Article

Is qualifying a Costa Rica property buyer possible?

Mariana Loaiza/The Tico Times

A reader named Rafa asked last week in a comment on an article why agents do not qualify real estate buyers. Is qualifying a Costa Rica property buyer really possible?

Is Rafa correct in saying that real estate agents in Costa Rica will show a property to any buyer without qualifying that buyer? Yes, he is. And there are several reasons this happens. Let’s first explain who does what in most real estate markets.

To qualify a real estate buyer is the process of determining whether a buyer is financially capable of purchasing a property for a certain amount of money, as well as finding out what exactly this buyer is looking for.

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Credit score

In some countries residents and citizens have a credit score. In the U.S., three companies keep U.S. citizens’ and residents’ credit score: Experian, Equifax, and TransUnion. When someone tells a real estate agent that he or she is interested in buying a property, the first thing the agent will do is run a credit score check. That way, the agent will know what the client can afford to purchase. Banks and lending institutions also use this credit score to know if their client is creditworthy. Many other countries, including Costa Rica, don’t use the credit score system.

Home-buying process

A Costa Rica property buyer usually does not go to a bank to get qualified for a mortgage at first. Most buyers do not know what kind of property they can afford when shopping around because they are not familiar with the process. They do not call a real estate agent to guide them through the process either. They just start looking at whatever they think they want to purchase.

The Costa Rica property buyer

Following the process, Costa Rica property buyers see an online ad or a sign on a property and just start looking at properties they like. When they call a real estate agent to see the property advertised, the buyer has probably not been pre-approved or even prequalified. Can the buyer afford to purchase that particular property? Does the buyer need to sell his own house first to be able to buy a new property?

Prequalification or pre-approval

A professional real estate agent prefers a Costa Rica property buyer to be fully pre-approved by the lender. In the absence of a credit score, pre-approval can be quite a long process. To be pre-approved gives a buyer an advantage, as the pre-approval process can drag out a lot. It is recommendable that the buyer first shop around for the best fees and rates and get pre-approved by the lender. Once pre-approved, the qualification process by the real estate agent can start.

The real estate agent

There are three reasons real estate agents do not qualify a Costa Rica property buyer before showing a property:

1. Lack of training

Most real estate agents do not have any formal real estate training because there is no formal licensing in Costa Rica and because they do not work under a real estate broker.

2. Afraid of losing a buyer

Most buyers, who are uneducated in the home-buying process, do not like to be questioned about their finances. They like even less to answer a list of questions sent by a real estate agent.

Costa Rica property buyers generally do not stick to one agent. When an agent recommends they first talk to their lender about their budget, they are likely to disappear. This makes the qualifying of a buyer quite impossible.

3. Lenders do not cooperate with the real estate agent

Banks and lenders are not used to working with real estate agents because the agents usually don’t get involved in the mortgage process. Some are just too lazy and others have no knowledge of the lending process. Their commission is paid by the seller, so any extra work they do to facilitate the mortgage process is not rewarded, except by making an easier closing possible.

Prequalification by the lender

Banks and lending institutions in Costa Rica do not really have a prequalification system. It is possible for a buyer to be prequalified by supplying the credit officer an overall financial picture, including debt and income. This prequalification does not create any obligation to the lender without fulfilling the whole mortgage application process, including a credit analysis. This process is called pre-approval.

To be prequalified by the lender gives the buyer an opportunity to look at properties he/she can afford without wasting everybody’s time.

The internet

The internet offers huge advantages, like being able to look at properties without being seen by anyone. The fact that we don’t have a formal multiple listing service (MLS) in Costa Rica, where you can find every property for sale, isn’t much help either. Costa Rican real estate buyers do not customarily call for the assistance of a real estate agent. That is why it’s rare that buyers will work with just one real estate agent to walk them through the process.

The qualification process

A formal qualification process will allow a Costa Rica property buyer to get the full attention of a real estate agent and vice versa. A simple questionnaire saves so much time for real estate buyers and real estate agents alike:

How long have you been looking at properties?

Have you been working with a real estate agent or developer? Please supply names.

Have you been prequalified or pre-approved by a lender?

What is the name of the lender?

