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1.The Negotiation Phase

The decision regarding a certain property begins the negotiation process between the seller and buyer.

The negotiation is usually informal, by email or telephone, and occurs with the help of the broker or agent who supports both parties toward the goal, i.e. a mutual agreement.

The negotiation process is an interchange of offers and counteroffers between the buyer and the seller.

The result is an agreement with certain conditions for both sides, which is used as the basis for the draft of the purchase option.

The option contract to buy is drafted by an attorney (notary).

This reciprocal promise to buy is a common practice for foreigners who only have a few weeks during their visit and must then go back to their country of origin.

After signing the purchase option, the buyer makes a down payment of usually 5-10% of the negotiated sales price.

The down payment is transferred to the notary’s escrow account (highly advisable to use an escrow service).

The official notary is usually selected by the buyer and is a neutral party by law and, as such, is obligated to represent the interests of both parties.

Nevertheless, as buyers paying in cash, you should insist on determining the official notary, so you can be certain you can trust the one chosen.

If the property is mortgaged, the seller may decide which notary is chosen for the title transfer. If the buyer is outside Costa Rica, the option contract can be signed by using an express messenger service (e.g. DHL Express, FedEx, UPS, etc.).

Unfortunately, the use of digital signatures is still in the beginning stages in Costa Rica, and providers like hellosign, docusign or even a mobile notary can’t be used yet.

2. Closing and Title Transfer

After the end of the purchase option comes the closing day and the transfer of the title of the property.

To sign the official purchase contract, a public notarywho also operates as a licensed attorney in a private office, is necessary.

This condition must be fulfilled in any case when purchasing a property title which is to be registered.

The title deed is drafted by the notary and signed by seller, buyer, and notary.

If you want to avoid having to be present personally during the closing, the best approach is to appoint someone you trust as your legal representative.

If you are buying the property as a corporation, you can appoint a legal representative of your corporation, that can act on your behalf.

This also needs to be done by a public notary, so that the power of attorney is accepted by the Costa Rican law.

The original title deed is now included in the notary’s record, and a copy of the deed is presented in the National Registry.

The two weeks after signing the option contract to buy are considered the ‘’due diligence’’ phase. During this time, the property is checked in the National
Registry.

Also, during this times, other studies such as feasibility studies can be executed by an architect.

During this period, the down payment can still be refunded without any consequences, should some conditions of the option contract not be met.

After the due diligence, the down payment is no longer refundable.

This is when the closing phase begins, which lasts one to two months. Depending on the negotiated conditions, this phase can last longer.

A longer phase than two months is unusual, as this would already be considered as some sort of owner financing.

During the closing phase, the owner has time to fulfill the conditions defined in the option contract to buy and the buyer can organize financing or his funds for the final purchase (e.g. bank credits, money transfers in accounts etc).

It is important that the title deed is presented immediately after signing in the National Registry, as it is the only way to guarantee a three-month period of protection and no other document or deed which involves the same property can be registered.

The National Registry proofs the deed and, if necessary, does corrections and registers the property in the name of the new owner.

3. Payment

After signing the purchase document, the payment of all transfer costs is due.

These include the property sales price, taxes, stamp duties, commissions, and
notary fees.

Usually, the buyer uses an escrow service, so checks can be used, which are handed out in the presence of the notary after signing, or wire transfers can be made.

Your attorney of trust, checks in the National Registry to see not only that the property is registered in your name, but also that the transfer deed is registered.

Here, he organizes a final copy of the document signed by the official of the National Registry and an automatically generated document indicating that
you are the new owner.

The purchase is now successful and can be officially completed.

You are the official new owner when the deed (escritura) is accepted and registered (inscrito) in the National Registry.

Property Buyer Information at One Glance

 

Closing and Holding Costs

Title Transfer Tax Stamp Duties Attorney Fees Property Tax p.a. Luxury Property Tax p.a.
1.56 % ~0.5 % ~1.25 % 0.25 % 0.55 %

Title Transfer Tax, Stamp Duties. Yearly Property Tax and Luxury Property Tax are calculated based on registered
taxable value, Attorney Fees are based on market value.

