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How Realtors in Costa Rica Make Money

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Take baby steps... A house is just a house and there is lots of property for sale. Focus on friends first and the rest will take care of itself. Relax and enjoy life. Living is good here.

Kahuna,

 

What a great summation of how to settle in to living in Costa Rica.

 

Halla-Loo!

 

Paul M.

==

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Thanks Paul for the comment,

 

I am curious as to why none of our realtor friends have not chimed in at this point. If there is something I am missing I would sure like to know.

 

CRFirst started this thread, where did he go?

 

I think that is one of the things that irritates me most about the We Love Costa Rica group. Granted, they do provide a lot of good information, but their entire business is predicated on the fact that people come here and they don't understand that the system is entirely different than what they are used to. People assume that they need a realtor, when they really don't. All of their promotional literature, including the book that they present to the public as an objective text book (which it most certainly is not), reiterates over and over again that they are the only ones that you can trust in Costa Rica when making a real estate purchase. They manage to find fault with virtually everyone outside their little circle. However the reality that they fail to disclose is that their services are directly aimed at a market of people that don't understand that attorneys are fundimental to processing real estate transactions in Costa Rica, not realtors. My perception is that not only do they feed off of this fundimental missunderstanding, they in fact perpetuate it. With all due respect to my friend CRFirst, whom I assume is an honest and well meaning individual, the whole way they market themselves just rubs me the wrong way. I find their entire presentation intellectually dishonest.

 

If I have that wrong, I would love for someone to set the record straight and I will humbly offer up my apologies.

Edited by Kahuna

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I was also appalled at the method CRFirst proposes as the way Realtors make money. It just does not work that way, in the US or CR. As a new buyer in the CR market, lots of research is required to prevent mistakes. The seller (not the buyer) pays commission to the realtor for finding the buyer and obtaining an offer, with percentages lower than what CRFirst promotes, at least in my experience. If the buyer believes the "listing price" is padded, then a lower offer can be made.

 

I believe the main reasons a buyer may need a realtor is to help locate a product the client is interested in, and narrow down the areas (location) the client is interested in, perhaps recommend an attorney to complete the transaction. A title company may or may not be utilized, but a trustworthy attorney is essential. A "RECIPROCAL PROMISE TO BUY AND SELL" contract can be used, with the minimum information for example:

 

Description of the Parties may include passport or cedula numbers:

 

Between us, ____________ the "Buyer(s)", and ________the “Seller(s)” have agreed to enter into the following Reciprocal Promise to Buy and Sell which shall be governed by the legislation of the Republic of Costa Rica and in particular according to the following clauses.

 

FIRST: Legal Description of the Property. The SELLER is the owner of property which is recorded in the National Public Registry as follows:

Description of the property: __________________________ (Name of Finca or Lot Number and possibly a Cedula Number)

Province: ________ Canton: ______ District: _______

Registered Property Number: A-123456-2002

Matricula 987654-000 Folio Real 7878787-000

Additional Property: (if applicable)

 

SECOND: Size and Property Survey Map. SELLER manifests that the property measurement is _____m2. SELLER agrees to provide to the BUYER a copy of the property survey map within ___ days from the signature of this agreement.

 

THIRD: The Reciprocal Promise. The SELLER hereby agrees to sell and the BUYER agrees to buy the PROPERTY described above, free from any liens, encumbrances, annotations and with municipal and property taxes paid to date.

 

FOURTH: The Sales Price. The sales price for the property is [$ ________ U.S.]

 

FIFTH: Earnest Money Deposit and Payment Schedule. The BUYER tenders a non-refundable earnest money deposit of $_____U.S. on or before (date).

Deposit will be held in escrow with seller’s attorney until closing.

 

SIXTH: Closing. The balance of the purchase price of [$________U.S.] shall be disbursed to the SELLER at closing when the property transfer deed is signed. The closing shall take place on or before (date).

