Buying Real Estate

The first step to shopping for real estate in Nicaragua is to forget everything you know about the process back home… no matter where home may be.

Let me make one thing clear from the start. There are incredible bargains to be had buying property in Nicaragua. In fact, there is no other market in the Americas where insisting upon a 40% return on investment or better is reasonable. However, there are few similarities between the rules and regulations governing the real estate industries in North America or Europe, and Nicaragua. It’s because of this lack of similarities that foreign investors often get into trouble. There is a preconceived notion on the part of foreigners that the Nicaragua real estate industry is as carefully regulated as it is elsewhere, and it is this incorrect assumption that sets foreign investors up to be cheated. The only universal real estate investing rule that applies as equally in Nicaragua as it does anyway else is Caveat emptor, buyer beware.

Real Estate Brokers

Basically there’s no such thing in Nicaragua as a real estate brokerage that a Canadian, American or European would assume the term represents. There are real estate brokerage offices. Some even have familiar franchise names, but that’s where the similarity ends.

There is no mandated, formal training of real estate sales people, nor are there specific licensing requirements. Anyone can become a “realtor” by paying for a merchant license or incorporating a Nicaraguan company. I’m not suggesting this means “all” real estate sales people are incompetent or untrained… many are. In fact, there are a number of retired realtors who relocated to Nicaragua and maintain successful, upstanding businesses. However, there are many more who are not at all competent, and operate on the razor edge between honest business and outright fraud. Caveat emptor again!

There are no district or federal regulatory boards governing the real estate industry in place. Real estate sales are no more regulated than a vehicle sale transacted by a street vendor. Outright criminality is not ignored by authorities, but having the perpetrator jailed is unlikely to result in recovery of any money lost. The revenge should make a fleeced buyer feel better though. Nicaraguan jails exist to punish criminals, not rehabilitate, and they are Hell on Earth. Unfortunately though, most issues that can arise in a real estate transaction are considered civil matters by law enforcement and have to be treated as such. In short, whatever money you think you were cheated out of… consider it lost. Even with a judgement in the plaintiff’s favor, collecting money owed in a judgement rarely happens. So again, caveat emptor.

A serious shortcoming in the Nicaragua real estate market is that there is nothing similar to a Multi Listing Service (MLS). The lack of any form of MLS means there is no central registry of properties for sale, nor any information as to what a property sold for. The result is that it’s very difficult to decide what a house or commercial building in a particular neighbourhood is worth since there are no comparable property transactions to use as a guide. Appraisers base their appraisals on replacement cost mostly, and whatever else they provide is pure guess work. Ironically, banks require appraisals created by licensed Nicaraguan appraisers if mortgage funding is being requested.

There’s no such thing in Nicaragua as a listing similar to what most foreigners would understand the term to mean. Real estate shoppers will hear a realtor say that he or she has a listing, but it’s common to see two or more real estate signs on a single property. Likewise, the same property may appear on multiple real estate company websites and be advertised online by numerous different people. More confusing, the prices advertised may vary for the same house, sometimes by tens of thousands of dollars. Nicaraguans selling their homes rarely lock themselves into an agreement with one party wanting to sell their land, house or commercial building. If you want to sell something, the assumption is the more people trying to sell it the better. And by more people that can be realtors, the owner themselves, their family and friends, a neighbor, or a horse drawn carriage driver. This seems chaotic to a foreigner shopping for a retirement or vacation home, but it makes perfect sense to Nicaraguans. Without an MLS service that allows numerous realtors to show prospective buyers a listed property, letting everyone try to sell a property seems to be the best way to get exposure.

Another misconception foreign purchasers have when buying real estate in Nicaragua is that the seller is paying the real estate agent. This is sometimes the case, but even when it is the buyer may be asked to pay the commission. Yes, this is legal in Nicaragua. In fact, not only could there be a commission paid by the seller and buyer, but the real estate agent may have added an amount to what the seller actually wants in his or her hand. This too is legal. The worst case scenario is that the seller wants US$50,000 for his or her home. The sellers offers anyone selling the home US$1000 or a percentage. The real estate selling agent advertises the home for US$59,900, allowing for negotiating room. A buyer settles on US$55,000 but is told that in Nicaraguan the buyer pays the commission. Not actually the truth, but common enough that people think it’s a rule. The requested commission can be anything up to as much as 10%, or it can be a flat fee. Once all is said and done and the buyer agrees to purchase the property for US$55,000. In a case such as this, the ‘agent’ will insist on a nonrefundable US$5000 down payment. At closing the seller receives the US$50,000 that he or she wanted and the selling agent pockets the rest.

I know of a purchasers who handed a ‘realtor’ US$65.000 to purchase a 3 acre farm with a small house on the property. The ‘realtor’ then went to the owner of the property and paid him US$20,000 to buy the land. It gets worse… the ‘realtor’ never bothered to make the title transfer until the buyer discovered he was not the owner when he tried to pay long overdue taxes. In the end the property was purchased by a developer for little more than the original US$65,000, but 8 years of appreciation later. In another case Europeans purchase a home and overpaid US$85,000. Of course basing their offer on the European real estate values they knew, it was assumed they were getting a bargain. The ‘realtor’ pocketed the US$85,000 and a commission he charged the buy as well. Again, perfectly legal in Nicaragua… so caveat emptor.

The way to navigate through what foreigners view as market chaos is to use a knowledgeable real estate consultant to find a property you want, negotiate the price, terms and conditions, conduct the necessary due diligence, validate the title and survey, and so on. This is a fee based service but far less expensive than a percentage sales commission, and far, far less than a costly mistake would be. One such service is Nica Investments, a real estate consultancy that assists foreign investors purchasing real estate or businesses in Nicaragua.