 

Closing and Holding Cost Example

Let’s assume for this example an ocean view villa at the Pacific with a market value of $1,200,000 and a taxable value of $200,000 (this would be a good deal).

 

Closing Costs

Attorney Fees (~1.25 %) $ 15,000
Title Transfer Tax (1.56 %) $ 3,120
Stamp Duties (~0.5 %) $ 1,000
TOTAL $ 19,120

 

Holding Costs (Taxes)

Property Tax p.a. (0.25%) $ 500
Luxury Property Tax p.a. (0.55%) $1,100
TOTAL p.a. $1,600

 

How Do You Find the Amount to Pay in Property Taxes?

There are three ways you can find out about theThere are three ways you can find out about theamount of your property tax (ordered ascending by time/effort):

1. Check out the municipality website and researchin the property department section if you can lookup the amount for the owner ID (cedula personal orcedula juridical)

2. Call the real estate or the property departmentof the municipality (“el departamento de bienesinmuebles”)

3. Go there personally and ask at the propertydepartment.

In all cases, you will need to provide one or more of the following information:

  • Is the property personal or corporate?
  • Name and ID of the property owner (e.g. cedula de residencia, pasaporte, or cedula juridical)
  • The folio real number (property number)

 

Where Do You Have to Pay the Property Taxes?

There are 4 ways to pay the property taxes:

  • Via online banking from your Costa Rican bank
    account
  • Via the municipality website
  • Personally in the Banco de Costa Rica or Banco
    Nacional
  • Personally in the building of the municipality.

It all depends on the municipality.

Sometimes, you can do it via online banking, sometimes only on the municipality website, and sometimes only in person in the bank (Banco de Costa Rica or Banco Nacional), or directly in the municipality building.

In any case, always request a payment confirmation of the municipal tax department by email.

Sometimes municipalities do this very fast and sometimes it can take months or they don’t do it at all. Again, it depends on the municipality.

 

You Need to Declare the Value of Your Property

Every 5 years, property owners need to declare the value of their property to the Municipality.

If you don’t do it, you might have to pay more taxes than you need
to, since the value will be adjusted by the municipality, and not always in your favor.

And the icing on the cake would also be a fine for not presenting the declaration.

Every municipality provides this declaration form,which you can download from their websites or needto get in person.

The new appraisal will be valid for 5 years.

During thisperiod, the value can only be changed in the following 6 cases:

  1. When you transfer the title of the property at ahigher value
  2. When you mortgage the property
  3. If you change the size of the property
  4. The municipality decides to re-appraise theproperty
  5. You segregate the property
  6. When you remodel the property at an increase of20% of the total value

 

Appraising the (Municipal) Value of Your Property

Please be aware that the following doesn’t have to do anything with the real market value of the property.

Market value is one thing and means that the buyer and the seller agree on a price, and what municipalities assume the property is worth is another thing.

While in real markets values can go down, for municipalities values usually always go up, which means tax increases.

So, to appraise the value of your property, the municipalities use the land value indicators that are used for the Luxury Home Tax or “Impuesto Solidario”,
which you can find here.

This is how the map looks like and you can easily find your property on those maps.

Depending on the quality of the materials used, the construction value differs.

As a rule of thumb, you can use a construction value anywhere between $700 – $1,500/square meters and deduct 2% per year for depreciation.

 

Municipal services

There are also municipal services that need to be paid, and they are not always included in the property tax.

So, at this point, you might have to do an extra effort in finding out if they are included or not. If they are not, you also need to find out where they need to be paid.

Municipal services cover cleaning of all public roads, garbage collection, public street lights, maintenance of parks and green areas in your community, and municipal police in some communities.

Save your receipts

Some municipalities in Costa Rica are very orderly while others are a mess, although all are computerized now.

Therefore, it is a good idea that you keep all your receipts as proof.

To be on the safe side, also request a certification that all property taxes and municipal services have been paid and are up to date.

 

 

 

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.