When I told a seller recently what his expenses would be in selling a property, he responded by saying “I’ll need to ask more for my property then to cover these expenses”, to which I responded “exactly!”.
The following is a conversation I recently had with this seller here in Uvita. He admitted to me that he had no experience with selling a property in Costa Rica. His entire knowledge of real estate here was limited to buying his own property in Uvita many years ago directly from the original owner.
How is property priced in Costa Rica? There are a couple of answers to this question. Read on…
He had put a price on the property that was based on what he needs from the sale. This is a common practice among sellers, but alas… well, more on this below. He had not taken into account the costs of doing the sale.
What are Seller’s Costs to sell a property in Costa Rica? Here is a snippet of what I wrote him regarding the costs:
My commission is 8%. This is split between myself and the owners of my office.
As for your expenses as seller, calculate 11%. This will cover your expenses and avoid any unpleasant surprises. You have my commission at 8%, and the transaction fees of 4%, which are split 50/50 buyer/seller, so this adds 2% to the 8% commission. Then there is a Costa Rica tax to sellers on the sale of a property which is calculated based on the amount of commission you pay. This generally adds another 1%(ish).
(note: the commission rate varies in different parts of Costa Rica. I understand that 5% is the norm in San José. The expenses of the deal however will remain constant.)
He felt that since the buyer benefits from the presence of the real estate agent in the deal, they (the buyer) should participate in paying the commission. (I guess he didn’t realize that he too would benefit from my presence in the deal, such as being available for this type of information.)
Here is his response:
If I would have had known before, I would have to charge those 11% on top of what I need. That means I need to add $33.000 to stay with the $300k for my needs. If this is the only way it works for you and with your clients, please change the price for future clients.
I still think from a sellers prospective the buyer should participate at least 50% to what you want to earn. Why should we take that all if the buyer is contracting you? He should at least pay 50 % of your cost.
This might not seem common or ordinary, but who cares? It seems more than fair to me.
Hello Borenchenkoface (name has been changed),
About the commission: actually in all deals it is the buyer who pays the commission. I say this because the seller is informed about the expenses related to selling a property in Costa Rica and their asking price reflects this. The commission is paid out of the amount paid for the property. So, knowing the costs results in what you have suggested, that the price of the property be made to accommodate the expenses of the deal. It is the cost of using a real estate service as well as Costa Rica’s titling, taxing & legal services.
The other option is to not use a realtor and just go it alone. However, by law you would still have the additional 3% in fees & taxes.
One other “expense” you might have in mind is the fact that most buyers are going to make an offer below what you are asking. This can also affect the asking price. Many sellers will take into consideration that an average discount here is around an average 10 – 15%. The buyer may be able to adjust their asking price accordingly.
As for the actual value of the property coinciding with what the seller needs from the deal, this is what we real estate people hope for. However, the seller’s needs, and even what they paid for their property are not considered in the evaluation. These points have nothing to do with the value of the property.
A buyer will be looking at several different properties that are appropriate for his/her criteria. He/she will have a feel for values of property and so if one property stands out as higher than the norm, he/she will likely pass on the property. Or he/she may ask why this one is so high, to which the honest realtor will respond: “because it is what the seller needs”, or “because that’s how much he has into the property” – and obviously, there will be no sale.
Again, as a realtor, what I hope to have happen when I evaluate a property is that the value that I put on the property also covers the seller’s needs. It may, or it may not, but if it does we are in good shape.
If the value I put on the property does not cover seller’s needs, the seller may go ahead and try and list it with the realtors at the high price and hope that it sells. Generally it won’t. And it may even be difficult to get a realtor to list a property that is priced above market value. The reason for this is that to properly list a property and promote it for sale, takes some time and effort.
If a seller is asking too much for their property it is unlikely to get many, if any, showings. Most of our clients here do quite a bit of Internet research prior to coming down to view. So they will likely not even inquire about a property if it is overpriced for what it is. If showings do take place and an offer is made, the offer will probably be in line with the actual market value of the property. I’m speaking from experience here. Seen it many times.
I should add about this particular seller that he is not asking too much for the property, even with the allowances made for the deal’s expenses. So I wrote the above to him solely for his information about how the real estate market works here in Costa Rica’s southern Pacific zone. He thanked me.
So how is property priced in Costa Rica? Not to be glib but, it is the same here as anywhere else. A Property is priced at what someone will pay for it. Just as water seeks its own level, the characteristics of a property: view, access, privacy (or not), security, size, usable area, air motion, and general niceness all play a factor in what a property will bring in the open market. Somehow there is a consistency to the pricing. When you are on a property that knocks your socks off, you will then understand why it is a bit higher priced than a property of the same, or perhaps even larger size.
Suggestion for buyers: Do your homework. Browse the various websites using the search function to isolate properties in your budget and with the features you want. You’ll get a feel for what your property is valued at. And, you’ll be able to spot the occasional overpriced piece. This truly is occasional due to the market’s natural filtering of savvy buyers, as well as real estate agents that don’t want to waste their time listing a property that won’t sell.
We’ll see where the above cited seller correspondence goes, but I thought that the interchange between this real estate guy, and the seller would be helpful and informative to those looking to buy or sell a property in Costa Rica.