This article will tell you what to do with your earnest money deposit.
Was your offer on Costa Rican property was accepted by the seller? Only the earnest money will secure your negotiation. You want to make sure the seller will indeed sell the property to you at the agreed price.
And the seller will want to make sure you will purchase the property so the property can be taken off the market.
In Costa Rica, it is not automatically the title company who will take care of the documents and everything that is involved in your real estate closing. If you have a good real estate agent, there is a real good solution to protect your negotiation, but if you purchase property in Costa Rica through For Sale by Owner, you are on your own.
Where do you start when you have negotiated the price?
A professional real estate agent will write up the formal offer to purchase where you and the seller will agree on the following issues:
- Who the buyer and who the seller is
- Do a title search to make sure there is a clear title
- What the sales price is
- When the closing date is
- The legal data of the property you’re buying
- The amount of earnest money
- Who will hold the earnest money
- When will a home inspection take place
- Who will take care of existing liens and mortgages
- Who pays the closing cost
- What inventory will stay with the property
- Other particulars of the negotiation and post-closing issues
Option to purchase – sale agreement
Once the formal offer to purchase is signed by both buyer and seller, the buyer’s attorney needs to write up a formal option to purchase –sale agreement to make the offer legally binding. The formal offer done by your real estate agent is legally not binding as it is in some other countries.
How much is the earnest money
It is customary in a Costa Rica real estate negotiation to allow for 10% of the sales price as earnest money unless negotiated differently. I have had buyers offer $1,000 earnest money but of course, a smart seller would not take his/her property off the market with that amount of earnest money. It is mostly a matter of finding the right amount of money that is acceptable to both buyer and seller.
Who holds the earnest money?
It is normal that when you purchase Costa Rica real estate, the seller receives the earnest money. The earnest money in the hands of the seller though gives the seller all the power to do what they feel like and to keep the buyer hostage over anything. I have seen sellers spend the money and then sell the house to someone else. I have seen the seller pass away and the family not having the money. For those reasons, you need to use a Costa Rica real estate attorney who has an escrow account, where the attorney can hold the earnest money until closing.
I have had a buyer pay for a debt to clear the property before the closing and then the seller walked away from the deal. Don’t go there, do it right.
Do not allow the real estate agent to hold the earnest money. In the US and some other countries, the real estate broker has an escrow account, but not in Costa Rica. Sometimes I see that the closing attorney holds a check with the earnest money in his/her safe in the office until closing. What happens with that check if the attorney passes away? I’m being very negative here, but I have seen worse things happen.
Escrow accounts in Costa Rica
Not every real estate attorney or notary public holds an escrow account in Costa Rica. The reason is that first, they are used to give the seller the earnest money, so they don’t have a need for escrow. Second, escrow accounts are very difficult to get because the SUGEF (Superintendent General of Financial Entities) controls escrow accounts against money laundering. Therefore many attorneys in Costa Rica prefer not to get involved.
Before you choose your closing attorney – notary public, make sure he/she has an escrow account and is fully bi-lingual.
You could use a title company in Costa Rica to do the closing and they will offer you a package that involves holding the earnest money in escrow, but they will charge you heavily for it. The cost of escrow depends on the title company.
As a last tip: make sure you know how to register the proceeds of the real estate closing.
When purchasing a property in Costa Rica, make sure you use an American – European real estate group’s affiliate agent, so your interests will be protected in full.
Contact an agent now.
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