Buying Property in Costa Rica : Costs

Daniela Quiros,  Wednesday, 13 November 2013

 

This article is part of a series of 8 articles about buying property in Costa Rica. The other articles in the series cover the following topics:


Transfer Tax, Legal Fees, and Closing Expenses Involved In the Purchase of Property in Costa Rica

The final steps and closing costs involved in buying a house in Costa Rica can be simple and transparent, provided you have a lawyer consulting you every step of the purchase process. Choosing ‘I can do it myself’ method can create a mess in bureaucratic intricacies involved in the purchase-sale process, and you will end up spending more than you initially intended to save.

As we mentioned in the article dedicated to the , the initial step in the title transfer is the inquiry into the property’s status in the Public Registry. While anyone can do that, provided they have the Folio Real number of the property, it is up to the lawyer to determine what other inquiries are necessary depending on the property’s status and its zone.

This research establishes whether the property is clear from other liabilities and if all the property taxes have been paid by the seller. This is true only when the owner is an individual, unlike the cases when the property belongs to the corporation. In the latter case, it is virtually impossible to determine whether the corporation carries any additional liens and responsibilities. Your lawyer may advise you to purchase that property via creating a new corporation, or as an individual buyer.

All closing procedures must take place in the presence of a Costa Rican Notary Public, who can be your lawyer at the same time. Lawyers in Costa Rica usually have a title ‘Abogado y Notario,’ and perform corresponding functions. The Notary transcribes the transfer deed in his registry book, Protocolo. The seller, buyer and the Notary must sign the registry entry. The Notary then issues several copies of the deed for the buyer, seller, and the Municipality. The Notary is then responsible for registering the new owner in the National Registry.

All closing costs must be paid before the Notary, or you lawyer if it is not the same person, submit the deed to the National Registry. Normally, provided all costs and fees have been paid, and there are no errors in the deed, the National Registry registers and records the deed within two or three weeks after the submission.

Currently, it is a common practice for the buyer and seller to share the closing costs 50/50. However, both parties can agree on a different cost split. Note: closing costs and legal fees are defined by the statute and cannot be altered, increased or decreased, by the Notary according to his liking. Otherwise, the Notary may face tax liabilities or professional penalties incurred by law.

Transfer Tax is 1.5% of the purchase price. Your lawyer makes the payment to the National Registry. This tax is often split by the buyer and seller.

Legal fees on the purchase of property in Costa Rica can be between 1-2% of the purchase price. The amount depends on the complexity of the deal, the time spent by your lawyer and notary on the deal and the sales price.

In many cases, the buyer and seller opt for different attorneys. If the buyer and seller choose to have one lawyer, they can split the legal fee, too. Do not forget about translation costs because if you are a foreign citizen, you will need to have all paperwork properly translated into your native language and notarized.

There are other lesser fees included in the process:
Registry fee includes 5 colones on every 1000 colones of the purchase price.
Fiscal fee is 625 colones fixed.
Archive charges some 20 colones.
Municipal fee includes 2 colones on each 1000 colones of the purchase price.
Bar association charges 10 000 colones fixed.

There may be other minor fees, such as a home inspection, soil test, topographer’s fee and the like. Buyer is solely responsible for paying these fees. Overall, transaction fees and closing costs may amount up to 4% of the property’s price.

If the buyer forms a new corporation to purchase the property, this can cost around $600. Any additional contracts, such as mortgage or Seller Financing Agreements, as well as registering those agreements will naturally add up to the closing costs. In case the purchase-sale involves the mortgage, the buyer is responsible for paying the fees on drafting and registering the mortgage agreement. It is possible to create the mortgage agreement simultaneously at the time of the closing deed is signed, by adding a mortgage/financing clause to the deed. Or, your lawyer can draft a separate mortgage instrument. Either way, the buyer pays the related fees. The notary will charge 0.525-1.25% of the mortgage amount depending on the complexity of the agreement. If the mortgage is included in the transfer deed, the registration fee is 0.25%, and the National Registry stamps fee is 0.53% of the mortgage value.

Here is a simplified chart for the closing costs and fees:

Closing Cost     Fee in % of the purchase value
       
Lawyer/Notary Fee     1.25-1.5% depending on the complexity of the deed
Ownership Transfer Tax     1.5%
National Registry stamps     1.3%
Mortgage Registration Fee     0.25% of mortgage amount
Mortgage National Registry Stamps     0.53% of the mortgage amount


Note: the purchase value or the previously recorded property value will define the amount which is taken into account during the registration, depending on which amount is higher.

If the buyer needs to transfer funds for purchase from his home country, there are some reputable escrow companies in Costa Rica that provide protection to the deposited funds. It is also possible to make a direct wire transfer. The fees on these services largely differ.

Note: Costa Rican real estate transactions operate on a two-fold system. Because Costa Rican properties are appraised lower than their market value, it is common for the seller and buyer to agree to close the deal on the registered value. The appraisal value is often lower than the market value because it does not take into account a large number of factors, such as a panoramic view or hi-tech décor that add up value to the property. It is possible to state the appraisal value in the transfer deed and thus, pay significantly less in closing costs and transfer tax, but not in the notary fees. It is advisable to consult your lawyer about potential risks involved in this practice.

Real estate tax is based on the value of the land itself, all structures and buildings on it and other values pertaining to land. Local municipalities, Municipalidad, manage property taxes in the area of their administrative district jurisdiction and are beneficiaries of the property taxes. The real estate tax in Costa Rica is currently 0.25%. For a more detailed overview of taxes involved in purchase-sale, please refer to . There may be other minor municipal surcharges to it, such as street cleaning, garbage collection, street lighting, and the like. Owners can choose to pay for a year in advance, or on a quarterly basis.

It is important to remember to pay your property taxes in Costa Rica on time because the Municipalities do not notify property owners that their tax payment is due. Local authorities leave it up to the owners to remember to pay on time. If the owner misses on a payment, he can face foreclosure through court procedure.


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