary fees paid, mortage costs listed, trasfer taxes paid, stamps paid and seller's property taxes paid. The Registry will not record the deed and it will be presented only. Within one year of presentation, the other conditions must be met and the transfer deed must be registered or the contract is annulled and you will owe 25% of the total public notary fee.

The property transfer tax is equal to 1.5% of the registered value of the property. The stamp duty is also paid during closing. Costa Rican law mandates that all stamps be included with the deed. The requisite stamps are: The Legal Bar Association Stamp (Timbre del Colegio de Abogados), The Municipal Stamp ( Timbre Municipal), The Fiscal Stamp (Especie Fiscal), The National Archives Stamp (Timbe del Archivo Nacional) and The Agriculture Stamp (Timbre Agrario). There is a Public Registry tax of 0.05% for all transfer deeds presented to be recorded in the Public Registry. When it is all finished, the cost of closing is roughly 1.9% per person.

The Buying Process

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Incorporation

Why should I incorporate to buy real estate in Costa Rica? There are many reasons why this is the strongly prefered meathod of purchasing Costa Rican real estate. You can keep anonymity by purchasing through a corporation. Your title deed does feature your name when it is searched at the Registro Nacional. Ones personal assets are not held responsible for any unforeseen costs that arise from the property. If you experience financial trouble or get into debt, you cannot lose your home if it is owned by a company. If your real estate is a personal asset, it must be used to pay back debt. Company shares can be put in the names of close family to evade probate should the situation arise.

The biggest and most applicable reason to buy through a corporation is to avoid the transfer tax. When your company sells the property, the buyer just buys the shares of that company. This is an expeditious way to transfer real estate. The pitfall can come in the fact that liens and encumbrances are transferred along with the asset if they exist. Visit the local Registro Nacional for free and full disclosure on these issues.

Costa Rican companies are required by law to file income tax returns. If there has been no ownership changes in your company and you are using just as a holding company for the real estate then you are subject to a much lower property tax! All that you have to pay is the annual stamp duty and the property tax which is only 0.25% of the registered value!

How do I incorporate? There are two types of companies to choose from.

The most commonly used is a Sociedad Anonima. In order to do this one must have at least three board members that are from abroad or from Costa Rica. Also it is mandatory that you have a fiscal and agent resident in the country that is certified to practice law. There is no tax on this corporation if it is used exclusively as the real estate's holding company. The Timbre de Educacion y Culture or the annual stamp fee is the only money due. Sale or transfer of stock is not taxable for there is no capital gains tax on these corporations.

A Sociedad de Responsabilidad Limitate (Limited Liability Company) is less often used due to the fact that it takes more time to start one. If one purchases it from the owner of the property during the transaction this problem is alleviated. Only one owner is required for this type of company, but all shareholders must sign off on any transfer of shares. If this is the method you choose, make sure that the business had no commercial activities and has no financial burdens on the side.

There are two other forms which may be the best in some unique circumstances. These situations are easily diagnosed by a good lawyer and they can guide you in real estate purchases with these business types: Sociedad en Nombre Colectivo and Sociedad Comanditaria. For commercial agility and versatility in dealings, the corporation if choice is typically the Sociedad Anonima.

The Buying Process

Purchasing

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Appraisals

The appraisal registered with the municipality, the real estate broker and the sellers asking price combined provide plenty of room for inaccuracy. If you are not sure about how to measure the true value of the real estate of interest there are professional appraisal services within Costa Rica and we recommend that you take advantage. Appraisals usually last 2-5 hours and cost $150 to $500 depending upon size. If you are serious about making an offer this is an important step.

There are many things that can bring down property value and knowing these things can enable you to respond to high asking prices with a reasonable offer that is as low as possible. Does the house have pests, good water supply, a solid foundation? How close are you to public transportation? Hospitals? What are the local short comings of this specific area? Having these services performed gives you extra fuel for negotiation. Costa Rican culture accepts and promotes haggling so it is only to be expected that there may be some questions and negotiations during the purchase.

