Buying real estate in Nicaragua

The first step to buying real estate in Nicaragua is to forget everything you know about the process of going home … no matter where your home is.

Let me clarify one thing from the beginning. There are incredible bargains to buy a property in Nicaragua. In fact, there is no other market in the Americas where it is reasonable to insist on a return on investment of 40% or more. However, there are few similarities between the rules and regulations that govern the real estate industries in North America or Europe and Nicaragua. Due to this lack of similarities, foreign investors often run into trouble. There is a preconceived notion on the part of foreigners that Nicaragua’s real estate industry is as carefully regulated as elsewhere, and it is this incorrect assumption that misleads foreign investors. The only universal real estate investment rule that applies both in Nicaragua and anywhere else is Caveat emptor, buyer beware.

Real estate brokers

Basically, there is no real estate brokerage in Nicaragua that a Canadian, American or European assumes 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 formal and mandatory training for real estate sales personnel, nor are there specific licensing requirements. Anyone can become a “real estate broker” by paying for a merchant license or incorporating a Nicaraguan company. I am not suggesting that this means that “all” real estate sellers are incompetent or untrained … many are. In fact, there are several retired real estate brokers who have moved to Nicaragua and are running successful and honest businesses. However, there are many more who are not at all competent and operate on the razor’s edge between honest business and outright fraud. Warning emptor again!

There are no federal or district regulatory boards that govern the real estate industry. Real estate sales are no more regulated than the sale of a vehicle by a street vendor. Authorities are not unaware of outright criminality, but incarcerating the perpetrator is unlikely to result in the recovery of lost money. However, revenge should make a wasted buyer feel better. Nicaraguan prisons exist to punish criminals, not to rehabilitate, and they are hell on earth. However, unfortunately, most of the problems that can arise in a real estate transaction are considered civil matters by law enforcement and should be treated as such. In short, whatever money you think was stolen … consider it lost. Even with a judgment in favor of the plaintiff, collection of money owed in a judgment rarely occurs. So again, emptor warning.

A serious deficiency in the Nicaraguan real estate market is that there is nothing similar to a Multiple Listing Service (MLS). The lack of any form of MLS means that there is no central registry of properties for sale, nor information on what a property was sold to. The result is that it is very difficult to decide how much a home or commercial building is worth in a particular neighborhood, as there are no comparable property transactions to use as a guide. Appraisers base their appraisals primarily on replacement cost, and anything else they provide is pure guesswork. Ironically, banks require appraisals created by licensed Nicaraguan appraisers if mortgage financing is requested.

In Nicaragua there is no list similar to what most foreigners would understand the term to mean. Real estate buyers will hear a real estate agent say they have an ad, but it is common to see two or more real estate signs on a single property. Similarly, the same property can appear on multiple real estate company websites and be advertised online by many different people. More confusing, advertised prices can vary for the same home, sometimes in the tens of thousands of dollars. Nicaraguans who sell their houses rarely enter into an agreement with a party that wants to sell their land, house, or commercial building. If you want to sell something, the more people try to sell it, the better. And for more people who can be real estate agents, the owner himself, his family and friends, a neighbor or a horse-drawn carriage driver. This seems chaotic for a foreigner looking for a retirement or vacation home, but it makes perfect sense for Nicaraguans. Without an MLS service that allows numerous real estate agents to show potential buyers a listed property, allowing everyone to try to sell a property seems like the best way to get exposure.

Another misconception that foreign buyers have when buying real estate in Nicaragua is that the seller pays 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 the buyer, but the real estate agent may have added an amount to what the seller really wants in his hand. This is also legal. The worst case scenario is that the seller wants $ 50,000 for his house. Sellers offer anyone who sells the house $ 1,000 or a percentage. The real estate sales agent advertises the house for $ 59,900, which allows a margin of negotiation. A buyer settles for US $ 55,000 but is told that in Nicaragua the buyer pays the commission. It’s not actually the truth, but it’s common enough that people think it’s a rule. The commission requested can be up to 10% or it can be a flat rate. Once all is said and done, the buyer agrees to purchase the property for $ 55,000. In a case like this, the ‘agent’ will insist on a non-refundable down payment of US $ 5,000. At closing, the seller receives the $ 50,000 he wanted and the sales agent pockets the rest.

I know of a buyer who gave a ‘real estate agent’ $ 65,000 to buy a 3 acre farm with a small house on the property. The ‘real estate broker’ approached the property owner and paid him $ 20,000 to buy the land. It gets worse … the ‘real estate agent’ never bothered to transfer the title until the buyer found out he was not the owner when he tried to pay long overdue taxes. In the end, the property was bought by a developer for little more than the original $ 65,000, but 8 years of appreciation later. In another case, Europeans bought a house and overpaid $ 85,000. Of course, basing their offer on known European real estate values, it was assumed they were getting a bargain. The ‘real estate agent’ pocketed the $ 85,000 and a commission that he also charged for the purchase. Again, perfectly legal in Nicaragua … so emptor warning.

The way to navigate through what foreigners see as market chaos is to use a knowledgeable real estate consultant to find the property you want, negotiate the price, terms and conditions, perform the necessary due diligence, validate the title and survey, etc. This is a fee-based service, but much less expensive than a percentage sales commission, and much, much less than it would be 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.

Leave a Reply

Your email address will not be published. Required fields are marked *