Is a Costa Rica real estate MLS a monopoly or a smart decision?
Some say a Costa Rica real estate MLS will be a monopoly. In my opinion, it will be far from that. Is the creation of a Multiple Listing Service (MLS) be a smart decision or not?
Let’s start with this statement: Costa Rica real estate professionals should put buyers and sellers first!
Once again a proposal of a mandatory licensing bill is in the news. On May 4th, AM Costa Rica published in “Our reader’s opinion” a letter from Gary Keenan. Mr. Keenan gives his opinion about a newly proposed bill that will require mandatory real estate licensing for anyone working in Costa Rica real estate
On Mr. Keenan’s opinion, Costa Rica realtor Thomas Ghormley expresses it perfectly well by saying that “We do need to professionalize the real estate industry to help protect and serve our clients.” Thomas Ghormley is in favor of a realtor-run Costa Rica real estate MLS.
In a follow-up story (on page 4), AM Costa Rica editor Jay Brodell states that “In fact, a quick Google search of “real estate broker convicted” turns up pages of cases in the United States where there is strict licensing”.
There is a huge misunderstanding about the way real estate functions now and could function in future. IF a good Costa Rica real estate MLS can be created, this will serve buyers and sellers. But only if they are willing to use the services of a professional real estate agent.
Unfortunately, Mr Keenan is mistaken about a very basic issue: that there is a difference between ownership en intermediation.
Wrong Mr. Keenan
Mr. Keenan is quite wrong about three topics about the Costa Rica real estate MLS:
“Realtors do not have the legal education to make any sale or lease of real estate safer. Only lawyers specializing in real estate law possess that ability.”
The realtor’s job is not to make a sale or lease safer. That’s the lawyer’s job. Mr. Keenan is mixing up two totally different job descriptions. A real estate agent takes care of everything involved in a real estate transaction until an offer is accepted by both parties. A lawyer takes care of everything starting with the draft of the option to purchase – sale agreement.
There are a hundreds of other details involved in a real estate transaction before it even gets to the lawyers desk. Those who follow my weekly blogs, know what I am talking about.
“Realtors do nothing but bring a buyer and seller together and for that, they charge a fee.”
That is almost a correct statement. A real estate agent negotiates an offer on a property, accepted by both buyer and seller.
A good real estate agent takes care of details other than intermediation that take knowledge, time and effort. Only if an intermediation comes to a successful agreement, the agent will get paid for this effort.
There are many small issues involved in a real estate transaction. So many that I write blogs about it almost every week.
“However, with a national Multiple Listing System, or MLS, in place and a mandatory licensing program, the realtors will then have a monopoly over almost all sales and leases of property, which is what the realtors pushing this new law want.”
Only under a dictatorship will a law be able to oblige a seller’s or buyer’s head to list or buy a property through a Costa Rica real estate MLS or to use a licensed agent. Buyers and sellers will always be able to negotiate without the interference of an intermediary. Only members will be able to market a property on a Costa Rica real estate MLS.
An MLS is no more than a marketing tool that that serves the users to identify property that is for sale.
For sale by owner
A property owner who wishes not to use an intermediary such as a real estate agent, to sell a property, is free to use their own marketing effort. They can for example use websites that include For Sale by Owner, Encuentra24, OLX, and The Tico Times. Or can even use the social media, yard signs, open houses and other marketing techniques.
“What mandatory licensing will do is make it very difficult to sell or lease properties without a Cámara-licensed realtor as these realtors have an interest in putting up road blocks to any real estate transaction that fails to include their agents. They will create and use a national database of property listings that excludes any property owner who declines to use their realtors.”
Mr. Keenan reads too many suspense novels. His scheme sounds like total persecution. Landlords and tenants will have a wide range of options to advertise their own properties, without interference of a real estate professional. Of course, those buyers and tenants who want to be represented by a real estate agent will not be able to deal with a FSBO or FRBO. Unless they are willing to pay the agents commission.
It works like an inventory in a grocery store. If the store doesn’t carry a certain product, the client will need to go to another grocery store.
Mr. Keenan mixes money laundering with a discussion about a Costa Rica real estate MLS. Money laundering control doesn’t have anything to do with the launch of an MLS who who controls it.
An open real estate database
Mr. Keenan’s suggestion to a solution is a national database open to all property owners.
With this, I totally agree. A database, like the National Register, where you can find every property owned in Costa Rica, is needed. On this database, a seller will need to prove that he/she is indeed the property owner.
A few important facts need to be noted to be able to use this database.
- How to calculate the right sale price for your property. Property values vary by size, topography, easements, location, zoning, neighboring properties, and other variations. Construction values vary by many details. A seller doesn’t want the property sit on the market for 7 years.
- How to pull a survey map from the Cadaster and how to do a proper title search. As a seller, you would need to make sure there are no liens on the property you want to sell.
- How to list a property. There are many guidelines on how to properly showcase a property for sale.
I guess Mr. Keenan would want this database to be totally free and not regulated by a real estate board. I don’t know the answer, but maybe the National Registry should control this database, so there could be a cross control with the tax department of the Finance Ministry.
Once this database is functional, you should be able to sell your property in the next day or two.
The real problem
Let’s go back to the proposed bill by the San José real estate board (CCCBR). To my opinion, the board of “realtors” is only interested in promoting this law because it would oblige real estate developers to use “licensed agents”. As things are now, this would only be an advantage to the real estate board. This will oblige all agents to be a member, a steady source of income for the board. I turned in my real estate license in 2001 because they’re waste of time, money and effort. As far as I can remember the board has never done anything to professionalize the real estate sector.
The San Jose real estate board is financially in bad shape and has been trying to survive for the past 25 years without really doing anything for their members or the general public. Again, the real goal of an organized and professional board is not in the picture: Costa Rica real estate professionals should put buyers and sellers first!
Real estate licensing
I am all for formal licensing in the real estate sector but should be attached to:
1. A serious education program
2. Mandatory residency for members
3. Each member should be totally fluent in Spanish
4. The creation of a functional MLS where properties will appear only once and with an obligatory title search before listing the property.
It is fundamental to professionalize real estate agents through education. This can only happen if it is tied to the use of an MLS. Not by creating a law that obliges developers to use real estate agents to sell property.
If the MLS is realtor board controlled, mandatory education is possible. If the Costa Rica real estate MLS is controlled by the National Registry, there will be much better control over transfer tax payments. But that will do nothing to professionalize the real estate sector.
Costa Rican buyers and sellers do not understand escrow. Many Costa Rican attorneys do not know what escrow is. Just like Jay Brodell says in his article, my suggestion is to make the use of escrow mandatory by law.
Now, the Costa Rican law does not recognize escrow. Trust accounts are used as a tool to safeguard the earnest money in real estate transactions, which is probably not the best way to do it.
If property sellers such as real estate developers are obliged to deposit buyer’s money into escrow until closing, the buyer’s money is safe. This is not the case at the moment. When real estate developers go belly up, their unsuspecting buyers also lose their money.
Escrow can be created by Costa Rican lawmakers and also used as a mandatory tool to control money laundering. Earnest money can be kept safe at the same time during a real estate transaction.
A smart decision?
In my opinion, a formal and well-functioning Costa Rica real estate MLS is a smart decision, as long as one important detail is taken into account: Costa Rica real estate professionals should put buyers and sellers first!
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