Price Vs. Worth

“I need to sell my property. What should I price it at?” is the common question heard in our real estate office in Uvita, Costa Rica.

“Whatever someone is willing to pay” is the universal response that drives the free market evaluation system the world over. However, is a price that is determined by this method a clear indicator of a property’s worth in Costa Rica?

The obvious answer is “of course”. However, in this uncertain world we live in, even this un-arguable standard of evaluation is sometimes brought into question and results in what can be described as quirky or illogical scenarios.

To Illustrate:
I have a 3 hectare (7.5 acre) property up in San Isidro that has 2 houses on it and some highway frontage for commercial use. I asked a local realtor to help me appraise it. He said that my property was worth $150,000 per hectare plus the construction value. 3 hectares, and a couple houses puts the property’s worth at around $550,000. Then, I asked him if he had any buyers in that range, to which he replied “no”.

So, to my way of thinking, the property can’t be valued or priced at $550,000, even though it is in fact easily worth $550,000. He said that the property would have sold back in ’08 for or $800,000. Along with the commercial spots alongside the highway, there are numerous single family building sites in a lovely setting with views, minutes from the centro but still in the country. It’s a great piece of land.

It’s interesting how the recent history of evaluation, and perhaps even the widespread belief that we will return to those prices, affects how we view the “worth” of our own property.

Since there are not many buyers at the “worth” level, it’s selling price is indeed what someone will pay for it. There are plenty of capable potential buyers out there that will recognize and not dispute that my property is worth $550,000, they simply will be hard pressed to come up with that level of liquidity to purchase the property.

I know – the suspense is killing you… I decided to market my property at $390,000, effectively one half of its 2008 level.

I share all that to illustrate the sometimes illogical situation we find ourselves in here in Costa Rica as respects the pricing on real estate.

Fundamentals:
Desirability drives so much of how we evaluate the things of our lives. Savvy marketers specialize in making us feel that we are “missing out”, “behind the times”, “will be unhappy”, if we don’t use their product or service. They fan our desire and we consumers find ourselves frequently at the mercy of said desires.

Costa Rica properties have a built in desirability. The much overused slogans of “Live the Dream”, or “Own a Piece of Paradise” and so on, are used ad nauseum in connection with buying land, booking adventure tours, reserving lodgings and so on in Costa Rica. For those people who do come and see what Costa Rica has to offer, they often feel like they are finding the fulfillment of a dream or that they have found an earthly paradise. Costa Rica offers an innate desirability that no publicist can match.

Momentous Times:
The world is changing around us. The values of the former world, with its easy credit, home equity loans, and re-financing cash are still clear in our memories. We are challenged to accept the new world’s values, but they are, as the saying goes, what they are.   The value of a given property is, in fact, what someone is willing and able to pay.

So we find ourselves at an interesting juncture at this point in time. We have some sellers that are comfortable and don’t need to sell.  Their prices are closer to the old world’s pricing and they are willing to wait for the market to come back up.  And we have other sellers that are not only uncomfortable, they are in fact desperate. These will sell at very low prices (by comparison) just to convert their asset into much needed cash. This is the market we live and work in now, here in Costa Rica’s southern Pacific zone. The low hanging fruit is quickly picked. One sale that my partner Rod just did was so inexpensive that his contract was quickly followed up by 4 backup offers. There are buyers out there, but they are discriminating.

A Touch of History:
When discussing real estate in Costa Rica, we want to keep in mind where we are with regards to the normal evolution of the industry.  It wasn’t that long ago that property in Costa Rica was regarded as virtually valueless.  Government homesteading programs were designed to get families to take responsibility for a parcel of land.  They could have the property for free; they just needed to care for it in a way that the government approved.

Then the mavericks came down from the States and Canada, as well as from Europe.  These intrepid pioneers saw the desirability of the property even though there was no infrastructure.  In many cases there weren’t even any roads, much less electricity and phones. But they could see and hear the ocean.  There were toucans, sloths & monkeys in the trees by god!  This was some amazing stuff.  It was like stepping back in time to a simpler idyllic existence, and so they bought.

Fast forward to where we are now.  The large farm parcels of land have been sub-divided and sold off to foreign investors, relocators, migrators and retirees.  Most of the real estate bought and sold in the southern zone has been raw land that has gradually gotten smaller in size as it has been subdivided over the last several years.

Now we are seeing more developed properties, that is to say – more houses.  Think, dear reader, about where you live, and imagine when your area was at this stage of the cycle.  There is just starting to be a selection of houses on the market, most properties are still raw land.  We are still early in the cycle, and we are experiencing our first downturn in our previously hotly appreciating market.

In Sum:
What does all this do for us as we discuss the topic of price versus worth in Costa Rica real estate?  Well, recognizing that there is an inherent desirability to land here and that there likely will always be is an element that we would want to see in any investment we make. We recognize that there are some interesting factors at work in the evaluation of properties for sale in the zone, (and all of Costa Rica for that matter).

Understanding the lay of the land helps buyers to find the deals.  This same understanding will help sellers to sell.