The Buying Process

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Contracts

When reviewing the contract it is important that you understand every word. The real estate industry is not as regulated as in the U.S. or Canada. Under the "attorneys" section above, there is a comprehensive layout of the steps that will go on during the purchasing process. It is important to know them so that you can hold your council accountable throughout the process.

Contracts in Costa Rica, by law, must be written in Spanish. However, if there is a party involved that does not understand Spanish, a translator must be provided that is deemed suitable by all parties involved in the real estate transaction. This right can be waived if the individual chooses to do so.

All documents involved with the sale are included in the Protocol Book. The Notary Board will possess the Protocol Book and once the contract has been executed and the property transferred, it is given to the National Archive for public access. Notary Publics are not held harmless and are fully responsible for any failure on their part to perform their professional obligations and duties as well for the violation of Laws and regulations under disciplinary, civil and criminal liability.

The contracts involved with purchasing real estate are guided by the Costa Rican constitution and regarding property rights it reads, "is inviolable; and nobody can be removed from their property unless in force of public interest legally proved, under previous indemnification according to the law". The purchasing contract transfers all rights to the buyer. The notary must be involved in all transactions. They create the Notarized Property Conveyance Deed (Escritura Notarial de Traspaso de Propiedad): This is the manuscript, requisite by law (under article 450 of the Civil Code) in order to transmit real estate property from buyer to seller. It is a property transaction agreement composed by the Notary Public in the Protocol Book containing a comprehensive identification of the parties involved, a full description of the real estate and the transaction information and provisions (acquisition price, easements, mortgages or other legal details).

The deed must be signed by the parties and then by the Notary. The official transcript (testimonio) is then issued by the Notary for official public record. This text must contain the Notary's signature, security tag, raised seal and must be printed on certified security paper. Transfer taxes, legal stamps and fees are paid at Banco de Costa Rica (the designated bank for the Public Registry) and a certified bank slip is included as receipt to the transcription in order to substantiate the payment.

The Buying Process

Purchasing

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Titles

The title is the ultimate arbitrator when a dispute comes up. A properly documented and submitted title at the time of purchase gives you ultimate land rights over any liens or encumbrances that may come up. The title is insurable and can be completely guaranteed. Lawyers and insurance companies in Costa Rica offer service to do this.

When you purchase Costa Rican real estate, it is very important to make sure your notary and your lawyer verify that the title is accurate and belongs to your seller. In Costa Rica, the title is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public. Unlike common law countries, such as the United States and Canada, where the role of the notary is limited to authenticating signatures, in Costa Rica the notary public has extensive powers to act on behalf of the state. The notary public must be an attorney and she or he may draft and interpret legal documents, as well as authenticate and certify the authenticity of documents.

In order to close on the property, the buyer and seller must select a notary/attorney who will 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 the purchase price is financed, there are generally three alternatives 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, then the seller may request that her or his notary/attorney draft the transfer deed.

2. If a property is purchased 50 percent cash and 50 percent 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. This is known as co-notariado.

3. Finally, the buyer nay 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. The registration fees are discussed below in the section on closing costs.

At your option, the property can be purchased in an individual's name, jointly with other persons, or in the name of a corporation. the decision as to ownership should be based upon your particular situation and after consultation with your attorney.

The Buying Process

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Notary

The Public Notary's main function in a Costa Rican real estate transaction is the central most important step in the real estate transaction, registering the deeds with the Registro. The Notary who drafts the contract for the sale of real estate and completes the closing is entitled by law to charge a fee of 1.5% of the first one million Colones of the sales price and 1.25% on the remainder. The public notary whom you work with must be an attorney, but you cannot assume that any attorney can serve as a public notary. Most experienced Costa Rican real estate professionals will recommend that you choose a contract lawyer that is a public notary so that you can consolidate services. If the seller decides that they would rather have an unaffiliated public notary it is their right to do so as the law requires that both the buyer and the seller agree on who the notary will be. Regardless, having a notary as your attorney will help in the process.