 

SEVENTH: Conditions: Liens and Encumbrances. At the time of closing the property shall be free from any liens, encumbrances, and annotations of any kind. The property title report must show no annotations or liens (gravamenes) of any kind. It shall be the responsibility of the SELLER to clean and or lift off the title report any and all annotations.

 

EIGHTH: Transfer of the Property. The BUYER shall disburse the funds and remaining balance of the purchase price indicated above to the SELLER simultaneously upon the signing of the property transfer deed (escritura de traspaso) transferring title from the SELLER to the BUYER or their corporation.

 

NINTH: Property Taxes and Utilities. The SELLER must provide the following documentation at the time of closing: (a) Certification issued by the Municipal authorities indicating that the SELLER is current in any municipal and property tax payments. (B) Copy of any filings with the Municipal government related to property valuation for property tax purposes (Declaración de Bienes Inmuebles).

 

TENTH: Assignment to a Corporation. (if applicable)

 

ELEVENTH: Association Dues. Monthly association dues (if applicable) will be $___ per month, payable to ____________.

 

TWELFTH: Closing Costs. All closing costs related to the property sale are to be split 50% - 50% between the seller and the buyer.

 

THIRTEENTH: Real Estate Commission. (can be dollars, or percentage of sales price, and separate from the closing costs above)

 

FOURTEENTH: Modifications. Any modifications to the terms and conditions set forth in this contract must be in writing and signed by both parties.

 

FIFTEENTH: Jurisdiction. The parties agree that the laws of Costa Rica shall be applicable to all matters related to this contract and they waive their domicile and submit to the laws of Costa Rica.

 

SIXTEENTH: Estimation. The parties estimate the value of this contract in the sum of $__________ U.S.

 

SEVENTEENTH: Contractual Address for the Parties. Any notices and communication regarding this contract shall be in writing and delivered to the following address:

SELLER: _______________________

BUYER: ______________________________

 

EIGHTEENTH: Public Instrument and Translation. Both parties have requested that the following contract be drafted in the (English) language since this is the language they read and understand. Either party may have this agreement elevated to a Public Instrument by having it translated into Spanish by either an official translator of the Ministry of Foreign Relations or a Notary Public of their choice pursuant to the regulations of the Costa Rican Notary Code. In agreement with each and every clause of this Reciprocal Promise to Buy and Sell we sign in duplicate. At ____ hours, on this ___ day of _____ month, OF TWO THOUSAND AND SEVEN.

 

SIGNATURES OF BUYERS ____________________________ SIGNATURES OF SELLERS ____________________________

 

Unfortunately, buyers from outside CR may have limited time to get all of this done on one or two trips. People tend to get in a hurry so they don't *Miss* a good *Deal*. The advise from Kahuna is golden... "Take baby steps; build a network of people that you trust first before making ANY major purchases".

 

Obviously, it is important to get all of these details right, double check all the numbers, and verify the translation to Spanish is correct. Then Pura Vida.

 

GreciaBound

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The “Board of Real Estate Brokers” is the only government recognized association in Costa Rica. They prohibit the practice of “sobre precio” or “net pricing” which has been described here as ‘mark-up’ pricing. It is their recommendation that their brokers charge 13% commission.

 

You should always have an experienced real estate professional represent your interests when buying a property. Just be sure to ask – How do you get paid?

 

Good Luck! Pura Vida!

 

I am puzzeled by this statement. In what manner is The “Board of Real Estate Brokers” recognized by the governemnt? I would like an explanation.

Edited by Kahuna

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I am sorry to see that our friend CRFirst has run away from the discussion. I was looking forward to one of his thoughtful replies.

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Kahuna, Grecia Bound & Others,

 

It seems that many of prospective buyers are leary of my post and they should be. Many agents are dishonest about how they make money.

 

We do charge more to be a buyer agent. We are not ashamed of that. The fact is that having a buyer agent saves the buyer money!

 

We are straight forward with our clients about the "real" asking price and we represent only the buyer's interest in the deal. This is in addition to the full transitional services offered.

