Learning Curve

When buying real estate, the first difference you notice is the use of the metric system. The next is the two-tier pricing. Determining a fair market value can be challenging, and cultural dissimilarity makes dealing with Tico owners a new experience. At this point, you should have an idea as to whether you want to endure or eliminate the learning curve.

Buying in Metric

The first thing you are looking for is square meters of construction and square meters of land. Because Costa Rica uses square meters, become familiar with the metric system (there is a conversion table in the Find It Quick section at the back of the book). Metric is a logical system based on units of ten, and a much easier system to use, once you understand it. It’s a shame that it did not catch on when the US tried to convert to it years ago.
When looking for homes or buildings, remember that “living space” in the Costa Rica real estate industry is the total size of the building. It includes all covered area such as patios, carports and sheds. The US real estate industry defines living space as an area enclosed by four walls and a roof. In Costa Rica, anything covered by a roof is included in the total square meters of living space.

Two-Tier Pricing

Costa Rica has a two-tier pricing system–one price for Ticos and a higher price for Gringos. To Ticos, “Gringo” is slang for money. Ticos make little money compared to most Gringos, so when a Gringo buyer comes along they boost the price. They see that Gringos in a hurry to purchase buy at high prices. Perceptive Ticos know that when Gringos go to the refrigerator hungry, they usually overpay for what they get, so sellers try to hasten the deal before the buyer realizes they are paying a high price. A Gringo buyer is not usually perceived as a foreigner if they show that they know Costa Rica culture. Negotiations then change to a Tico-style of bargaining and prices follow suit. Foreigners do not have to pay Gringo prices if they take the time to know the game board (Book One), understand Costa Rica culture (Book Two), and familiarize themselves with the rules of the game (Book Three). You can buy for much less if you’re knowledgeable; however, it requires a time commitment of enduring the learning curve of understanding property values, unwritten social rules and real estate procedures.

Fair Market Value

Sales price reveals market value. When you know what was paid recently for a similar property, then you have an idea of its worth. To reduce property transfer taxes, buyers do not register the true sales price. Without true sales prices listed in the public registry, there is no verifiable source of fair market value. Because verifiable sales price information is difficult to find, determining fair market value can be challenging.
In Costa Rica, people use the asking price of similar properties to determine value because it is the only data available. Asking prices can be vastly different from a comparable property’s recent sales price. One way to get an idea of property value is to use a property market appraisal, which uses several factors to assess price and determine value (see Chapter 11–Property Market Appraisals).

Tico Owners

Tico owners are distinct. Cultural factors such as the traditional ways of buying and selling can lead to inflexibility, resulting in a less-creative property transaction. That can mean little or no owner financing; never the less, there are other purchase strategies that may be useful.
Many Tico sellers own their property free and clear, so they do not feel any pressure to sell, which makes it harder to bargain. If you do not pay their price, they simply wait out the market until it appreciates or somebody does pay their price. Although this may be the case, never let the asking price stop you from making an offer. The worst thing that can happen is that the seller says, “No.” If that happens, you haven’t lost anything, so don’t be shy about making an offer. It also pays to turn on the charm when making an offer.
When it comes to buying property from Ticos, learn from how they buy property from their fellow citizens. Ticos know the market and know how to buy, so what Gringos may consider low-ball offers are normal offers by Costa Rica standards.
Don’t assume the first offering price is at fair market value. Tico buyers know that sellers inflate asking prices, so they bargain to get a price that allows them to resale at a fair profit. You should too. Paying an inflated asking price for a Tico property is usually a rookie mistake. You need a price that allows you to factor in entitlements and profit. In other words, the seller has to leave you something on the table–something that insures the money you have at risk.

Endure or Eliminate

Many foreigners are too frugal to pay professionals to eliminate the time commitment to the learning curve, so they pay higher property prices, which raise prices in their area. This hurts future investment potential because after they resale their property, it is difficult replacing it with a similar property in the area at less than market price.
Buying at market prices requires either using a trusted resource to determine if a property is a good buy or enduring the learning curve by taking the time to learn the language, the culture, the property market and the real estate rules.
Higher prices are not the only concern. To experience a seamless property purchase you need a clear understanding of the dos and don’ts of property acquisition, and the rules of property ownership. A clear understanding of the purchase process and ownership rules (such as both possession and title create ownership) relieves the doubt that causes fear, which leads to stress.
When buyers neglect the learning curve, they do not understand the rules of the game before they play. This can lead to lost money and long traumatic legal problems caused by poorly written purchase contracts, attorney negligence, failing to demonstrate possession once you have title, and the classic mistake of signing a poorly understood contract written in Spanish. Legal problems in Costa Rica, as anywhere else, can create major expense and trauma. Avoiding legal problems means taking the time to endure the learning curve or using a professional or trusted contact to eliminate it.
Confronting the learning curve, by either enduring or eliminating it, allows you to feel confident that you paid a fair price for your property and that your property is safe. Neglecting the learning curve can be disastrous. It’s similar to flying blind through war-ravaged night skies. Most likely, you are going to take a hit.