What is your price range?

How much cash do you want to use for the purchase?

Do you need to sell before you buy? Or do you need to complete the lease term on your rental?

Will anyone else help you make the buying decision?

How soon do you need to move? Have you picked a moving date already?

Can you describe what your dream property would look like? How many bedrooms do you need? How much land? How much construction? What special requirements do you need in a property?

Do you have a particular style of home in mind?

Is there a location that you prefer?

How many are in your family? Are schools important? Are there other amenities that are important to you?

If we find the right property, are you prepared to make a decision now?

If I commit my time to find you the right property, will you buy it through me?

What times are best for you to view properties?

How do you like to communicate — by phone, text, WhatsApp, e-mail?

What’s the best time to reach you? At what number?

The need for a qualified Costa Rica property buyer is just one of the many reasons why I advocate for a more formal real estate market in Costa Rica. I would certainly welcome a formal MLS that obliges real estate agents to be trained and educated in their field. Eventually, buyers will understand that they can only gain when using the services of a well-trained real estate agent.

Ivo Henfling founded the American-European Real Estate Group in 1999 — the first functioning MLS in Costa Rica with affiliate agents from coast to coast. You can read other articles like this on his blog. Contact Ivo at (506) 2289-5125 / 8834-4515 or at ivo@american-european.net

21 Comments »

    Christina Truitt | November 24, 2016

  1. Great Article – really good and right on target!

  2. dht | November 24, 2016

  3. Thank you Ivo. An excellent article and sound reasoning for a formal MLS service and properly trained agents.

    There is one other point I would like to include in the importance of per-approval process. It confirms with some certainty the person is who they say they are. There were a number of people in our area that were targeted by thieves who presented themselves as potential buyers and used the opportunity of viewing the homes to scope them out before robbing them. A number of people were actually robbed while the “prospective buyer” as at the property, either while left alone during the viewing (they would ask to go to the bathroom just as everyone stepped outside to leave) or while they stayed overnight as a guest to “get a better feel for the property”. When asked if the agents had any confirmation of the persons identity it was confirmed they only had their word for who there were, and had never seen any formal identification.

    A touchy situation I know – to need to ask to see ID, but I know there are now people who are much more careful who they let into their homes.

  4. Ivo Henfling | November 24, 2016

  5. Thanks for that comment DHT, you make a real good point there. Honest people would not mind the ID request at an open house or a showing and would perfectly understand. Just let the agent know, if there is one involved. With a camera on your phone, it’s a real quick one too.

  6. Ken | November 24, 2016

  7. Can you recommend a local lender or lenders that do prequalify borrowers for mortgages (at reasonable rates and terms)? Buyers benefit from being prequalified too, especially when they have to act fast. I found myself unable to bid on a foreclosure sale, since the deadline for bids was the next week, while the loan officer told me that it would take at least three months for me to qualify for the mortgage because my income comes from abroad. If there were a way for me to get prequalified with a lender, even if the process takes three months, it would be to my advantage. Right now I don’t even bother looking, since the qualification process is so long (and likely fickle) that I’m simply not in a position to compete with other buyers for the good deals, but am left with the option of only buying properties that nobody else wants (usually for good reason). Thanks.

  8. Ivo Henfling | November 25, 2016

  9. Ken, only private lenders in Costa Rica will qualify quickly. Banks always take 2 – 3 months, depending on how quick you deliver the required documents. A solution to your problem would be to qualify with a private lender, take a loan out at 8 – 12% for the first year and then move it over to a bank.

  10. Rafa | November 25, 2016

  11. Thank you, Ivo for addressing this issue. Information is a powerful tool.

  12. Ivo Henfling | November 25, 2016

  13. A real pleasure Rafa

  14. David Seabaugh | November 25, 2016

  15. Hi Ivo,
    I’m moving to Costa Rica on May 2, 2017 and I intend to rent at first while I look for a home to purchase. My question is this … I intend to use my GI Bill benefits for purchasing a home. Have you dealt with any other expats who have used their GI Bill benefits in this manner ? Thank you for any information that you may share with me.

