In what some have described as a “Wild West” environment, the lack of licensing requirements and regulation in Costa Rica’s real estate sector has allowed overpricing and scams to flourish, according to real estate agents consulted by The Tico Times.
Costa Rica – known internationally as a hot spot for buying and selling real estate
has seen a rush of buyers and speculators from other countries enter the market in recent years, particularly in the northwestern province of Guanacaste, which encompasses picturesque white-sand beaches and other popular tourist destinations.
According to a study by the Central Bank, foreigners have invested $400 million in real estate in the past two years, $176 million of that in Guanacaste alone. Construction in the booming region has jumped 152% in the past five months.
The lack of mandatory licensing has meant that anybody in Costa Rica can act as a realtor, and many say this has resulted in an influx of foreigners, particularly from the United States and Canada, working in Costa Rica illegally and with little experience.
Licensing proponents worry that many of these foreigners may not fully understand Costa Rican property law and take their pay, in the form of commissions, without paying taxes either here or in their home country.
In the face of this, leaders of the two largest real estate associations are calling for the mandatory licensing of agents in Costa Rica.
According Emilia Piza, president of the Costa Rican Chamber of Real Estate Agents (CCCBR), unethical practices in the real estate market are common, particularly in Guanacaste.
“We understand that, particularly in the coastal areas, there is overpricing, and very high overpricing to foreigners,” Piza said.
Overpricing is when a real estate agent gets a buyer to pay more than the seller is asking and pockets the difference, in addition to a commission.
Another problem, Piza said, is the selling of national park land or coastal land to unsuspecting foreigners. In Costa Rica, land that is within 50 meters of the pleamar ordinaria – a predetermined point between the high- and low-tide of the ocean – is state property, and cannot be owned or built upon. The next 150 meters inland is also restricted, and construction in this portion of the Maritime Zone can be done only with a concession granted by the corresponding municipality.
Additionally, “there are a lot of people who are in Costa Rica in an illegal manner
people who often don’t know our language and don’t know our laws, so how can they adequately advise their clients?” Piza asked.
“Nor are they paying the corresponding taxes, nor are they collecting the sales tax which real estate agents are required to collect from property sales.”
Piza told The Tico Times she has been trying to make licensing for real estate agents mandatory for 25 years, and is drafting a bill to that effect to submit to the Legislative Assembly “as soon as possible.”
Piza said she submitted a similar bill during the administration of former-President Miguel Ángel Rodríguez (1998-2002), but it did not prosper.
In May, then-director of the General Immigration Administration, Johnny Marín, confirmed to The Tico Times that his office had received a complaint that named dozens of foreigners who were working illegally in real estate in Guanacaste. Marín said that the complaint would be transferred to the regional office in Liberia (TT, May 19).
The Tico Times recently confirmed with real estate agents in the Guanacaste area that some immigration inspections have been carried out, however, the paper has not been able to confirm a single citation. Following a round of inspections June 22, the chief of the Liberia Immigration office, Sonia González, told The Tico Times she could not arrest or cite anyone that she did not catch in the act of working – for example, sitting behind a desk, typing on a computer or shuffling papers – even if the person has business cards with their name and photo or advertises on billboards and in local media.
Sergio Chavarría, an Immigration inspector in the Liberia office, said the only proof they can use is the actual observation of someone working, and said most of the offices he visited during the recent inspection were empty because the agents “were probably out showing property to their clients.”
According to Piza, another problem with non-resident real estate agents is a lack of accountability, because if a client feels they have been swindled or something goes wrong with a land deal, the client has no way to track down the realtor.
Iris Mailloux, a Canadian realtor with the U.S.-based franchise Remax, in Playas del Coco, in Guanacaste, has been involved in real estate in Costa Rica for 13 years.
Mailloux belongs to both the CCCBR and the Global Association of Realtors (GAR), the second-largest realtor association in Costa Rica after the CCCBR, and says people often come to her office asking her to fix flawed contracts written by realtors whom they cannot find.
“We need to have a clear set of rules and regulations, licensing and bonding, for the protection not only of our companies and ourselves, but of buyers and sellers,” Mailloux said.
CCCBR requires its 324 members to be legal residents of Costa Rica or have valid work permits.According to Mailloux, GAR –which has approximately 90 members, nearly all in the Guanacaste area – historically has not required its members to be residents or have valid work permits. Mailloux, who has her residency, said when she renews her GAR membership each year she is asked for a passport number but not a residency number or copy of a work permit.
