Generally speaking, Costa Rica is a cash market for real estate. There really isn’t any bank financing for foreigners available locally and US/Canadian banks will not lend toward the purchase of a foreign property. Occasionally there are owner financing options. The typical expectation is 50% down with a rate in between the U.S. and C.R. and a term of two years. With that said. 99.9% of buyers buy with cash and when they need financing they take a loan against an IRA, pension plan, annuity, stock portfolio, equity loan against an existing property, etc.
Click to watch Matt’s video on this topic.
The offer: After we determine all of the details of your offer, you submit your offer as a signed option to purchase contract (OTP) with the full terms & conditions for the sale, including the names of the attorney responsible and escrow service, timelines for the deposit and closing, etc. If the sellers counter-sign to accept, we move to step #3.
Negotiations: Most often, “verbal” negotiations follow step #1, as the sellers either counter, reject or accept the offer. Once negotiations have made the acceptable terms clear, we finalize your last formal offer, you re-sign and the sellers can accept by counter-signing.
Offer accepted: we contact the attorney that you have selected to handle the transaction – it’s your right to choose as the buyer and only one attorney submits a transfer deed to the national registry. The seller can have additional legal help at their own expense. We also contact the escrow service agent (when applicable)
Deposit/1st deadline: The escrow agent will send you the necessary forms for them to legally and transparently handle your funds. They are simple but you must first present all the information before the escrow agent sends you the details for the first deposit. From the date the contract is signed by both parties, you usually set a 5-10 business day timeline to make escrow. Sending your wire confirmation number to the agent by the deadline is enough. The deposit amount is most often 10% but this is variable. Costa Rica’s laws demand a higher level of scrutiny for international financial transactions than you might see elsewhere,
Due diligence: The deposit remains refundable during the due diligence period, which typically is set for 15-20 days. Costa Rica’s national property registry – accessible to anyone – makes the information very easy to access. I work with a contractor named Doug Stern, whom I wholeheartedly recommend for any kind of inspection. He will always do a thorough inspection, but whereas most contractors charge a ton and then send a huge report of meaningless pictures and details, Doug will give you a condensed report with recommendations and follow up with a phone call to talk about his findings.
Regarding repairs/inspection resolution: You can add clauses insisting on certain repairs, and we can add any conditions you would like. But most offers do not include a concession by the seller that they’ll fix anything that an inspector might find. In Costa Rica you are largely buying in “as is condition” and a seller is only expected to make minor, obvious repairs in most cases.
Approval of due diligence: Once your lawyer has given the green light and you feel comfortable with any inspections, you approve due diligence, the deposit becomes non-refundable and we are working towards a closing as soon as convenient for all parties.
Closing: 80-90% of closings happen between 6-10 weeks from the OTP signing date, and we can define the length of time in your offer. Even the best attorneys here, the ones that are truly trustworthy and diligent about their work, have a far different response time than foreign buyers can expect. The CR national ministries also can create all manner of delay. Luckily it sounds like a longer timeline in the OTP is what would be best for everyone involved.
Here’s a quick overview of the costs you can typically expect to pay as a buyer in Costa Rica. These are all subject to negotiation, and there are different approaches:
2% of the closing price for legal/notary fees, transfer taxes and stamps – the total of these costs for a typical real estate transaction is around 4% of the total price, and it’s customary for buyers and sellers to split these costs 50/50.
0.125% of the closing price for half of the escrow fee, with a $300 minimum on your side – the total fee for the service is 0.25% of the closing price with a floor of $600, so you have to pay 50% of either 0.25% or $600
~$1,000 to establish your new corporation and also register it for taxes, a service which the legal firm will provide in one fell swoop
~$500-1,000 miscellaneous legal costs – just to set a realistic expectation, there are always a few little costs that come up (you may need to do a power of attorney or have the lawyer create an extra legal document for your side of the transaction)
$2,000 for your share of legal/notary fees, transfer taxes and stamps
$300 for your half of the escrow; they would charge the $600 minimum in this case since 0.25% of $100k total purchase would only be $250
$1,000 for your corporation
$500-1,000 for misc. legal fees
=$3,900-4,400 total closing costs as buyer of $100k property, again, if you split the closing costs
Annual property taxes, charged by the municipality, are between 0.25-.55% of your property’s declared value, typically updated at the time of title transfer. If you establish a corporation to hold your property (a common practice here), you’ll also have to pay an annual tax of about $200. If you buy a property along a public road where waste management services are offered, you will automatically be charged about $30 per quarter, as an additional tax. You will be able to see whether this tax applies to any property during a due diligence period.
This chart shows the current
Property Valuation Amount (in Costa Rican Colones)
Over ¢133.000.000,00 and up to ¢335.000.000,00
Over ¢335.000.000,00 and up to ¢672.000.000,00
Over ¢672.000.000,00 and up to ¢1.008.000.000,00
Over ¢1.008.000.000,00 and up to ¢1.345.000.000,00
Over ¢1.345.000.000,00 and up to ¢1.679.000.000,00
Over ¢1.679.000.000,00 and up to ¢2.017.000.000,00
HOA fees can be charged monthly or annually and typically cover pool and garden/landscaping maintenance, private road upkeep, security, and exterior building maintenance.
If you live close to a town, your water will typically be managed by a local association called the ASADA. This organization is responsible for the maintenance of a community well and all pipes, the treatment and storage of procured water, and the distribution to paying subscribers. Water prices are set by the government.
The Costa Rican government passed new laws for capital gains tax in 2019 and all properties acquired after this date are subject to the 15% tax on the next sale. Sale prices are part of nationally registered data on all properties, and the old practice of under-reporting your property value to avoid taxes is both illegal and no longer used by attorneys. However, some properties acquired before the July 1st 2019 date are registered with extremely low values so the government created a caveat allowing these owners a one-time adjustment tax of 2.25% on the “gain.”
Click here to watch Matt’s video on the Capital Gains Tax.