Problems With Developers

Now that you have read the horror stories about real estate agents, I am going to explain what some developers are doing.  Mind you, not all developers are bad, in fact I have seen some really well thought developments but they are not the so called bargains that people are looking for.  However, in hot markets anything goes.   Here are some of the pitfalls to look out for when you are considering buying a lot from a developer:

• The developer is in business to sell land, not to make sure you make a wise investment.  With very few exceptions, he doesn’t care who buys the property or what he has to do to sell it.  He doesn’t care if it meets your needs or if it is a worthless piece of land. No matter how nice and accommodating he is, do not let your guard down and think for even one moment that he has your best interests at heart.
• Not all lots that are for sale are suitable for building. My experience shows that about 1/4 of the land that is sold for future homeowners is not suitable for what they originally wanted to build. Remember, developers sold swamp land in Florida. Not so surprisingly, a lot of developers here are from Florida. Costa Rica has no laws that protect you so they can sell anything they want here.
• Never buy property sight unseen. I looked at one property south of Dominical that has spectacular views of the ocean.  After chatting with the owner for about an hour, he proudly told me that his biggest sell ever was to a Gringo who never came to Costa Rica to see the property. He bought the property just from pictures. What the owner had done was to divide the hillside all around his property into one huge lot and sold it at a premium based on the views and the size. Sure it was large and had fabulous views from everywhere on the property but it was 100% pure cliff that wrapped around top of the property. So this Gringo sunk a ton of money into a huge property with fantastic views that he cannot use at all.
• Like to gamble - buy Pre-Construction! This ploy often is a sign that the developer doesn’t have sufficient funds to complete his project.  He NEEDS your money to do what he says he will (might?) do.  If he can’t sell enough pre-construction lots to cover his costs, he is just as likely to walk away with the money instead of putting in the infrastructure.  Then what are you going to do?
• The all you need to do is put in water and electricity scam. If you have to put those in look around and see who else benefits from your expenditure?  Want to know who? THE DEVELOPER! You just raised the value of each lot between you and the source of water or electricity by a minimum of $20,000!  Do you think the DEVELOPER is going to share any of this profit with you? I don’t even need to answer that question. You just gave him somewhere between $20,000 and $500,000.  A true developer sells property with roads, water and electricity already installed directly to the property.
• I am buying it from a friend so I won’t get screwed. Maybe so but probably not. More than one friendship has ended due to greed on the part of one of the “friends.”  Costa Rica has a saying about doing business with friends:  “Para que enimigos, con esos amigos.”  which roughly translates to:  “(I did it) in order to become enemies with those friends!”
• Don’t worry, we will put in the road and utilities within xxx days of you paying us for the property.  This is nothing more than another version of the pre-construction scam. I have one client that has been waiting on the developer for more than three years to put in the road and utilities to his lot as per his contract.  Does the developer have an excuse?  Yes, probably around 5,000 excuses depending on the time of day and who he is talking to.  None the less this does not stop him from continuing to sell more lots without roads or utilities. You are gambling so make sure you are hedging your bets. Never bet more than you can afford to loose.
• If it sounds too good to be true then it usually is. One client bought a hill side lot with a great ocean view at what they thought was a fantastic price. They wanted to build their dream home there complete with pool. When I looked at the lot, the developer simply cut a flat spot out of a cliff.  He then pushed the loose dirt around to make it look like a large lot. In reality, the area suitable for building was only 20’ deep and the other 40’ is going to wash away this rainy season. See also “What a Disaster.”
• Get a new PLANO! Developments are designed on paper and later the housing pads are created by someone on a bulldozer.  As dumb as it sounds, it is not unheard of to have the building pad located on some one else’s lot.
• Be wary of bargains by the ocean. We looked at several “bargains ready to build on” near Mata Palo. When we went to the municipilidad to find out if there were any restrictions we discovered all of the lots were in the “concession zone” and the municipilidad has no intentions of offering concessions for the foreseeable future.
• You MUST do your homework before you buy. One developer is currently selling land near Parrita that floods in the rainy season.  It looks great in the summer but unless you plan on putting your house on stilts and using a flat bottom boat, you will not be able to visit the house in the rainy season.
• Be wary of bargains high in the mountains. One developer is selling fabulous mountain lots for very low prices.  He is telling the buyers that they can sub divide the lot and sell of other parcels. The problem is that this is a reserve area and the restrictions on building are very severe.  The majority of the lots he is offering are too small to allow construction so if you want to build a house, you have to buy two lots. Do you think he is telling his clients about that?
• Can you get materials to the lot? One client bought a fabulous ocean view lot on the side of a cliff.  When I went to see it, I was in 4WD low and could barely maneuver my SUV to the lot.   How is a builder supposed to get materials and equipment to the site with a normal sized delivery truck - he can’t. Can they build there?  Yes but it will not be cheap!

Verify, Verify, Verify and use Common Sense!