Posted by: Len | on October 30, 2016
With the season upon us when the most Nicaraguan real estate changes hands, I thought this would be a timely newsletter.
If you’ve been scouring the Internet for deals on Nicaraguan real estate, stop wasting your time. I say this to almost every client, and have to say it over and over again to potential new clients… You must not only come to Nicaragua, but be prepared to spend a couple of weeks here to learn about the market, view properties that fit your budget, familiarize yourself with the different market areas, and learn about the processes involved in purchasing a property and transferring ownership.
That said, there are people I know who have purchased property sight unseen. Amazingly, a lucky few have only minimal complaints, but none are completely satisfied. Plan and simple… Invest your time before you invest your money!!!
A real life case study
I was recently contacted by clients, a couple from the USA who have been subscribers to my newsletter for some time. They’ve been shopping for a potential retirement home for almost four years. I was surprised to learn that the last time they were in Nicaragua was four years earlier, and that all of their subsequent home searching was conducted online.
They emailed to ask me, “Why have house prices doubled?”
I explained that real property values were going up nationally by about 10% per year, more in some specific geographical areas, but less in others. This is a healthy equity gain, but not the doubling in prices the client’s suggested they were seeing. When they sent me some links to homes that were twice what they were before, I realized what the problem was. I’m not going to include the links because I don’t know for sure the prices had actually doubled. I also don’t know without doing research if there were improvements made to the properties to justify the price increase. Likewise, there may be market factors at play that would make price increases entirely justified.
However, there were a few properties listed that I’ve had occasion to investigate for clients and they are now grossly inflated. I pointed these out to my client and explained that I knew for a fact the owners would take significantly less. In one case 40% less. Of course these prices were net to the seller. I did my best to explain that the amounts advertised includes a profit for the realtor, and no doubt some added negotiation room.
These clients are Americans, used to a set asking price and the seller would pay the sales commission from the proceeds of the sale. I explained that may be what they’re used to, but it is not how it works in Nicaragua. I suggested this difference in real estate rules and regulations is why they should retain my services.
The Unique Nicaragua Real Estate Industry
The rumors everyone seems to have heard are true, there are a lot of unsavory characters presenting themselves as “real estate agents” in Nicaragua. However, there are also a lot of reputable people acting as middleman for people selling properties. And just to be clear, that is what all “real estate agents” in Nicaragua are, middlemen.
There is no government agency, nor self governing body that enforces ethics within the industry, sets standards, or hears and then rules on complaints. In fact, there is nothing foreigners assume is in place to protect buyers other than if fraud is committed. Then there is a good chance someone will go to jail or be heavily fined.
To be clear… there is no special training or licensing needed to be a “real estate agent”. Only a business license is required. Likewise, there is no government or real estate industry body such as a real estate board dedicated to monitoring the conduct of agents/brokers, registering listings, tracking sales, arbitrating disputes, etc. There’s also nothing like a Multiple Listing Service (MLS) to facilitate doing comparable on asking prices.
Investors Need An Independent Consultant
Novice and even experienced real estate investors tend to get themselves into trouble by assuming they know what they’re doing. Back home they probably do. In Nicaragua the game is played using local rules. Sadly, half of the folks who come to me do so to rectify transactions that have gone bad. I do not like this type of business but take it on because I want to help, if I can.
What I prefer to do is walk clients through the entire process from the very beginning to assure it is done correctly…
What I do is meet with the purchaser to determine the budget and needs. I then source prospective properties I have research thoroughly. If the property’s title, survey, taxes, and ownership are in order, I make an offer and handle negotiations. If an agreement is reached, I oversee the closing, proper transfer of the title and registering it in the new owner’s name.
Some prospective clients balk at letting me serve them because I work on a per diem. I provide a service, and do not work on commission. My services will not only save them money, but most probably avoid wasting a lot of time too. But it is that hurdle of the buyer having to retain a representative that is hard to swallow. Unfortunately I can not afford to work for free, and in Nicaragua there is no legal grounds to collect a commission is the seller does not want to pay.
However, it is actually less expensive paying a per Diem than it is to pay a built in commission anyway. I invoice for days spent on a transaction, which is often no more than 10 days to two weeks. The actual closing may take two to three months, but most of that time is spent waiting on one government office or another to process documents, or lawyers to prepared, exchange and review documents. My billing is for days spent on a client’s file. So if a transaction that takes 3 months to close requires 14 day of my time, the amount billed is US$1400.00. I can guarantee that amount will pale in comparison to the savings I realize for clients. On a home with an asking price of US$60,000 I will likely negotiate a purchase of US$50,000. If the selling commission were just 5%, that would be US$2500.00.
If you want to learn more about my services, or are in need of advice regarding an ongoing purchase, feel free to contact me. Better still, let’s get together here in Nicaragua and find you a building lot, home, condominium or farm. I would be my pleasure to arrange your flight and accommodations, airport pick up and drop off, some interesting activities to fill free time, even a rental car if you desire one.
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