Due Diligence — Tips Before you Actually Make the Purchase
Due diligence is the process of researching the physical and legal status of
the property you are about to buy before you buy it. If you do a good job in
this process you will save yourself a lot of headaches, heartache and money
down the road. Do not rely solely on information that the broker or owner
provides you. Do your homework during this important phase of purchasing
a property. Once again, take nothing for granted.
During this process, you are confirming that the property is what the
seller says it is; that it brings with it no legal complications that will make your
life difficult; and that you can do with it what you have planned. Depending
on the identity of the owner, the size of the property transaction, and your
plans for the property, your lawyer could carry out due diligence or you could
hire a due diligence professional. Likely your lawyer would handle the hiring
of this person and receive all the data that person collects. Once again, be
sure to ask for references Along with the due diligence professional, you
will likely want to hire a site surveyor as part of the due diligence process.
Once you have found the property or home you like, there are a few
precautions you need to take as part of the due diligence process.
1. Make sure you know the real value of the property.
2. Do not assume the seller or broker is trustworthy just because they speak
English. This is a common pitfall.
3. Make sure the property you are about to purchase is not part of
a national park or subject to restricted use. There are areas near
Dominical, for example, that abut a rainforest where it is forbidden
to cut any trees.
4. If you purchase raw land, be sure to get a soil sample and hire an engineer,
especially if your lot has been cut out of a hillside. I know of one man
who built a million-dollar home on a bluff overlooking the beach. About
a year later he had to spend $100,000 to build a retaining wall because
the rain started to undermine his lot.
5. If you buy in a remote region make sure you can bring electricity to the
land. This can be expensive.Also check to see if the water supply is good
in the area.
6. Do not rely on a verbal contract if you decide to make an offer. Get
everything in writing.
7. Check out your neighbors. There is nothing worse than buying property
and finding out later that you have bad neighbors.
8. If buying in the city or near a major street, check the noise level. Make
sure there are no dancehalls, bars, rowdy neighbors or noisy buses.
9. If you purchase a home, have an engineer make sure it is structurally
sound. Also, check the plumbing, wiring, roof for leaks, water pressure
and septic or sewage system.
10. If buying in the city it is extremely important to be familiar with the
neighborhood where you decide to buy. Make sure you are not buying
in a crime-ridden area. There are a few areas around San José where you
would not like to live. A good broker and doing your homework can
help you avoid this disaster.
This is advice from an experienced local realtor.
1. It is always important to ask the person selling the property for his cédula
2. Are you certain that all of the amenities you want and need are available?
Don’t assume anything in Costa Rica. People over -promise and under deliver
here. Internet and the satellite TVs and even good medical care
or a good mechanic are not things that exist here with any assurance.
Make a checklist for yourself. Make sure the clubhouse, pool golf course
etc., will really be built in an upper end development.
3. Are you positive that your lot can, in fact, come with water, electric and
telephone? There are more than a handful of communities in Costa
Rica where water shortages are preventing building permits from being
issued. Talk to the municipality and a good attorney and insist upon
proof of these simple questions. Don’t take utilities and roads in Costa
Rica for granted. A salesperson’s assurance of a new highway or road
to the property is definitely not a guarantee.
4. If you are buying a predevelopment or preconstruction property, what
guarantee do you have that the infrastructure will be completed?
5. If your salesperson tells you that you can subdivide the property and
resell it for a quick profit, don’t take his word for it. Tell him you want
proof. Many municipalities have minimum size lots and sometimes the
promise of quick profits can cloud sound judgment. How are you going
to arrange for utilities to your new subdivided lots?
6. Don’t let yourself be fooled by a salesperson’s promise of quick profits, a
new marina or a hospital or highway “right around the corner.” Things
move slowly in Costa Rica, and installing the infrastructure you are
counting on could realistically (and probably will) drag on for years.
7. If you have responded to a TV ad, an E-mail, or Google ad, you
will get a telephone call extolling the virtues and profitability of the
property in question. Ask the salesperson where he is calling from.
The odds are that he is calling from Florida and that he has not even
seen the property. Ask yourself what kind of credibility this person
could possibly have if he has not even seen the property or doesn’t
even live in Costa Rica.
8. If you are one of the many potential buyers who is thinking about buying
a property sight unseen, you should think twice. You wouldn’t do it in
your own hometown. Why would you do it in a foreign country?