 

There are some honest hard-working realtors on this site and others. But they are few and far between - and those realtors will tell you the same thing.

 

It is easy for a gringo realtor to sell a gringo project to a gringo. The commission and price is set in stone and all parties agree. The problem is that those projects are the ultimate in retail and not many good deals can be found. Also, these realtors are looking out for the gringo project - not the gringo buyer.

 

The problems occur when a Tico seller is not offering a commission. They simply state the price they want and tell everyone to market it at any price above and beyond what they want. Many agents take advantage of such properties and add their desired profit.

 

Many crazy things occur in the Costa Rica real estate market. The laws are different, the commission culture is different, and legal recourse is non-existent. Therefore, it is always better to hire a professional who is looking out for the buyer's interest only.

 

For this we (and many others) charge an small additional commission which we are completely upfront about. In fact our main competitors in Grecia work the same way.

 

Buyers may be opposed to paying an additional percentage, especially because they are used to a uniform structure in the U.S. That structure does not exist here in Costa Rica. It is very important to point out that - Regardless of how the commission structure is worded, only one person pays the commission in any transaction - THE BUYER!

 

If the realtor claims to only make 5% seller commission, does the buyer not pay that commission through his funding of the sale? Who is to say that the realtor did not raise the actual asking price in that deal? No one. And that happens everyday in Costa Rica. The buyer feels good because according to them they got what they wanted and didn't have to pay "extra".

 

Some may disagree with this approach and that is fine. We are protecting our clients during the transaction - and yes we charge a buyer commission for the variety of services that we offer. It has been our experience that this approach saves the buyers alot of money in the long run. We have a long list of happy clients to bolster our claims.

 

As always - Good Luck & Pura Vida

 

Jeff Hickcox

CRFirst@yahoo.com

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"We do charge more to be a buyer agent. We are not ashamed of that. The fact is that having a buyer agent saves the buyer money!"

 

The way I learned it back in the day; A "Buyer's Broker" should not be in the business of _selling_ real estate as that is automatically a conflict of interest and considered highly unethical.

 

Also, the way a true Buyer's Broker works is: The customer decides exactly what s/he wants and how much s/he is willing to pay for it. For instance 3 bed 2 bath 2,000 square feet with ocean view ... for $XXX. Then if the Buyer's Broker is able to produce the exact specifications for the exact price s/he earns a set fee. If s/he finds the exact specifications for less than the buyer was willing to pay then the buyer's broker gets a split of that difference based on the agreed percentage.

 

Buyer's Brokers are extremely rare.

 

Buena Suerte

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Jeff,

 

I don’t think anyone is saying that anyone in your organization is in anyway deceptive in how you present your pricing. As I said before, I am sure that you are an honest and well meaning individual.

 

My argument is that it is intellectually dishonest to lead Gringos to believe that it is necessary to have a real estate professional involved in your real estate investments in Costa Rica.

 

Many crazy things occur in the Costa Rica real estate market. The laws are different, the commission culture is different, and legal recourse is non-existent. Therefore, it is always better to hire a professional who is looking out for the buyer's interest only.

 

Jeff, this is the reason you hire an attourney! My argument is that the Costa Rican system is set up to rely on Lawyers not realtors. That use of “Real Estate Professionals” might make North Americans feel more comfortable with the process, but in my mind it is misleading to present to investors that they are vital to the process, when in fact, within the Costa Rica system THEY ARE NOT!!! My argument is that there would not even be any realtors in Costa Rica if not for North American that have been misinformed into believing that they need one.

 

I understand your concept that it is more work for the realtor in Costa Rica, but that does not necessary mean that extra work translates to extra value to the investor. Personally I do not see what value a realtor brings to the transaction to justify the type of fees that you are suggesting an investor should pay, not when you are required to hire an attorney to “look after your interests” as you say.

 

Explain to me why that is not redundant? Explain to me what you do that an attorney would do, short of driving people around and showing properties. It seems to me that a 6% to 10% realtor fee would be better spent on taxi drivers. Explain to me what value you bring to the process that the lawyer and the taxi driver bring to the process.

