The Memo

Disclaimer: the following is not necessarily what some sellers of Costa Rica real estate want to hear.

It was sometime in 2008 when the world changed.  Our globalized economy demonstrated, for the first time, the extent to which we (all us humans) are interconnected.  When one falls, we all lose our balance.

Some of the bigger economic minds in the US got going with an illusionary slight of hand called “derivatives” and in so doing, yanked the rug out from under the U.S.’s, and then the world’s economies.

Costa Rica land sales stopped.  Here in the southern pacific zone many of the agencies have closed up shop, and the surviving agencies went 9 months with no business.

Why “no” business instead of “low” business?

2 reasons:

1. High prices
2. No credit

The fall of the world economies was rather sudden.  The prices on our real estate here in The Zone were high.  All of a sudden our prospective buyers were standing flat footed with not much money, no real way to get money, and even if they could get money, land was expensive.

The above 2 reasons that explain our 9 month freeze on the real estate business here in The Zone have both seen some activity and change.   Prices have come down by 30% – 50% across the board, and this has stimulated the market. If this isn’t obvious to you, dear reader, it may be that you have been cruising websites and listings by sellers that don’t want to lower their price, but instead wish to wait for the market to come back up.  (or you may have seen one of the numerous and un-maintained sites from now defunct Costa Rica real estate agencies)

About the “Hold Out” or  “Old World” Sellers:

Their listings in the various real estate agency’s web site databases likely pre-date the fall of the world markets.  Sellers who insist on pre-fall pricing are finding it harder and harder to find an agency to list their property.  (One of my peers at a competing agency told me recently that they had rejected 9 listings in 3 days.)

At our most recent SPAR (Southern Pacific Alliance of Realtors) meeting there were numerous accounts related about these “old world” sellers.  These are sellers that feel the value of their property is determined by how much they paid for the property, and how much time has passed since they bought the property.  Actually, I think that the Time element has gone by the wayside by now.  But the amount that a person has in the property is the current determiner used by many, of what should be asked for a property in Costa Rica.

The real estate agents all differ from these sellers on this point.  In fact, I don’t think that you’ll ever hear an agent ask the question “how much did you pay for your land?” when evaluating a property.

The value of a piece of land is determined by what a buyer will pay for it.   Buyers typically will spend a couple days looking at property with their agent of choice.  The properties looked at will be chosen based on the criteria of the buyer such as: view, access, budget, intended use of land etc…

After having viewed a number of properties that fit his/her criteria, they’ll have a pretty good idea of the evaluation of property that happens in The Zone.  If there is one property that stands out as being overpriced by comparison to other similar properties, the buyer will ask the agent “why?”.  The agent will have to say something like “well the buyer on this particular piece of property paid “X” and can’t lose any money when he/she sells it”.

At this point the buyer says one of two things.  This is an either or situation.  She says either – “Oh I see.  That makes a lot of sense.  I really want that property, and I understand that the seller can’t sell it for less than he paid for it, so I’ll pay his price”

Or, the buyer says – “Hmmmm, that’s too bad.  I really wanted that property, but it’s too expensive when compared with similar properties on the market.  I’ll take a different property that is in line with the current market values, please.”

I’m actually not aware of any of the former scenario.  I am, however, aware of LOTS of the latter.

We are doing business here in the zone now, largely due to the fact that prices have come down. The freeze has thawed and all of the real estate agencies are actively writing business.  Again, because prices have come down.

Credit:

I’d like to speak a bit to the second point.  Conventional credit is hard to come by.  But seller financing is easier to come by now than it has been in the past.

Many of our sellers have a nut to crack.  They may be sitting on an old world price property of $350,000 that is now on the market at $195,000, something like that.  They may have a pressing need for $80,000 for some reason.  This would be their “nut”.  If you, the prospective buyer, discover that the seller has a nut to crack, you can probably write your meal ticket with the balance.  (I know, a little heavy on the allegories.  It’s a mood thing.  I’m writing this on a tranquil, introspective Sunday afternoon.)

Some of my sellers have asked that I disclose their “nut” to prospective buyers and offer the financing option.   If you are looking at property in Costa Rica’s southern pacific zone, go ahead – ask.

The market is reshaping itself.  It’s anybody’s guess as to where it goes from here.   Some are saying that we’ll see the end of the U.S. dollar.  Some say it’s all just business as usual.

From where I sit, these are some unique times.  I feel less capable about guessing where it’s all going now than I ever have before.  It may be that the coming economic conditions will push people to us here in Costa Rica’s southern pacific zone.  Or it may be that no one spends anything, no matter what.  I don’t know.

What I do know is that whatever happens, this is the place that I want to be.  To live where anything grows, and where the ambient temperature is agreeable be it 2:00 in the afternoon, or 2:00 in the morning – very little energy is actually needed here. The population density is low, and the media chatter is quieter than elsewhere.

The world is changing, but the reasons that attracted me to Costa Rica in the first place are becoming more and more relevant as the drama unfolds.