ESCROW INSPECTION & APPRAISALS
The Process, Step-by-Step
The Initial Agreement and Deposit.
The Purchase and Sale Agreement is a legal arrangement between a potential purchaser and the property’s seller.
Some important tips to keep in mind to streamline the process:
- Keep written records of everything. For the sake of clarity, it will be extremely useful to transcribe all verbal agreements including counter-offers and addendums and to convert them into written agreements to be signed by both parties. We will assist you in drafting all the paperwork for your purchase and make sure that you have copies of everything.
- Stick to the schedule. Now that you have the property under contract, you and the seller will be given a timeline to mark every stage in the process of closing the real estate contract. Meeting the requirements on time ensures a smoother flow of negotiations so that each party involved is not in breach of their agreements. During the process we will keep you constantly updated, so you will always be prepared for the next step.
Set Up An Escrow Account
Choosing the ideal Escrow Agent for a real estate transaction is a key part of the purchase process. Escrow Agents can be foreign or domestic. For safety purposes, the main role of the Escrow Agent is that money is not exchanged between parties until contractual conditions are met. Escrow activities in Costa Rica are regulated; meaning domestic escrow agents, shall be registered before the Costa Rican financial regulator SUGEF. All Escrow Agents charge a fee for their service which is fixed or established proportionally to the value of the transaction. Along with the Escrow Agent’s appointment an escrow agreement shall be executed. Other documents such as Know Your Client forms (KYC), identification documents, and source of funds proof may be required. SUGEF regulated Escrow Agents have more compliance requirements than foreign escrow agents as they must comply with local regulations.
Due Diligence
Costa Rica does not have title insurance; therefore, performing a thorough due diligence is the most important part of a purchase decision. Due diligence is a process whereby the buyer – through a legal firm or attorney – for a specific period prior to making the final decision of whether to close on a property, systematically researches and verifies the legitimacy and accuracy of the title as well as the contingencies that could cloud it, such as taxes, debts, liens, encumbrances, lawsuits, zoning and building restrictions, utility availability, HOA information (homeowner association dues, finances, minutes), etc. The attorneys we recommend and work with specialize in preparing due diligence studies and will draft a due diligence report with all the information obtained as well as a summary of all the key points needed for the buyer to make an informed decision.
Inspections and Topography Studies
Once your offer is accepted by the seller, we believe it is important to conduct an inspection and a topographical study. We work with professional inspectors that will provide you with a written report and photographs of their findings. The topographers we will work with are trained to show you the lot lines and to make sure that the home you are buying has been built within those lot lines.
Depending on the outcome of these inspections, one of two things may happen:
- Either each milestone is successfully closed and the contingencies will be removed, bringing you one step closer to the close, or
- The buyer, after reviewing the property and the studies, requests a renegotiation of the terms of contract (usually the price, but sometimes buyers complete all of the necessary repairs or work to get the topographical errors fixed prior to closing).
Should you be using Costa Rica financing for this purchase, it is imperative that you keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and let you know when payments are due for the appraisal. The property will be appraised by an appraiser to determine the value for the lending institution, via a third party. This is done so that the lending institution can confirm their investment in your property is accurate. Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. When you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.
Set Up A Corporation
If you’re planning to invest in Costa Rica, it may be a wise decision to set up a corporation and have the property held by the corporation. The two most common corporations in Costa Rica are “Sociedad Anónima” abbreviated as “SA,” and “Sociedad de Responsabilidad Limitada” or “SRL”.
Some of the reasons to do business through a corporation in Costa Rica are:
- Operate your company remotely. From a practical standpoint, corporate operation and decision-making can be done by proxy for foreign owners who do not reside in the country or who may reside in Costa Rica but travel constantly. Therefore, it is not mandatory being physically in Costa Rica to make corporate decisions, execute agreements, purchase or sell property or close on transactions.
- Separate patrimony. Costa Rican Law considers corporations to be separate entities from their representatives, owners, or stockholders and, as such, have separate patrimony. If a claim is filed against the corporation, the personal assets of the representatives or stockholders may not be pursued and vice versa, except for very specific situations, such as criminal cases or family disputes.
- Estate planning. A company is a great vehicle for estate planning and to secure your assets and belongings under one entity. It also facilitates setting up a will, probate and reduces procedures and costs.
It is always a good idea to get property insurance. If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. We will be happy to recommend experienced knowledgeable insurance agents for every property type.
Preliminary Closing Statement
It is a good idea to ask your Costa Rican attorney at the start of a transaction for a detailed Preliminary Closing Statement containing all costs associated with the transaction. This way there will be no surprises. The law firms we recommend also include a variety of items that are essential to close the transaction and a set of optional services with recommendations based on our experience of what foreigners and investors need to be fully set up for their Costa Rican life. Eg: Opening bank accounts, setting up wills, assisting with getting the property insured, etc.
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