Done Deal: Formalizing Real Estate Transactions
Foreigners often become puzzled when trying to engage in real estate transactions in Costa Rica. One of the more confusing stages can be the formalization of an
agreement – even after the parties have agreed upon the basic terms and conditions of the sale – and the making of a good-faith deposit toward the price.
The first thing to understand is that this stage needs to be approached differently here than in other countries, such as the United States. Under this line of thought, the concept of the buyer’s bid should be rethought.
Though realtors will try to push you as much as possible toward sending a written offer to the seller, in Costa Rica such a document is binding for the buyer-to-be, and could be used by the seller as a contractual commitment.
Most offer models used by realtors lack many of the most important aspects that a real-estate purchase agreement must have, such as the rules for the deposit, a correct identification of the property and its owner, and an agreement regarding payment of closing and other fees. Additionally, these offer letters are usually exchanged by fax, with no acceptance bearing an original signature by the seller delivered to the buyer, which jeopardizes the validity of the agreement according to local regulations.
Rather than counting on this system, it is wise to wait until basic due diligence has been completed and, once this has happened, to formalize the agreement between both parties in the form of a mutually agreed-upon contract, which could take the form of a sales purchase agreement (a formal agreement to purchase under certain conditions) or an option (an agreement in which the buyer-to be is granted a specific period of time to buy the property, and usually forfeits the deposit if the purchase does not take place).
In most cases, due diligence is something that can be completed in a few days, especially if it consists of simply checking the title and, if such is the case, the corporation owning it. Once due diligence has been completed, the buyer is in a better position to determine whether he wants to proceed with the deal or not, and whether the transaction is worth a deposit. In cases of more complicated due diligence activities (for example, establishing water availability, forestry coverage, soil studies, etc.), these additional contingencies can be included in the contract and should not delay its signing.
Another common issue at this stage is how to make the deposit and who will hold it. Bear in mind that even with the best-drafted contract in the world, if the seller is holding the deposit, and ends up breaching the contract and does not transfer the property under the agreed terms, it can be extremely difficult to recover the deposit. An objective third party is a more suitable alternative for holding the deposit.
In conclusion, as a rule of thumb, do not sign any agreement or other document related to a real estate transaction, and do not give any money down before title and corporate searches are completed and cleared.
Once you are prepared to proceed, be sure to obtain a signed original contract from the seller, and then deliver an original signed by you. Deposit money only after such documents are signed, with an objective third party and not with the seller.
For more legal advice, contact Lang & Asociados at 204-7871 or visit www.langcr.com.