Choosing a notary can be a difficult situation because of what is at stake during the process. In general, if you are paying the full purchase price upon closing, then the buyer gets to choose, if you are getting financing from the seller then they get to choose, and if you are getting a mortgage or a bank loan then the bank will try to choose. If this is a highly contested issue then two notaries can be hired to work together.

Once you have your notary, you should review the steps taken during the real estate purchasing process to make sure that everything done by the broker, seller and your attorney are consistent with what the state will recognize as the true transaction. The notary should notify you of any liens or restrictions so that they can be explicit in the deeds, double check to see that the owner's name is documented and they have the right to transfer the title and check the Registro for encumbrances or registered conditions that could have been undisclosed by the buyer or broker. Upon completion of these tasks, the notary will draft the transfer deeds. The contract will be placed in the notary's protocol book that contains all public documents issued by that individual.

After you sign, the notary fee must be paid and the notary immediately annotates and registers the deeds at the Registro. All relevant documentation must be included during the registration process: Power of attorney (if necessary), authorization to split a single parcel of land (if necessary), survey map, map #, receipt of payment of notary fees, receipt for transaction fees, receipt for taxes and proof that the seller is currently up to date with land taxes and municipal taxes. Without these things the notary must present the transfer deeds for annotation, but is not required to follow through with registration. It will be temporarily listed in the Diario section of the Registro.

If the deeds are complete and you choose not to go through with closing there is a fee of 25% of the full notary fees. If you plan on closing you must do so within a year of presentation or the documents will be annulled.

The Buying Process

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Taxes

Owners of Costa Rican real estate are obligated by law to pay an annual property tax to the local municipal authority as a percentage of the total value assigned to the lot. Every five years the property is reassessed and valued again. While Costa Rican law requires this assessment, the responsibility lies with the property owner for accomplishing this task.

Costa Rica property taxes are due annually and are 0.25% of the total taxable value of the property. Because this figure is so low, Costa Rican real estate is often bought as a pure investment given that the fee to hold it is so low.

The property owner uses two valuation parameters to obtain the taxable value of the real estate. The valuation table (Plano de Valores) is the first one and the second one is Building Characteristics (Tipologia Constructiva). The Technical Standardization Department of the Tax Office guides these two areas.

The valuation table is a matrix that aids in the calculation of the taxable value as a product of size, more specifically value per square meter. This is based on the region where the real estate sits, the special or unique characteristics of the land and infrastructure. Such factors can include but are not limited to: land use zonage (residential, commercial or industrial), services available (sewage, telephone, electricity, hot water), corner or middle lot, ocean view, mountain view, beachfront and other topographical features.

The official government news release "La Gaceta" contains all of the zoning information that is held in the Technical Norms Department of the Tax Office.

The building characteristics category measures the value of a structure using the materials used, design and depreciation. Throughout Costa Rica, the building characteristics measurement is constant for tax purposes. While the square meter value of the land varies on location, given a specific structure, its value will be the same.

Combining both assessments yields the taxable value of a property. A brief description of the land and is calculated value are presented to the Administrative Tax Department. If it looks outrageously low, they will send a representative out to make an adjustment. Often times their assessment will be punitively high so it is best to be reasonable with the estimates you submit.

Closing Costs Spread Sheet

Purchase Price

Sale Price

Registered Price

Stamps and Transfer Taxes

Property transfer tax

National Public Registry Fee

Bar Association Stamp

Municipal Stamp

Fiscal Stamp

National Archives Stamp

Agriculture Stamp

Notary Fee

First Million Dollars of Property

There-after

Closing Costs Split

Buyer

Seller

Closing Costs per individual

1.5%

0.05%

<0.01%

1.5%

1.25%

50%

1.9%