In Costa Rica, the escrow process for buying real estate is a bit different from other countries, but it's designed to ensure the Buyer’s and Seller’s interests are protected during the transaction.
Here's an overview of how it typically works!
Offer and Acceptance:
Execution of the Contract to Buy & Sell Real Estate: Typically, the Buyer signs and submits a Contract to Buy & Sell Real Estate (also referred to as a Purchase Sale Agreement, or PSA) to the Seller for review, editing, and signature. The Seller may make a counteroffer and/or change certain sections of the Contract. Sometimes the contract is re-written to reflect the agreed upon terms, but in this age of DocuSign, simple edits can be picked up online and both Buyer and Seller initial them.
Deposit: Once the Buyer and Seller agree on terms and the Contract is executed, the clock starts ticking on both Due Diligence (see below) and getting the Buyer’s initial deposit into the Escrow Agent’s account. The Buyer usually puts down an initial deposit of around 10% of the purchase price to secure the deal.
Escrow Agent:
Escrow Agent: In Costa Rica the Escrow Agent holds the deposit and the eventual balance of the full purchase price in an escrow account. This helps ensure that the transaction is completed smoothly and fairly for both parties and acts as a neutral entity to protect both the Buyer and Seller.
Sidebar: It’s important to make sure the Escrow Agent is registered with SUGEF. SUGEF is an acronym for Superintendencia General de Entidades Financieros (General Superintendent of Financial Entities). In the old days, lawyers performed this service – and sometimes still do. The Buyer typically selects the Escrow Agent. Buyers are strongly advised to insist that a SUGEF registered Escrow Agent be used for the sale transaction. It is important to be very clear on that point. Your experienced real estate agent - me - works with a few and will be able to recommend one. The Escrow Agent should be specified in the Contract to Buy & Sell Real Estate.
Here is a list of SUGEF registered Escrow Agents I work with regularly:
Role of the Escrow Agent: The Agent is neutral and ensures that the Buyer's funds aren’t released to the Seller until all agreed-upon conditions in the Due Diligence Period are met. The Buyer’s lawyer will verify that the title is clear, ensure all taxes are paid, and will confirm that there are no legal encumbrances.
KYC (Know Your Customer): The sometimes-frustrating part of the escrow process for both Buyers and Sellers is the completion of the KYC forms and submission of the supporting documentation required by law to confirm the identity of corporations and/or individuals involved in the purchase/sale of the property, source of funds, etc. The Escrow Agent will be able to guide you through the process privately. You will typically be required to provide information on the following:
- Personal information
- Contact information
- Employment information
- Source of funds
- Purchase price
- Depositor information (Bank information)
- 3rd parties involved in the transaction
Escrow Instructions: Both the Buyer and Seller must agree to the specific conditions under which the Escrow Agent will release the funds. These conditions are outlined in the Escrow Agreement. In fact, I put a condensed version of the instructions in my Contracts to Buy & Sell Real Estate so there are no surprises further along in the process.
Due Diligence Period (DDP):
The Due Diligence Period (DDP) on a single-family home or condominium typically lasts 30 – 45 natural calendar days. However, it can run longer and an Addendum to the Contract to Buy & Sell Real Estate may be required to extend the DDP and can depend on a multitude of DDP items typically spelled out in the Contract.
- Title Search: The Buyer’s attorney will perform a title search to make sure the property is free from liens, disputes, or any legal issues.
- Property Verification: The Buyer should also verify that the property is properly registered in the Registro Nacional de la Republica de Costa Rica (National Registry of the Republic of Costa Rica) and confirm property boundaries. The Buyer may also hire an independent topographical engineer (survey engineer) to verify boundaries at the Buyer’s cost.
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Availability of Water and Electricity: In many parts of Costa Rica, especially in Guancaste, water availability is an issue. Electricity is much less an issue. But in the event the lot you want to purchase is without water, or a letter of water availability, the Municipality will not grant a building permit and you’ll be stuck. - Property Inspection: The Buyers may hire a home inspector at their cost to inspect the home or condo to make sure there are no structural, electrical, mechanical, finishes, plumbing, or other issues.
- Property Taxes: Verification that the property is up to date with all property taxes.
- Plano Catastro: This is the plan that is registered in the National Registry showing the boundaries of the property. Without a plano catastro, especially in the case of single-family homes and lots, title of the property cannot be transferred.