 

You have made the following comment twice:

Edited by Kahuna

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My argument is that it is intellectually dishonest to lead Gringos to believe that it is necessary to have a real estate professional involved in your real estate investments in Costa Rica.
Kahuna, I agree it could be dishonest to lead another to think it is 'necessary'. However there is nothing dishonest about presenting a case for ones services and why they may be of benefit. I reviewed Jeff's website and feel he does a very good job of marketing his services and creating a 'value added' aspect. They are very upfront about how they charge, why they charge it, and the amount being charged. In a market where anything goes this, upon first glance, looks great.

 

Jeff, this is the reason you hire an attourney! My argument is that the Costa Rican system is set up to rely on Lawyers not realtors. That use of “Real Estate Professionals” might make North Americans feel more comfortable with the process, but in my mind it is misleading to present to investors that they are vital to the process, when in fact, within the Costa Rica system THEY ARE NOT!!! My argument is that there would not even be any realtors in Costa Rica if not for North American that have been misinformed into believing that they need one.
Many North Americans DO need a real estate agent. They are in and out of the country in a week or less at a time. Unfortunately they either do not have, or do not take, the time that is required to develop relationships and buy tico style. The 'rent a friend' concept, or better yet, 'rent a perfessional' works well and serves their interest. Yes the Costa Rican system is set up very differently then the USA system and agents are not technically needed. But gringos are set up to use agents so they brought this system that serves them well with them. An arguement could be made that although some may be misinformed into believing an agent is required, others will be well informed that they need a good honest agent that will provide a meaningful service in a very foriegn land.

 

 

Explain to me why that is not redundant? Explain to me what you do that an attorney would do, short of driving people around and showing properties. It seems to me that a 6% to 10% realtor fee would be better spent on taxi drivers. Explain to me what value you bring to the process that the lawyer and the taxi driver bring to the process.

 

In my opinion, the average North American would not do well shopping for property in Costa Rica via taxi driver (however this does sound like a potential basis for a new reality show... the winner is the one that finds the best deal :lol: ). Given the language barrier and the idiosyncrasies of the Costa Rican market... it would be VERY difficult to truly understand the values of the given properties from one area to another... it may even be difficult for someone to simply find what they like... they may not even really know what they want (reality not being what they invisioned). This process could be extremely time consuming, frustrarting, and fruitless all at the same time. A good agent can listen to the 'wants' of the buyer... then by applying their intimate knowledge of the market present the products that fit and advise on value and much more. An attorney does not typically provide these services.

 

All that being said. I made my first purchase in Costa Rica using a very good lawyer... a tico friend... purchased from the farmer that has been on the property for decades... no use of an agent. This would not have been possible without the tico friend.

 

Cheers,

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To All,

 

Please forgive the many spelling errors as well as my misuse of the quotation tool. Newbie needs to learn the tools of this forum :rolleyes: . By the way, this forum is fantastic!

 

Cheers,

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http://www.nytimes.com/2007/06/08/business/08home.html?hp

 

"

June 8, 2007

One City’s Home Sellers Do Better on Their Own

By JEFF BAILEY

 

It sounds like the setup for a dull economist’s joke. Who gets the better deal: the cautious economist who sells his house through a real estate agent, or his risk-taking colleague who finds a buyer on his own?

 

But the question — debated by two Northwestern University economists who chose different methods to sell their homes — and the research it helped prompt are serious. And the answer will be of interest to anyone who has paused to consider whether paying a real estate agent’s commission, typically 5 to 6 percent of the sale price, is worth it.

 

The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially.

 

The study is to be made public on Northwestern’s Web site.

 

Madison is home to one of the biggest for-sale-by-owner Web sites in the country. The economists pitted that site against the local multiple listing service operated by real estate agents.

