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Nicaragua: Protecting Your Interests in a Purchase Agreement - Gail Geerling, Success in Central America

Protecting Your Interests in a Purchase Agreement

This week I am in my favorite Central American country, Nicaragua. Though I am now based in Panama and the two countries often seem worlds apart, I’ve been reminded during this visit that while each country in the region is different, there are some remarkable similarities in the way they handle the real estate business.

Many Central American countries have little property legislation for professionals- including Nicaragua. Well meaning groups have tried in many cases to implement local or association regulations, but their progress is usually stopped at the legal level because there is simply no real understanding in the region of worldwide property industry standards and norms.

One exception is Panama. While I question their motivation, Panama has done a good job in forming this legislation and putting in place a body to supposedly give it some teeth. There are legal requirements in education, bonding, licensing, etc, and they are fairly rigid. Fabulous in theory…until you work with some of Panama’s “professionals” and ask yourself how on earth they managed to pass the licensing test.

In the end - regardless of legislation - it’s Central America, and it’s Caveat Emptor. Due diligence is not an option, it’s a requirement.

I recommend some fairly straightforward “protection mechanisms” to my clients which, if used, should provide a buyer with the best possible security in their investment.

Of course, I recommend a thorough knowledge of how a sale is transacted in the particular country you’d like to purchase - prior to signing a contract.

Knowledge is king

I often receive calls from clients who have signed a contract and figure out that they’ve gotten themselves into something they hadn’t quite bargained on… it’s much more difficult to help at that point. So before you begin looking at property in your chosen country, find someone who knows the process and can explain each step to you. This will likely be your attorney, a consultant such as myself, or perhaps even the agent who shows you the property. If your property agent cannot explain this to you in a simple and straightforward manner, then run — fast!

If you’re purchasing off-plan or property which is currently under construction, never sign the original developer’s contract without modifying it in your favour. Think about it: Their extremely well-paid attorneys have had months to look over their contracts, and protect their interest every which way from Sunday. Why on earth would you simply take it and park your pen on the signature line?! Yet, many people do - only to find that a year down the road their hands are tied, they are paying for an incomplete building, apartment, or home…and their frustrations have only begun.

Don’t leave any stone unturned in adding clauses into the contract. For example, if it is a freestanding home, you may ask that you be allowed to approve the construction plans. Or, you may retain a portion of your last payment until at least one “punch list” of items is thoroughly addressed by the developer in a fixed amount of time. In this way, you protect yourself if an occupancy permit is issued before all finishes have been completed (Yes, it happens. Often). Make this a significant amount of money, so that the developer has incentive to finish it — or so that you can pay someone else to finish them should he decide not to complete the items in the apportioned time.

Myriads of other clauses can be added or changed in a purchase agreement for such things as title insurance, escrow terms and conditions, and quality standards in construction and finishes.

While nothing is 100 per cent failsafe, putting extra time and attention into learning the system beforehand and giving your purchase agreement the time and attention it deserves will prevent a hundred headaches down the road. Look at it this way: While those around you are moaning, your diligence on the front end of the transaction will allow you to exercise your bragging rights about your smooth and hassle-free Central American property purchase. That alone should be worth the time spent!

Gail Geerling

Gail has lived nearly fifteen years in Central America, managing and consulting for real estate development projects in Belize, the Bay Islands of Honduras, Nicaragua and Panama. Her ‘Success in Central America’ program teaches some of the most valuable insights gleaned during her time in the region, giving her clients the ability to choose a clear direction forward and follow through to their own success.

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