- Payment of Utilities: All utilities should be paid and up to date. However, the reality is that sometimes utilities are billed after their use. So, typically I put a holdback of $500 - $1000 in the contract that stays in the Escrow account for 30 days after closing. In the event there’s a surprise cost, the Buyer may claim that amount. At the end of the 30 days, the Buyer receives the amount and any of the holdback remaining reverts to the Seller.
- Booked Rentals: In many cases a home or condo may have booked Airbnb rentals that the Buyer may want to honor and receive rent.
- Inventory: The Seller should provide the Buyer with a photo inventory of the home or condo clearly indicating what is included in the sale and what is not. Most homes and condos here come fully-furnished. But sometimes a piece of artwork or furniture can become a sticking point.
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Construction Permits: It’s very important that the Seller provide the Buyer with construction permits for the home, condo, or project. The Buyer can waive the permit and buy the property “as is”, but if you’re buying a million-dollar home, you’re going to want to have the permit. - Property Value Declaration: The Seller needs to provide the Buyer with the last registered property value declaration. This is the value that real estate taxes are calculated on. After closing, the property will be re-valued at the purchase price.
- HOA Administrator Letter: When purchasing a condominium, the HOA Administrator typically needs to write a letter authorizing the sale, stating that all HOA’s a paid in full.
- CC&R’s: With a condominium, the Seller needs to provide the Buyer with the HOA’s published Covenants, Conditions, & Restrictions (CC&R's).
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Corporations: In the event the home/land/condo is being sold in the name of a Costa Rican corporation, or being transferred out of the Seller’s corporation to the Buyer, or Buyer’s corporation, the Seller needs to provide the Buyer proof that:
- The Transparency & Final Beneficiaries Registration exists.
- That their D-101 filing for the year is current.
- That the Shareholder’s Disclosure (UBO filing) is up to date
- That the annual corporate tax is paid.
Closing:
Buyer and Seller Closing Statements (Exhibit A’s): Once the due diligence is completed, the Buyer and Seller will each sign their own closing statements that detail who gets paid what and how much, as well as the associated 13% sales tax (I.V.A) associated with each fee or commission. The Buyer will then transfer the balance of the purchase price as well as any additional fees, such as legal, stamp tax, education tax, escrow fees, etc., into the Escrow Agent’s account within 5 - 7 days of the closing date.
The Closing: At this point, the property sale is ready to be closed on. Typically, the Buyer picks the location. It could be at their lawyer’s office. It could be their real estate agent’s office. But all parties need to agree on the location. Not all parties may be required to be present, such as the Real Estate Agents, as no signatures from them are required and their commissions can be dispersed by the Escrow Agent in the Agents’ absence. Even the Buyer and Seller may not be required to be present if they’ve given Limited Power of Attorney to their respective legal representatives to close on the sale in their absence.
The transaction is finalized with the transfer of the property deed (escritura, in Spanish). The deed is registered with the National Public Registry in Costa Rica, officially transferring ownership to the Buyer and the deal is done.
Post-Closing:
Tax Filings and Utilities: After closing, the Buyer will need to ensure the property taxes and utilities (electricity, water) are transferred into their name. Additionally, if there is any property tax owed, the Buyer should make sure it’s paid. Typically, the Buyer’s lawyer will help them with this.
Party Time: You’ve just purchased your own slice of paradise. Time to kick back, pour something cold and refreshing, and celebrate! You did it!
Key Things to Remember:
Escrow Fees: Each Escrow Agent will have their own fee structure. Escrow fees won’t break your bank and are frequently split 50/50 between the Buyer and the Seller as specified in the Contract to Buy & Sell Real Estate. As of this writing, here are the fees that above mentioned Secure Title Latin America charges:
Legal and Real Estate Sales Assistance: Working with a knowledgeable and reputable local attorney and an experienced Real Estate Agent – like me – is strongly recommended to guide you through the process and ensure everything complies with Costa Rican law.
Foreign Buyers: Costa Rica allows foreign nationals to buy property with the same rights as Costa Rican citizens, but it’s always a good idea to familiarize yourself with any specific requirements. See my blog post, The Legalities: Non-Citizens and Real Estate Rights in Costa Rica for more detailed information about buying real estate here as a foreigner.
Would you like more details on any specific part of the process or perhaps suggestions for finding a good escrow agent or attorney in Costa Rica? Call, email, or WhatsApp me! I’ll be happy to help you out.