 

There are asterisks. The authors cautioned that they did not know whether the results from Madison applied to the country as a whole; certainly, selling a house without a real estate agent would be harder in a city without a heavily trafficked for-sale-by-owner Web site. The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed.

 

Some aspects tilted in agents’ favor. The researchers found that homes on the multiple listing service sold somewhat faster than houses on the for-sale-by-owner site. The study also did not place a value on other services provided by agents in selling a home.

 

The authors have presented their paper at forums at many leading universities, but it has not yet been submitted to a journal for peer review.

 

For all its caveats, though, the study is highly unusual in comprehensively measuring the impact on the sale price of a home of hiring, or not hiring, a real estate agent.

 

The findings fly in the face of studies by the National Association of Realtors. The group has said that houses sold via its members’ local multiple listing services get a 16 percent premium over homes sold by their owners.

 

The economists’ study is likely to be seen as ammunition for critics and lower-cost competitors who question the need for 5 or 6 percent commissions — which deliver about $60 billion a year to agents and their employers.

 

Homes sold on FSBOMadison.com, the for-sale-by-owner Web site, fetched an average price of $175,068 during the years examined. Those sold on the multiple listing service brought an average price of $173,205, roughly equal when taking into account the study’s margin of error.

...

"

 

Caveat Emptor

 

Buena Suerte.

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Dave, one word: exactly! I have seen reports of similar studies that also concluded that there is a tendency on the part of a realtor to talk his seller into lowering their asking price much too soon, because it somehow becomes more important to the realtor to move the property, thus settling for a smaller commission, than it is to get the most money for the seller.

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Many North Americans DO need a real estate agent. They are in and out of the country in a week or less at a time. Unfortunately they either do not have, or do not take, the time that is required to develop relationships and buy tico style. The 'rent a friend' concept, or better yet, 'rent a perfessional' works well and serves their interest. Yes the Costa Rican system is set up very differently then the USA system and agents are not technically needed. But gringos are set up to use agents so they brought this system that serves them well with them. An arguement could be made that although some may be misinformed into believing an agent is required, others will be well informed that they need a good honest agent that will provide a meaningful service in a very foriegn land.

That is a fair argument.

 

Unfortunately for this type of customer they do not realize that they are paying highly inflated prices by purchasing property in the manner you describe. It troubles me that this type of investor is never informed that there is an alernative.

 

The aspect that I find dishonest is not the rates and services outlined on Jeff’s site, but rather the implication that most realtors leave with their customers that they MUST have a real estate professional and they MUST purchase property in this manner. That is offensive to me.

 

One particular book on purchasing real estate in Costa Rica that claims to that it is a guide on how to purchase property without loosing your shirt does not even mention anything about purchasing property Tico style. To the contrary, the author incessantly promotes his own services and basically claims he is the only one an investor can trust with their real estate investments. I find this doubly offensive and deceptive.

Edited by Kahuna

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Kahuna, your being offended is perfectly understood and I completely agree. There is a difference between good marketing and deceptive marketing. I respect and rather enjoy good marketing as well as selling a value added service. I also enjoy seeing a professional get more $ for a product by truly selling it's value... specially when I find myself on the receiving end (does not so much relate to my real estate transactions). It is fun to watch a professional work and do good at his job!

However deceptive practices and people that do not follow through... do not 'deliver the goods' so to say... is highly offensive and I am quick to walk away to such individuals or companies.

 

 

Dave & jdocop... In the USA it is very easy to ascertain a value of a property. Public access to the MLS via computer makes finding good comps rather easy thus marketing a property is much easier. However, take the MLS system away (which I believe is provided by the realtors) and this process becomes more difficult. In Costa Rica the process of finding the value (if value to the buyer is derived by comparable properties) can be rather difficult.

 

The realtor is a tool... a resource... he/she should not be regarded as the final say on what a buyer or seller do. They are more of a facilitator... a mediator... a good one is very much so worth his fee... a deceptive/unprofessional one is shameful to see... much like the players in any profession.

 

In the end a deal is only a deal if both parties sign.

 

Cheers

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