How Much Does The Average Formula 1 Driver Make Buying Real Estate In Nicaragua

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Buying Real Estate In Nicaragua

The first step to buying a home in Nicaragua is to forget everything you know about the system back home…any home.

Let me make one thing clear at the outset. There are some amazing deals to buy real estate in Nicaragua. In fact, there is no other market in America where insisting on a 40% return on investment or better makes sense. However, there are few similarities between the laws and regulations governing real estate businesses in North America or Europe, and in Nicaragua. It is because of this lack of commonality that foreign investors often run into trouble. There is a common misconception on the part of foreigners that the real estate industry in Nicaragua is as carefully regulated as elsewhere, and it is this misconception that exposes foreign investors to fraud. The only international investment rule that applies equally to Nicaragua as it does otherwise is caveat emptor, buyer beware.

Real estate agents

There is basically no such thing in Nicaragua as the real estate industry that a Canadian, American or European might think the term represents. There are real estate offices. Some even have common franchise names, but that’s where the similarities end.

There is no mandated, formal training for real estate agents, and no special licensing requirements. Anyone can become a “seller” by paying for a trading license or incorporating a Nicaraguan company. I don’t suggest this to mean that “all” real estate salespeople are incompetent or untrained…many. In fact, there are a number of retired clients who have moved to Nicaragua and run successful, high-profile businesses. However, there are many more who don’t know it at all, and operate on a thin line between honest business and outright fraud. Caveat emptor again!

There are no state or federal regulatory boards that regulate the real estate industry in place. The sale of real estate is no more regulated than the sale of a vehicle by a street vendor. Obvious crimes are ignored by the authorities, but the arrest of the perpetrator is unlikely to result in the recovery of any lost money. Retaliation should make the woolly buyer feel better though. Nicaraguan prisons exist to punish criminals, not to rehabilitate them, and are hell on Earth. Unfortunately however, many issues that can arise in real estate transactions are considered public affairs by law enforcement and should be treated as such. In short, any money you think you’ve been cheated on… consider it lost. Even with a plaintiff’s approved judgment, collecting the money owed on the judgment is unlikely. So again, caveat emptor.

A serious shortcoming of the Nicaraguan real estate market is that there is no such thing as a Multiple Listing Service (MLS). The lack of any kind of MLS means there is no registry of properties for sale, or any information about what the property sold for. The result is that it is very difficult to decide what a house or commercial building in a particular area is worth because there are no comparable property transactions to use as a guide. Appraisers base their evaluations on replacement costs for the most part, and anything else they provide is pure guess work. Ironically, banks require appraisals by licensed Nicaraguan appraisers to apply for mortgage financing.

There is no such thing in Nicaragua as a list like most foreigners would understand what the name means. Real estate buyers will hear a real estate agent say they have a listing, but it’s not uncommon to see two or more real estate listings on the same property. Likewise, the same property can appear on multiple real estate company websites and be advertised online by many different people. Even more confusing, advertised prices can vary for the same house, sometimes by tens of thousands of dollars. Nicaraguans selling their homes rarely lock themselves into a deal with a single party that wants to sell their land, house or commercial building. If you want to sell something, the idea is that more people try to sell it better. And that’s a lot of people who can be vendors, owners, their family and friends, a neighbor, or a tow truck driver. This seems crazy to a foreigner buying a retirement or vacation home, but it makes sense to Nicaraguans. Despite the MLS service allowing many brokers to show potential buyers a listed property, letting everyone try to sell the property seems to be the best way to get information.

Another misconception that foreign buyers have when buying real estate in Nicaragua is that the seller pays the real estate agent. Sometimes it is, but even then the customer may be asked to pay a commission. Yes, this is legal in Nicaragua. In fact, not only is there a commission paid by the seller and the buyer, but the real estate agent can add an amount to what the seller really wants in his hand. This is also legal. The worst case scenario is that the seller wants US$50,000 for his home. Sellers offer anyone who sells a home US $1000 or a percentage. The realtor is selling the home for US$59,900, allowing room for negotiation. The buyer settles for US $55,000 but is told that in Nicaragua the buyer pays a commission. Not really true, but common enough that people think it’s the law. The commission requested can be anything up to 10%, or it can be the full payment. Once all is said and done and the buyer agrees to buy the property for US$55,000. In such a case, the ‘agent’ will impose a non-refundable payment of US$5000. At closing the seller gets the US$50,000 he wanted and the selling agent forks over the rest.

I know of buyers who offered a ‘seller’ US$65,000 to buy a 3 acre farm with a small house on the property. The ‘seller’ then approached the owner of the land and paid him US$20,000 to buy the land. It gets worse… the ‘seller’ didn’t bother to do the title transfer until the buyer found out he wasn’t the owner when he tried to pay the long overdue taxes. The property was eventually purchased by a developer for slightly more than the original US$65,000, but 8 years of appreciation later. In one case Europeans bought a home and paid more than US$85,000. Of course basing their offer on the European house prices they knew, it was thought they were getting a bargain. The ‘seller’ pocketed US$85,000 and the commission he charged for the purchase. Also, perfectly legal in Nicaragua…so caveat emptor.

The way to navigate what foreigners see as a chaotic market is to use an experienced real estate consultant to find the property you want, negotiate the price, terms and conditions, conduct due diligence, verify title and research, and so on. This is a fee-based service but it costs much less than a sales commission percentage, and far, far less than a costly mistake. One of those services is Nica Investments, a real estate consultancy that helps foreign investors buy real estate or businesses in Nicaragua.

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