Buying property in Costa Rica as a foreigner is an exciting opportunity—but it is important to understand the process before diving in. While the system is transparent and foreign buyers have the same rights as Costa Ricans, navigating the steps with the right guidance can make the experience smooth and successful.
Here is a clear breakdown of the property purchase process in Costa Rica, from offer to closing—and beyond.
(1) Making an offer
Once you have found the property that you want to purchase, you would present an offer letter. Our office would normally draft this and send for your review and then signature - it is a one-page document setting out the price and terms that you are offering. This would include the proposed price, amount to be put in escrow, the due diligence period, closing date etc.
Once you are happy with the offer letter and have signed it, this is sent to the seller. Once the terms are agreed both parties sign the offer letter and we move on to getting the Sales and Purchase Agreement negotiated.
Sometimes people will do a verbal offer and then go straight to the Sales and Purchase Agreement (SPA). We prefer to have the major terms agreed in writing at the offer stage, to make sure there is no miscommunication.
(2) Sales and Purchase Agreement (SPA)
Normally the offer letter states that the parties have 10 days to agree and sign the binding SPA. It is at this stage that the lawyers for both sides get involved. The SPA will either be drafted by the buyer´s lawyer, or we draft the SPA using our proforma and have the buyer´s lawyer review it before sending to the seller and the seller´s lawyer. The SPA includes all the terms agreed in the Offer Letter and goes into more detail and legalese.
(3) Deposit to Escrow
It is standard that the buyer will place a deposit of 10% into escrow upon signing the SPA. The SPA normally gives two weeks for the deposit to be placed in escrow, as the escrow companies in Costa Rica have strict anti-money laundering rules that they need to abide by. As a result, there are a number of documents that they will request from the buyer before allowing them to send the deposit into the escrow account. The level of documentation required will depend on where the escrow company is located and where the seller would like to receive the funds. Usually, you will need to provide documentation to show the origin of the funds being used for the purchase - whether this be a sale of an asset, savings, earnings, etc. It is a good idea to get these documents together as soon as possible and sent to the escrow agent, to make sure there are no delays.
It is standard that the deposit will be fully refundable to the Buyer during the due diligence period. Once the due diligence period is completed and the buyer has declared positive due diligence, the deposit becomes non-refundable.
(4) Due Diligence Period
The standard due diligence term in our market is 30 days, but this can be negotiated if it is felt that more time is required. During this period your lawyer will do all the legal due diligence. You will also have a topographer do a survey and check the boundaries, making sure there are no overlaps with neighbors or issues with setbacks. Where there is a house on the property, you would also have an engineer do a house inspection and provide a report. During this time you can do whatever other due diligence that you think necessary - for example you could check the well, whether with a pump test or a water quality test (if documentation relating to this has not already been provided by the seller)
At the end of the due diligence period the buyer either declares positive due diligence and moves on to closing, or he declares negative due diligence and requests the deposit back from the escrow agent.
(5) Closing
If everything comes back positive in the due diligence, the seller then sends the remaining funds to the escrow account. The buyer´s lawyer will draft the title deed transfer, and the seller´s lawyer will review this. On the closing date the title deed transfer is signed and the escrow company sends the funds to the seller.
Transaction Costs to Consider
Normally the closing costs to the buyer will be approximately 4% to 5%. It is important to get from your lawyer at the start of the process a clear breakdown of the transaction costs, so that there are no surprises. It is standard in our market that the buyer pays the closing costs (ie. transfer taxes, cost of drafting the title deed) and the seller pays the real estate commission. Your costs will be approximately as follows:
- Legal Costs - approx. 3% - this includes transfer taxes and the legal fees that your lawyer will charge. You will also likely want to set up a legal entity that will hold the property - this has an initial cost and an ongoing cost. It is important to get a clear understanding of these costs from your lawyer upfront.
- Topographer - approx. $1,500 depending on the size of the land.
- Engineer Report - approx. $800 to $1,000 depending upon the size and complexity of the construction
- Escrow Fee - the escrow company will charge a fee based on the value of the purchase. For a smaller purchase the cost will be likely c. $1,000 to $1,200.
Ongoing Costs
- Property Taxes - the municipal property tax will be 0.25% of the registered value of the property. So if you purchase a lot for $200,000, your annual property tax will be $500 per year. Every 5 years (or sooner if you build) you will need to go to the Muni to update the registered value.
- Annual company tax - for a dormant company that holds property you are required to pay a Persona Juridica tax each year, which I believe is approximately $140.
- The company that you set up to hold the property will also have other ongoing compliance requirements - including an annual declaration of shareholders, an annual shareholder meeting, etc. I have seen quotes from lawyers of approximately $1,500 per year for performing the job of holding a company´s books and completing all the compliance. The price will vary depending on the lawyer.
Attorney Recommendations
Working with an experienced, reputable lawyer is essential for a smooth purchase process. There are a number of very good lawyers in our areas and we would be happy to provide recommendations.
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