A New-ish Strategy on Investing/Developing

Costa Rica – 1999:

The year that I arrived here with my family. There just weren’t that many Gringos, or foreigners of any flavor really, in Costa Rica’s southern pacific zone. Many of the foreigners that were here shared a similar idea. Land was so cheap that you could buy several hectares (one hectare = 2.47 acres) of land, cut off a piece, and sell it for nearly what you put into the whole piece. I used to call this “The Costa Rican Formula”.

Costa Rica at Sunset
Highly Desirable Lifestyle

If you think back over any real estate cycle anywhere on planet earth, lets say San Francisco, or Denver, it started out with families owning large tracts of essentially valueless land.  Governments typically gave land away at this stage of the cycle.  Homesteading laws had some rather liberal restrictions that, if followed, enabled a family to take possession of the large tract of land.  These families then used the land to live on and sustain themselves.

Costa Rica real estate was in that part of the “the cycle” a surprisingly short while ago.

I say this to help establish the paradigm here.  We are early in the cycle.  The majority of my career has been selling raw, undeveloped land.  To this day there isn’t a large selection of houses, but there are getting to be more all the time.  We are simply heading into that phase of the cycle.

“The Costa Rican Formula” is the obvious way to develop and make money on land.  Buy a larger piece, cut it into smaller pieces and sell them.  It is so obvious in fact that it enjoys a very brief period of the real estate growth cycle.

For the purpose of this article, I’m not writing about big developers that buy and develop large parcels. I’m referring to your normal joe, back in the day, slopping into an 8-ish acre piece of land.  Then, they find out that they can cut off 3 of those 8 acres and bahdah-bing bahdah-boom, they own their 5 remaining acres for free.

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Now What’s My Land Worth?

I’m going to go out on a limb here and define some specific points that we at Guys In The Zone use to evaluate a property.  At the moment, this practice tends towards the black arts since the basis for land values in the zone went right off the cliff with the rest of the world’s economy.

Jesse over at Green Leaf Real Estate has come up with a rather interesting formula for property evaluation:  take what was paid for the land and add 25% annually, and then reduce that number by 40% to get today’s market price.  I find this technique to be ingenious, not so much for it’s accuracy, (that would be a subject of much debate), but due to the fact that Jesse actually came up with a method for evaluating land that sounds like it’ll put you somewhere in the ballpark.

The problem is, we’re not sure where the ballpark is these days.

Rod & I have been working more with the other real estate agencies in The Zone as we move towards a more cooperative real estate profession.  John Wieland of Coldwell Banker invited us out to look at a couple of houses in Ojochal and we got to listen to how he addressed the question “what’s my house worth?”.  He answered: “you can follow the market, be right at the market, or lead the market”.  To “follow the market” would be to realize that others have dropped their price and so you follow suit.  “Be at the market” would be to stay in the trajectory, up or down, that you feel the market is in.  Now, to “lead the market” means that you anticipate the market and blaze a trail with new prices that are compelling to the type of buyers that we now are seeing here in the zone.  In today’s “down” market, this means doing extraordinarily low pricing to get a timely sale.

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Seller Options: Exclusive Listings

I have been a bit negative about exclusive listings in the past. My attitude towards these is now changing and, if anything, I’d say I’m a bit positive towards them now – with caveats.

The Exclusive Listing is a hybrid business model between the existing Costa Rica non-MLS model, and the Multiple Listing Service model that so many are accustomed to in the U.S., Canada, and elsewhere. I have recently learned that England does not have an MLS and, get this, that Mississippi doesn’t have an MLS. The point about England came from a reliable source. The one about Mississippi was chit-chat. I did a cursory study of the Mississippi matter on the internet and found a little bit of information but it’s still unconfirmed.

confusionexclusive.gifIn my previous article I considered the workings of the standard Costa Rica real estate model – the Open Listing.. If you haven’t read it (and would like to) you can by clicking here.

A Spot of Trivia
Realtors in England are called “Estate Agents” and the term “Real Estate Agent” is looked down upon. The non-MLS model has been used forever in the UK and they are quite settled with it, thank you very much. In a single yard of a house for sale you can see numerous signs to the various agencies that have the property listed. The typical commission paid to an Estate Agent in the UK is 1.5%

The exclusive listing attempts to provide buyer/seller representation in the Costa Rica market place.

The Way it Works
You approach your favorite real estate agent. You give that agent the listing for your property. That agent then takes the full responsibility of marketing your property so that it receives the broadest possible exposure. Sounds good right? Well, it is, but…

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Costa Rica Property Seller Options

I have written about the nature of our marketplace and the listing options open to sellers. Its not a pretty site in this non-MLS (Multiple Listing Service) marketplace. The seller is confronted by the decision to personally market the property to each of the real estate agencies in the area (Open Listing), entrust one agency to the task (Exclusive Listing), or go it alone with a For Sale By Owner. Here are the pro’s and cons of the options.


Open Listing: this is the type of listing that is considered the norm here in the non MLS model. The seller walks into my office with a packet of information on their property. I ask a number of clarifying questions: access, water, electric, phone, Internet, view, privacy and of course, price. Provided the answers to these questions indicates that the property is sellable for what the seller has in mind price wise, we set up a time to go and view the property. We visit the property, take photos/videos and then the listing goes onto my website.

This generally pays 8% commission to my agency.

The seller then goes down the road to the next agency and does it again.

Pros of the Open Listing: The agencies are motivated by the full commission. Right now the inventories of the various agencies are ripe with great listings. When a prospective buyer comes into the office, or starts up a dialogue via e-mail about their search for property, the well-intentioned, but commission motivated agent is going to gravitate towards the full commission listings first. This is a weighty point that will not be fully dealt with until we have a fully functioning Multiple Listing Service here in Costa Rica.

If you think it through, the seller has no actual representation in the marketplace. For that matter, neither do the buyers. You’ve got seller, buyer, and a commissioned sales person in the middle trying to make a deal happen so that he/she gets paid. Not the best of business models, but it’s ours and somehow it works.

Cons of the Open Listing:

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How To Do An Exclusive Property Listing In Costa Rica

This is the continuation of an earlier article on How To Sell A Property In Costa Rica.  That article left off with the statement: “listing your property with an agency doesn’t guarantee that other agencies will know about the listing. There is a gap that the listing agency should try and fill with extraordinary marketing … Read more