I was out with a client the other day. We had set up the appointment via e-mail. I had helped with getting him set up with a car rental, and we had spoken extensively via phone regarding what he was looking for so that I could have a presentation ready for his arrival.
We met, and off we went to view property. On the way to the property, we realized that another real estate agency had already shown him the property. The client was distressed. “How does this work”? “What if I want to work with you”? “Whose listing is it anyway”?
Ah, the problems caused by not having a Multiple Listing Service in Costa Rica. I feel like I bump into them every time I turn around in this business here in this country.
I have noticed that it is especially difficult for real estate buyers and investors from the States to grasp how it works here. It does work… really. It’s simply an inferior system to the MLS based system in the States.
As you almost surely know, dear reader, a Multiple Listing Service (MLS) is nothing more than a database of real estate listings. However, the business model of representation that is built on the existence of that database is the key.
The MLS model:
A real estate agent gets a listing and he inputs the information of the listing into the database so that all other agencies can access it. As I understand it, it is actually illegal for a real estate agent to keep the listing in his/her “hip pocket” and not input it to the database. This agent has now become the “listing agent”. If another agent, from another real estate agency, accesses that information, and sells that listing to a client, the listing agent’s agency receives one half of the commission, and the selling agent’s agency receives the other half.
The buyer and seller are both represented by their respective agents who they (buyer or seller) can trust to protect their interests in the deal.
The Costa Rica Model:
There is no central database. Each agency, presumably, has its own database. When a property gets entered into that an agency’s database, or we could just simply say: when a seller lists a property with an agency here in Costa Rica, that agency alone has the information. There is no arrangement whereby that agency then informs all agencies of the listing. In fact, the seller should make sure that whoever he/she is talking with in the agency will be sure and notify all agents within that agency of the listing.
If the seller wants to have their property well represented in the local marketplace, they will need to visit all of the agencies in the area with the listing and repeat the process.
So, now I’ve got a listing in my Costa Rica real estate agency. I show the property, I sell the property, the entire commission flows to my agency (standard commission here is 8%). No other agency has anything to do with the sale.
The seller doesn’t have representation by a given agency, nor does the buyer, and therein lies the rub.
“Well then, the lawyers in the deal must take up the slack and provide representation for the buyer and seller”. Nope. The lawyer on the deal functions as a notary of the deal, and facilitates the title ownership in Costa Rica’s National Registry (www.registronacional.go.cr). The system does not allow for the lawyer to represent one side or the other.
How can that work?
Well, it does. We do sell property here in Costa Rica.
The key player in a real estate transaction here, in my opinion, is the real estate agent. This hard working soul is working hard to make the deal happen. He/she really should have the best interest of his buyer at heart, and he really should have the best interest of the seller at heart. He doesn’t have to, he just should.
I guess that a lot of the problem comes from the concern about disclosure. How can the buyer know that the agent is disclosing everything that he knows about the property? How do we know that the agent isn’t in collusion with the seller to hide some fact about the property that the buyer ought to know about? Again, it falls to the agent to take care of the buyer. You, as the buyer, have to discern if your real estate agent is such a person.
There are stories here in Costa Rica, and lots of them, about shenanigans in real estate, and it’s true. I used to think that the MLS market in the States was free of such concerns. Over the years of doing real estate here in Costa Rica, I have come to learn that shenanigans go on in the States as well, even with representation.
So, I think that it boils down to a “human” issue. Honesty and concern for our fellow man are what we are looking for in anyone that we choose to do business with in this life. This is a basic of business regardless of what country we may be in.
So what happens when I am in transit to a property with a client, and I find out that he has already been shown the property by one of my competitors? What if my buyer really wants to do business with me and buy that property through me instead of him that showed him the property? Hmmm, well I suspect that such a situation could come up in the MLS system as well. We pretty much feel here that the agent that shows you the property is the one with whom you should do business to buy the property, and I said as much to my buyer that day. If there is an integrity concern with the original agent (which there wasn’t in this case), then fine, I’m available to help with the deal. However, I will insist that the original agent receive half of the commission, and this only if the buyer is willing to express his/her wishes to the original agent in writing (e-mail’s fine).
So we deal with the problems caused by the lack of an MLS in a sort of ad hoc manner around here in Costa Rica. Some day I suspect that we’ll have an MLS here, but until that day arrives, a lot of responsibility falls to the buyer to choose their Costa Rica real estate agent with care.