Costa Rican Escrow Account Use

In essence, an escrow account is a pass-through third-party account established for real estate purchases. All parties involved in the transaction have to be protected, including the buyer and seller. For the following reasons, Leaf (We) strongly advises employing this service while buying real estate:

For instance, a US citizen has located a house in Coco Beach that they want to buy for $279,000.00 The deal enters the contract (purchase agreement) phase with a projected closing date once an offer has been accepted. Assume that the earnest money (down payment/deposit) is $27,900.00, or 10% of the buying price.

The residence is in Costa Rica, and the buyer is from the United States. The money transfer gets challenging. The process is made even more difficult by the Know Your Customer requirements and the typical difficulties of trying to open a bank account as a foreigner in this country, let alone with sums in the tens or hundreds of thousands.

Even if the buyer is able to send the $27,900 down payment from their home country to Costa Rica, there is still a trust issue because the buyer doesn’t know the seller and there is no way for them to establish a relationship. What happens if the seller flees with the money during the due diligence stage, making it impossible to buy the property? In a similar vein, what happens if the buyer vanishes and the seller doesn’t receive a deposit, leaving them with a home that has been taken off the market for weeks and no chance of a sale? There is always a chance of being a scam victim. There is always a potential that the contracts will be altered at the last minute, putting pressure on the other party to conform even if it is not a scam.

Here comes the outside escrow business. It’s important to highlight that, in contrast to Costa Rica, escrow businesses have been established (and are accountable to SUGEF) particularly for this reason, whereas in the US, the escrow account might be kept by a title company or the buyer’s attorney.

Following the buyer’s deposit of $27,900.00 into the escrow account, the due diligence step starts. The money is protected by a third party who will ensure compliance, giving both parties peace of mind.

The final $251,100.00 must be sent from the buyer to the seller once the deal has completed the due diligence phase and both parties are satisfied, including the execution of all paperwork required to conclude the deal. Once more, the buyer gives the escrow corporation the money. Following the closing, the escrow business is entrusted with allocating the funds promptly and to the appropriate parties (seller, real estate broker, government fees and taxes, mortgagee). The buyer is happy that their money was safe, the seller is happy that they received their anticipated amount, and the other parties are happy that their payments have been made.

Escrows can be used to acquire a property, put down a deposit on a rental property, or put down money for a property that has not yet been built but is being developed. How many times have we heard tales of bankrupt developers abandoning unsuspecting buyers penniless and without property?

Can you purchase a home without having an escrow account? Sure. Can it be supposedly less expensive? Yes. The buyer (and/or seller, depending on the conditions of the purchase agreement) in the

aforementioned transaction would have paid roughly $1000 or more for the escrow service, keeping in mind that these transactions can range in price between several hundred and several thousand dollars. That sum is not negligible in any way. However, the necessity for escrow accounts emerged from the desire to avoid scams and the challenges associated with moving money from one jurisdiction to another. We think the cost of having a responsible, impartial third party monitor the transaction is worth it. Your protection is Outlier Legal’s responsibility, and we are glad to state that in more than 9 years of operation, we have never lost a penny of your money.

Due Diligence: Inspections and Appraisals

Every time you are looking to purchase real estate, as we have previously discussed, it is crucial to go through a procedure that enables the buyer to examine the property, giving them the chance to select

As we’ve already discussed, it’s crucial to go through a process that gives the buyer the chance to inspect the property and discover any potential difficulties that can have an impact on the purchase whenever you’re trying to buy real estate. Due diligence is the term for this procedure, which calls for a thorough evaluation of several factors.

Two of the primary stages of the due diligence process will be looked at.

The Inspection

The goal of a property inspection is to give the prospective buyer knowledge of the physical state of the property.

Inspection criteria can vary and will be decided on a case-by-case basis depending on the location of the land, the age of the building, or any unforeseen difficulties relating to the property.

Inspections are used for a variety of purposes, including assessing the property’s condition, identifying potential environmental problems and geologic conditions, establishing property lines, areas, and boundaries, deciding on necessary improvements, assessing the building’s structure and foundation, looking for leaks, assessing the condition of the plumbing and electrical systems, as well as the heating and air conditioning systems, assessing electric installations, and becoming familiar with the property.

Inspections are crucial because they might identify both minor and significant flaws that the buyer and the seller might not have anticipated during the negotiation. It is anticipated that the seller would do all required repairs before to closing, despite the fact that the inspection is not conducted in a way that could force a renegotiation.

If you’re considering selling, it’s always a good idea to get an inspection so that any necessary maintenance may be done beforehand. A preliminary visual check is advised, but depending on the results of the first visit, a more in-depth inspection by a professional might be necessary.

Appraisal

Sometimes it’s required to do an appraisal to establish the fair market worth of a property and make sure the seller didn’t overpay for it.

By comparing the prices other homes in the same neighborhood with similar features, it is simple to obtain an estimate of how much to pay for a house. The valuation of a real estate property may not always be equal to that of properties nearby, so this method may not be the most accurate. Age, building quality, upkeep, land layout, and zoning use are a few variables that might directly affect the reasonable price.

Despite everything said above, it is crucial for the seller to consent to an evaluation and to communicate the findings in order to avoid any misunderstandings.

This tool is crucial for buyers who will need a loan to finish the transaction as well as sellers who want to ensure they’re asking a reasonable price. But it is also, more generally, an excellent tool for sellers to define a price and establish a point of negotiation.

Conclusion

Due to the topography of Costa Rica, it is not advisable to accept purchase agreements that call for the property to be accepted in an “as is” condition. An investigation process is always advised.

It is crucial to make clear that the seller is not compelled to conduct thorough inspections or to accept an appraisal. Not all sellers will be totally upfront about the condition of their item, even though it is expected that they will reveal any obvious or well-known problems. It’s also feasible for the seller to be ignorant of certain existing problems.

On the other hand, it is the buyer’s duty to exercise caution and make sure they take all necessary steps to ensure they are purchasing what they are being provided by identifying flaws and raising their concerns.

In our subsequent entry, we’ll discuss further facets of the due diligence procedure. Do not hesitate to get in touch with us if you want more details regarding these procedures.

Corporation Tax

The annual tax on Legal Entities for the period 2023 is collected throughout the month of January, and must be paid no later than January 31 of each year.

This tax must be paid by all Corporations, any branch of a foreign company or its representative, as well as individual limited liability companies that are registered or that will be registered from now on in the Registry of Legal Entities of the National Registry.

Education and Culture Tax

You may be familiar with the Education and Culture Tax if you own a business in Costa Rica. Based on the amount of capital listed on their financial statements, legal companies are required to pay this tax.

You may be familiar with the Education and Culture Tax if you own a coporation in Costa Rica.