In Costa Rica you not only can find great nature, primary rainforest and different kinds of jungles. But also, the real estate market here is kind of a jungle compared to one of the most transparent real estate markets in the world, which you find in the U.S.
Not being aware of this can lead to a bunch of wrong expectations for home buyers coming from the northern hemisphere, where they are used to, well, real estate market transparency.
In this article, I will explain to you the differences between the two markets and provide you a little reality check.
From time to time I get asked things like: “I only work with licensed real estate agents in Costa Rica.”, or “How can I get good market comps”, or “Is there an MLS in Costa Rica?”
So, to put all that into perspective, let’s give you first a short overview of what kind of tools and conditions you have at your disposal in the U.S. real estate market and then compare this with the market situation in Costa Rica.
Tools and Conditions of the U.S. Real Estate Market vs. the Costa Rica Real Estate Market
A Real Estate Agent License and a Real Estate Commission
As you may already know, in the U.S. not everybody can work as a real estate agent.
Depending on the state you want to do business in, each person who wants to be a real estate agent needs to invest different amounts of time, to attain a license, after passing the real estate agent exam.
To my current knowledge Florida is one of the states, where future agents have to invest the least amount of time to prepare for this exam and Colorado and California the most.
After passing the exam you can’t just open a brokerage firm, but rather need to find an existing one and get under contract with them, to be able to operate as an agent.
And then there is the real estate commission that checks if market participants honor the regulations of the market.
For example, if you do something that could be interpreted as brokering, but don’t have a license, this can get you in trouble with the real estate commission.
Activities like that are among others wholesaling properties, without the intent to actually buy a certain property and not advertising the contract you want to sell, but the property.
In Costa Rica there are some intents to regulate real estate agents, but actually there is none. There is something like a chamber of real estate agents called “Camara de Corredores de BienesRaíces”.
There, future real estate agents can participate in a course (I did one there several years ago, out of curiosity) and after that you have the pre-requirement to be a member there.
You learn some basics about the legal situation of properties in Costa Rica, the process of closing on a property, and some basic sales training. That’s it. This is just optional and not a requirement to operate as an intermediary.
The chamber hasn’t the same function as the real estate commission in the U.S., which can send you a “cease and desist” notice, when aunt Christy wants to sell the house of your brother but isn’t a licensed agent.
If you come across a “licensed” Costa Rica real estate agent, however, there isn’t a guarantee either that he will do his job. The same is more or less true for licensed real estate agents in the U.S.
A real MLS
Then you have a real Multiple Listing Service (MLS), where you only can promote properties, if you have a real estate agents license. If you want to register yourself there you need to enter your license number and with which brokerage firm you are working.
In Costa Rica there are web portals offering properties, which as a nice branding or marketing name call themselves MLS, but they aren’t the same as you know from the U.S. For the most part everybody can promote their properties there, sometimes even the owners.
In the U.S. agents make a listing agreement with the seller of a certain property. Typically, there are four types of listing agreements:
The Exclusive Right to Sell the Property: Here the agent gets paid a commission no matter if the seller sells the property or the agent.
An Exclusive Agency Listing: The agent gets only paid, when she or he sells the property. No commission can be charged, should the owner sell on his own.
An Open Listing: In this kind of arrangement, the seller can use as many brokers as they want, and he is not obligated to pay any commission if he manages to sell the property on his own.
Net listing (not legal in all states): This is almost like a wholesaling situation. The agent can keep the difference between the sales price agreed upon with the seller and what he actually can sell the property for.
In Costa Rica you find most of the time open listings and sometimes the net listings. That’s why you will very often find the same property on different websites with different prices.
The different price situation occurs because not all sellers update the agencies and agents in a timely manner about new prices, and also not very often about them having put it off the market or sold it.
The net listings in Costa Rica are called “sobreprecio” and cause often confusion during closing, since it can cause some distrust of the buyers. I imagine this is the similar reason, why this kind of listing is not legal in all U.S.
Exclusive listings are very rare in Costa Rica, and sellers agree sometimes to this kind of listings, because they think the real estate market has the same sales cycle speed as in the States, or the agency or agent they are working with, really know their part of marketing the property the right and efficient way, or they need someone who handles the sale of a property in a confidential way.
3 Great Market Analysis Tools
In the U.S. all data such as the actual sales prices of real estate transactions are recorded in databases.
These databases can be accessed by a variety of online tools via application programming interfaces (APIs).
The great thing is, by that you can look up at what prices in a certain area houses were sold and can approach much better the real market value of a property.
I will give you 3 examples of such tools:
Among other things in “Trulia Heatmaps” you can look-up by a specific location the listing price, median sales price, and the median rent per month.
There are different map overlays in different colors that show you areas which have higher listing prices (in red) or lower ones (in green). It gives you trends and how the local market has performed from the past to the present.
Zillow is a large property portal in the U.S. where owners and real estate agents can list their properties for sale. It offers a wide range of market data.
When you click on one property that is for sale you not only get access to the listing price but also information by its internal market analysis tool “Zestimate”, which shows you average sales prices, sales price ranges, a one-year sales price forecast and average market rent, among other things.
Listsource provides you with a lot of home owner information and you can look up for example different areas and search properties, which only have mortgages or are in for closure.
In Costa Rica there is no such thing as recorded sales prices. What is recorded at closing is the current tax value of the property, which can be looked-up in the national registry (Registro Nacional de Costa Rica).For tax purposes, this value is usually way below the actual sales price.
To this day I am not quite sure, why this hasn’t been done yet. I suspect two major reasons for that:
1) In Costa Rica addresses are far from being explicit.
In Costa Rica one house can have almost an unlimited amount of addresses.
For example, one address can read like that “Del antiguoHigueron, 200 metros al norte, 50 metros al sur, Casa color verde, esquinera, numero 1, San Antonio de Escazu, San José”.
Translated this means “From the former Higueron tree, 200 meters to the North, 50 metres to the south, green colored house on the corner, number 1, San Antonio de Escazu, San José.”
As you can see most of the time reference points are used to determine the address of a property, and these reference points sometimes don’t exist anymore.
The whole address changes if you use other reference points, creating this almost unlimited possibilities. And what happens if the color of the house has changed?
If you know a bit about programming databases, this can become a programmer’s nightmare quite quickly. In San José there are already street names in place, but the majority still hasn’t been adapted to using their new street names with house numbers in their addresses.
2) Privacy reasons and no law supporting recording sales prices in the registry.
There is no support in the population to supporting a law that requires actual sales prices to be recorded in the national registry of Costa Rica. Additionally, some people might have concerns that their financial situation could be looked-up then.
Let me know, if you know of other reasons, that this couldn’t be implanted yet in Costa Rica, I will update this article accordingly.
So, by know I hope it becomes clear, why there isn’t the same market transparency yet and the before mentioned similar tools don’t exist yet.
However, there is one tool that helps slightly to analyze the real estate market in Costa Rica. The data mainly comes from the Central Valley and providences like Guanacaste, Puntarenas, and Limon are only partially covered by that.
You can find it on the portal encuentra24.com, and it analyzes the listing prices and current market rents.
Since the listed market rents almost equal the real rents (not much negotiation taking place when renting a property) you can at least approach the market value of a property applying your target yield per year. But real comps aren’t available for the aforementioned reasons.
So, at the end the main tool to analyze the market is your brain, some manual research labor and some basic mathematics.
Should you be interested in properties in Costa Rica, don’t forget to take a look at my well selected properties, of which 90% have nice views and are located in nice neighborhoods.
Real Estate Dealmaker | Crypto-Trader | Author
Follow Me On Twitter…