  16. Ivo Henfling | November 26, 2016

  17. Hi David. No, I have never dealt with GI Bill benefits, only with retirement funds.
    I checked on http://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter3.pdf where it states “a. Where Can
    the Property be Located? Real property securing a VA-guaranteed loan must be located in the United States, its territories, or possessions (Puerto Rico, Guam, Virgin Islands, American Samoa and the Northern Mariana Islands).
    In any case, check with:
    ALL OTHER COUNTRIES (Except the Philippines)
    Benefits Only
    VA Regional Office
    Foreign Claims
    1000 Liberty Avenue
    Pittsburgh, PA 15222-4004
    Telefax: 412-395-6057
    Internet Contact: Pittsburgh Regional Office http://www.benefits.va.gov/pittsburgh/
    David, if they say you can and we can assist, we’ll do so with pleasure.

  18. Ken | November 28, 2016

  19. Thanks for the answer, Ivo!

  20. Dan | November 29, 2016

  21. Not to be too critical, but I’ve never met a real estate agent that pulled a credit report for a prospective client. They typically communicate with their preferred lender/Loan Officer to have them prequalify the borrower, which includes the credit pull. All of this should obviously be done with the borrowers consent, of course.

  22. Ivo Henfling | November 29, 2016

  23. I love critical readers Dan, as long as it is positive! I do know lots of realtors in the US who pull a credit report (of course with the client’s consent) because they are also mortgage brokers. We only have mortgage brokers here who work with private lenders and it just as the real estate business, a disorganized and informal market.

  24. Rico Realty | November 29, 2016

  25. Great article Ivo. It is very important that the buyer gives us as much information as they possibly can in order to find the right property for them. We go to great lengths to make sure we are on the right track with our clients.

  26. Ivo Henfling | November 29, 2016

  27. Thanks Rico!

  28. Mark Kahle | December 13, 2016

  29. While the article is indeed well written it is also a pitch for a new ministry or at the very least a new department in the government to “make up” rules, form a governing and licensing body and severely limit my choices of personal representatives in real estate negotiations.

    There is no need for this unless you are a “century 21” type person that doesn’t want the competition.

    Sorry, but property is cheaper through private transactions than through “agents”. I have an attorney/notary to research the property and those fees are already included in his standard fees. I always make sure that whether buying or selling the other people in the deal are represented by an attorney as well and the fees are split between the attorneys.

    As to the VA question… NO, you may not use the GI Bill to purchase property outside the US and its’ territories. http://www.valoans.com/faqs/foreign-home-purchases

  30. Ivo Henfling | December 13, 2016

  31. I respect your opinion Mark Kahle but I am only pitching for a more professional, well educated real estate agent who can give buyers and sellers good and worthwhile assistance. Knowledge and professionalism will lead to more competition (as opposed to what you mentioned)and better service. Good legal presentation is as important as good assistance from a knowledgeable real estate agent. If you are a knowledgeable real estate buyer, you might not need the assistance of a real estate agent, especially if you are fluent in the Spanish language, know your way around the lending system, the way you can make your offer in Spanish and make it stick, how to find an honest attorney who specializes in real estate, one with an escrow account, know how to find a home inspector who does a good job and if you know if the neighborhood is a good one, know what documents you will need to cover yourself, and a zillion other things that you might have not been able to find out yet because you have not had the luck of having worked with a good real estate agent in Costa Rica. Sorry, I just had to say that. I assume you’re a seasoned Costa Rica real estate buyer, most readers of my articles are not.

  32. Braulio | December 15, 2016

  33. I am a real estate broker and I have experience in housing credits and prequalifications, since I work in a bank and I believe that having a tool that allows precalculating buyers would be very useful for agents and for our clients

  34. Ivo Henfling | December 15, 2016

  35. Thanks Braulio, for your comment. Wouldn’t it be awesome for all parties involved to have a tool like that!

  36. Jose Sanchez | January 1, 2017

  37. There is a credit background review service provided by Protectora de Credito which tracks judicial debt actions upon an individual.

  38. Ivo Henfling | January 1, 2017

  39. Thanks for that J.J.

  40. Brian Schaller | February 28, 2017

  41. Ivo, I wasn’t questioning Tom’s professionalism, I was speaking to Al’s responses.

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