However, Cynthia Duran, president of the Global Association of Realtors, insists that its members are required to be in the country legally and follow all the national laws. According to Duran, who took office in March, members are required to sign a document swearing they are legal, and can be expelled if they are not. To date, Duran conceded, no members have been expelled.
Duran, a Costa Rican, told The Tico Times she is “totally in favor” of mandatory licensing for realtors here and plans to ask members of the Legislative Assembly to approve licensing legislation.
“The business of real estate in Costa Rica has become something very important and it is necessary that the people who practice it are at a professionally adequate level. I am 100% in favor of licensing,” Duran said.
“Lawyers have licenses, engineers have licenses, so why don’t these tradesmen who handle million-dollar transactions have licenses?”
Her stance, though, differs with that of her predecessor, Nicholas Viale, the former president of GAR. Viale, who is originally from Nice, France, and is a realtor with the U.S.-based Century 21 Real Estate, in the southern-Guanacaste beach town Tamarindo, says licensing would be “a waste of time.”
According to Viale, “most countries around the world” do not require licensing, and to obtain licensing in Costa Rica would take a long time.
“I think the debate is somewhere else…Experience is more important than licensing, and just because you are working with a licensed realtor doesn’t mean he is going to be a good realtor,” Viale said. “The clients have to do their own homework. They don’t have to be afraid, they can ask a realtor: ‘How long have you been living in the area? How long have you been working in real estate? Are you licensed? With which organization?’”
On this point nearly all realtors with whom The Tico Times spoke agreed: buyers need to take care.
Duran and Mailloux both said buyers should go to realtors affiliated with either the CCCBR or GAR – the latter is now affiliated with the U.S. National Association of Realtors, which has members around the world. Both associations also recommend using an escrow agent, which acts as a third party that holds money for the sale until all the terms of the contract are met.
Arbitration: The Fourth Pillar
According to Les Nunez, a Canadian real estate agent who has been living and working in Costa Rica for 11 years and speaks about real estate at the monthly Association of Residents of Costa Rica meetings, an organized real estate market rests on four pillars: mandatory licensing of real-estate agents, a real-estate board or boards, a multiple-listing service and an independent arbitration board. Only two of those exist in Costa Rica, said Nunez, who runs First Realty out of Playa Hermosa, in the northwestern province of Guanacaste: a real-estate board, in this case the Costa Rican Chamber of Real Estate Agents (CCCBR), and an arbitration board, called the Center for the Resolution of Property Conflicts (CRCP).
Licensing is not mandatory for anyone acting as a real estate agent in Costa Rica, though a new draft of a licensing bill is being prepared for submission to the Legislative Assembly (see separate article). A multiplelisting service, which guarantees that properties on the market are being listed at the same price by all agents, has not taken hold here either.
The conflict-resolution center was originally set up by the real estate chamber, but is now completely autonomous. Its decisions are legally binding, according to the center’s director, Ramón Iglesias.
While arbitration at the center is voluntary, the CRCP provides a clause for contracts that mandates conflicts be resolved at the center.
“When you make an investment, you obviously want to make your contract with trustworthy people,” Iglesias said. “Just as important, you need to be sure that problems or conflicts will be resolved in a quick and effective way.”
Iglesias said the center, which has resolved 25 cases in its five years of operation, takes approximately six months to resolve a case, significantly less time than in the country’s judicial system.
When going in front of the board, there are different types of proceedings that favor different situations. First, one can choose between arbitration and conciliation. In a conciliation process, the CRCP appoints one conciliator to help the parties come to an agreement on their own, like a negotiation. The final agreement is as binding as a court sentence, Iglesias said.
In an arbitration process, the two sides present their arguments in written form and submit oral testimony and evidence to a panel of three arbitrators who make a final, binding agreement that also has the same weight as a court decision. Each side chooses one arbitrator from a list approved by the CRCP, and both parties agree on the third arbitrator.
Parties can also choose between two types of arbitration, Iglesias said: an arbitration of law or an arbitration of equity. In an arbitration of law, the arbitrator must rule according to Costa Rican law, while in an arbitration of equity, the arbitrators use “their own criteria of justice” according to Iglesias.
According to the CRCP director, foreigners can benefit from an arbitration of equity because the parties can choose their own arbitrator who won’t necessarily base his or her decision Solely on Costa Rican law – a tangle that often does not make sense to outsiders.
The CRCP is financed by user fees, which are split evenly between the two parties.
A conciliation process costs about $40-100 depending on the case. An arbitration process is assessed by the value of the amount disputed, and costs a minimum of $750.
To contact the center, call 224-8607, or see the Web site at www.crcp.co.cr or www.resolucionsonflictos.com.