So you want to buy property in Costa Rica? Before rushing into any purchase agreement, heed my advice and hire us to perform due diligence on it. This is a key factor, prior to any purchase agreement. The first question you must likely have, is if foreigners can buy or sell property in Costa Rica? Absolutely! Foreigners have the exact same rights as any other real estate owner. How do you tie the property for sale, so that the seller won´t turn around and sell the property to someone else? What is the difference between an option to purchase agreement, and the actual property transfer? In this section, I will cover all you need to know about purchase agreements, and the actual property transfer.
The first thing you must do, when buying properties in Costa Rica, is to have everything checked with a real estate lawyer. Most real estate in Costa Rica is privately owned, with exceptions such as maritime property concessions. Privately owned properties are duly registered in the Public Registry of Costa Rica. Due diligence requires I look into the property for sale to ensure it´s not encumbered. This research includes checking other relevant information to ascertain that the property transfer can be done.
The Public Registry is crucial for land title security. All privately owned land in Costa Rica, has a number. This is called the “Folio Real.” the first number of the folio real, corresponds to the province in Costa Rica, where the property is located: 1 is for San José, 2 is for Alajuela, 3 is for Cartago, 4 for Heredia, 5 for Guanacaste, 6 for Puntarenas, and 7 for Limón. After the province number, the folio real is followed by several other identification numbers. Finally a sequence with three numbers, which are generally three zeroes, indicate if the property is completely owned by a person, or if its divided in rights, in a tenancy in common.
With the property number, I can ascertain all types of information. The Registry will show us, who the owner of the property is, and the type of ownership. (Is the property owned in a trust, or privately owned by a corporation? Is it in the name of a physical person?) The Registry will also show, the size of the property, its boundaries, and the cadastral plan number, to actually see it. Most importantly, your property lawyers will be able to see, if the property has any encumbrances. All of this is part of due diligence, a necessary step when buying real estate in Costa Rica. I covered all of this, in the due diligence section, which I highly recommend reading, if you wish to buy property in Costa Rica.
Once the due diligence is finalized, we can go ahead with the purchase agreement. If you have the property for sale, and wish to receive the money in the United States, an international transfer can be made, directly by the Costa Rican bank. In these cases, it´s a good idea to sign the purchase agreement at the bank itself.
If you have you wish to buy property in Costa Rica, and you have your money overseas, then an Escrow Agreement is highly recommended. I recommend Secure Title Costa Rica, as an escrow agent. Purchase moneys, will be held in Escrow, until the notarized purchase agreement is signed. At that moment, the money will be released to the seller. In these manners, the property transfer will be done smoothly, whether you are the seller or the buyer.
The goal is to get the property for sale registered in your name! Once you have agreed to buy the property for a determined price, the sale is perfected. But that is not enough! The property purchase agreement must be drafted and signed. This must be done in a notarized document called “escritura de traspaso.” This is a notarized document, that can only be done by a Notary Public of Costa Rica.
As notaries, we have a particular book called the protocol. The notary public´s protocol is given to us by the State, and all public scriptures are done in it. So wether you wish to buy property, or even sell property in Costa Rica, you must sign the purchase agreement in the notary ´s protocol. This is never done, in a “private agreement”, it must be performed with the aid of a notary public.
It´s a Costa Rican custom that the buyer is the one that hires the notary public and pays for his fees and the transfer costs. There is a reason for this. As the buyer of the property for sale, it´s in your best interest to control the registration process. This is the reason why the buyer selects the notary public, for the property transaction. Once the property transfer has been done and signed in the notary´s protocol, his job is still not finished. After both of you closed the deal with the signature, the property transfer must also take place in the Public Registry of Costa Rica.
The notary public does this by filing a certified copy of the notarized purchase agreement, in the Public Registry. There are transfer taxes that must be paid and legal stamps (timbres).
Yes of course! You don´t need to have a migratory condition to own real estate in Costa Rica. You can even open a corporation to own the land, and sign all types of contracts. As a foreigner, you have every right a Costa Rican person has. The few exceptions are the right to vote. So you can own land, sell property, buy property, and do what you will with it.
As I stated previously, it’s customary for the buyer to pay for all transfer costs. So if you sell property in Costa Rica, you won´t have to worry about this. However, you will be responsible for paying the “Capital Gains Tax”, but this is another matter. If you have a real estate agent, you will need to pay his realtor comission. It´s customary for the seller, to pay for the realtor´s comission. Once you become the real estate owner, you should learn about several property taxes that must be paid.
When the public scripture (escritura de traspaso) is signed as the purchase, you will have to pay for several things. Firstly, the notary public fees. But to get the real estate property registered in your name, you must pay the corresponding property transfer tax and the Registry Stamps. All these things must be paid to have the property you bought duly registered to your name. Sadly, there have been instances where unscrupulous notary publics do not register the properties. This is why the choice of a notary is essential. This is why the buyer always chooses the notary public.
By hiring us. The property transaction is a process that entrails due diligence, escrow coordination, correct notarization, and registration. If you hire an incompetent professional, you risk that the property transaction won´t be appropriately registered. The Notary Public you choose is essential to acquire that property for sale that you wish.
When the notary public files the property purchase agreement document, he gets a receipt from the Public Registry. This receipt has information to track the registration process. Once the property is registered to your name, you can access the public registry and, with the property number, corroborate everything is in order. We always show this to our clients once everything is done.
An option to purchase agreement is what we call a “pre-contract.” It´s a contract to prepare another one: the future property sale agreement. If you are still negotiating the property sale, and still need time, then an option to purchase agreement is a good idea. This is a way to “tie” the property to the future sale. A good faith deposit is customary, but not necessary. Earnest money is give to the seller, per the option to purchase agreement. The idea is to demonstrate your seriousness about buying the real estate property. If the sale doesn´t happen, then the seller must return the earnest money deposit to you, unless otherwise stated in the contract.
Never judge a book by it´s cover, goes the saying. The same can be said about contracts. Many people believe, that just because the contract says “option to purchase”, then that must be, because it says so. However, the content of the contract is what matters. You should remember, that in Costa Rica, a sale is perfected, by mere consent, if these two things are involved: the sellers consent to sell an asset for a price, and the buyer´s consent to buy said asset for that price. If these two things are present, in an “option to purchase agreement”, in reality what has happened is a property sale, not an option to buy property. These things are important to know, to avoid headaches and even litigation.
Dr. Christopher Pirie.