Sales Process Overview, Part III: 2

Part 3 of the Sales Process Series

This entry is part 3 of 4 in the series The Buy/Sell Process

This is part 3 of a 4 part series. Click for: Part 1 || Part 2 || Part 4

The non-subjective concerns:

The primary considerations in the non-subjective category are: Road, Water, Electric and Use of Land. A typical land transaction in Costa Rica has the water and electric run to the property, and a community arrangement for road care.

The water will need to be legal. Legal water can be either part of the local community system, which in The Zone is called ASADA, which is the regional manifestation of AyA (Aguas y Alacantarillados), the governmental department for water. Or, there can be a concessioned water source on or near the property. The possible sources for private, concessioned water can be surface water (creek or river) or a spring, or a well.

If the property in question is in a development, there may be Covenants, Conditions and Restrictions (CC&Rs) that detail what the buyer can do with the property. The CC&Rs are generally designed to enhance the living experience of the residents therein. One of my developments allows for having chickens, but no roosters. No excessively barking dogs. Downward directed lighting etc…

There is also a Costa Rica “condominium” law. These are rare in The Zone but there are some. They are rare due to the expense and time it takes to acquire said definition. Basically these are projects where the bylaws governing the real estate therein are unique to the project and are officially in the national registry. Read more on condominium law here.

The topic of soil stability is one that raises a lot of questions. As a real estate agent here in Costa Rica, I am out of my comfort zone speaking to this topic at all. I’m certainly not qualified to be able to look at a property and recommend, or not, a soil analysis. A test of three perforations in our zone costs around $1,200, paid by buyer. This topic is extensive enough that it would require its own article. So, for the purpose of this article, let’s just throw it in the mix of things to have in mind in the non-subjective concern category.

Our industry is maturing steadily here in The Zone. However, in the past, offers were frequently verbal. I am part of this maturation process and whereas I used to do the verbal thing, I am now an adherent to the “written offer” practice.

The Offer to Purchase (OTP):
details the terms of the deal: the price, the deposit, contingencies and the term of due diligence leading up to the close, are established. Once all of these points are agreed upon by the buyer and seller, it is delivered to the buyer’s attorney. The exception to this is if there is seller financing involved, in which case, the seller will select the deal’s attorney.

The OTP will likely state that the deposit must be deposited into escrow within a reasonable time frame. This generally needs to be something like 10 days. Escrow is actually a rather recent innovation in our marketplace here in Costa Rica, or at least, in The Zone. We used to call the account where the deposit was sent “escrow” when it was, in fact, the lawyer’s account. The lawyer would serve as the escrow agent.

The governing body for such financial matter here in Costa Rica is called SUGEF, which is the acronym for Superintendencia General de Entidades Financieras. This is kind of like the IRS of Costa Rica, but not entirely. There is also the Ministerio de Hacienda, which is where we pay our Costa Rica tax, so there isn’t a direct correlation. SUGEF has now made it illegal for the previous practice of lawyer account escrows, and with good reason, (if one takes a minute and thinks about what an unscrupulous lawyer could do). I have never personally experienced any of the possible travesties, but I heard of a few.

The deposit:
Normally 10% of the purchase price. The property is not taken off of the market by the seller until money is deposited. Question; is the deposit refundable or not? Yes and no.

Non-refundable refers to the subjective (“we’ve changed our minds” or “we’ve found something we like better”) concerns. The non-subjective concerns (there is no legal water / can’t use the property for the intended purpose, etc…) should be included as line item contingencies, and if these contingencies are not satisfied prior to the end of due diligence, the buyer can get their deposit back.

“Buyer will have the property re-surveyed and accept the new survey if it is within 6% of the original survey”, would be a non-subjective contingency. This particular contingency, a re-survey, would be done at buyer’s expense and would be arranged by the agent. It would have to take place and the results available before the end of due diligence.

It is a consideration of the seller that makes me want to distinguish between the subjective and non-subjective. They are taking their property off of the market. They will say “no” to a better offer. This deal we are negotiating may be in a hot selling season and they may miss other sell opportunities. So I am a fan of making the subjective concerns non-refundable. Not all agreements written are stated as such and the wording allows the buyer to back out of the deal willy nilly.

Pay particular attention to the wording of the OTP. Your real estate agent needs to include the detail of what you’ve stated are your desires. The OTP is not a legally binding document, but it is what buyer and seller agree on. Make sure that the terms and dates are there.

The below is the method I practiced at the original writing of this article in 2008. I leave it there to demonstrate the evolution of our industry here in The Zone.

Getting the deposit into the escrow account is frequently one of the most challenging steps of the transaction. If you are buying a $200,000 piece of land, you need to come up with $20,000, obviously. This isn’t always so easy to do if it is a weekend, or even if its not. Generally you can get a $5,000 cash advance on each credit card by going into a bank. Frequently a call to the issuing bank is necessary. But it’s all do-able and I’ve seen it work many times. Even if the buyer is unable to come up with the full deposit while still in Costa Rica, they can always come up with enough to convince the seller that they aren’t going anywhere and that this deal is solid. The amount needs to be enough to assure the seller that he has a deal. How much this is varies, but it would be the rare buyer that would put $10,000 into a deal and then not see it through. This amount, or some other, will buy the buyer time to get back home and wire the balance of the deposit into the lawyer’s escrow account.

Generally now a signed OTP will be enough to indicate sincerity to a seller. However, I encourage my buyers to move quickly once we’ve got an OTP signed by both buyer and seller and get escrow opened and the deposit in.

This is part 3 of a 4 part series. Click for: Part 1 || Part 2 || Part 4

Living in The Zone, Costa Rica’s south pacific, since 1999. Working in real estate here since 2004. Loves to share the experience and help others with an interest in doing same.