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Panama: Safety nets, part two - Gail Geerling, Success in Central America

Contracts

It’s as true now as it ever was: Two simple words separate First World property purchases from Central American property purchases - Safety Nets.

They call it ‘foreign’ property for good reason. Everything about the way business is done in Central America is foreign to those of us in the First World, and in fact, some refer to this region as ‘The Wild West’. While that might be a tad harsh, it does mean however, that due diligence in the region isn’t just an option. Take, for example, your purchase contract…

A dear friend of mine keeps repeating: “You make money in real estate on the purchase, not on the sale.” He couldn’t be more accurate. So what’s the most important thing you can do to protect your investment and ensure you make money at the time you purchase? Manipulate your contract in your favor.

Most folks, when buying foreign property, look at the developer’s brochures, check out the floor plans, and if the building is under construction, they look at the quality of the work done to date. If the unit is already finished, they check out fixtures and finishes- if such things even come with the unit (in some buildings, even light sockets or switch plates are an ‘add-on’!).

All this is fine up to a point…the point at which there are issues with the final handover. Sometimes your punch list will be tiny things such as a dab of paint or an adjustment to a door handle… but sometimes there are enormous issues like water ingress or plumbing problems. Don’t assume these will be fixed unless you have that requirement written into your contract.

Assuming a safety net is dangerous. Many of the nets we’re accustomed to are completely unknown in Central America, or they’re not common practice.

Unfortunately, some buyers lose all sense in the tropics…they ‘feel the fever’ and sign immediately.

Previously, I recommended using independent escrow services, and I still maintain that they are one of the most important safety nets you can put in place to protect yourself. However, they come with a caveat: Escrow agencies can only perform according to the instructions they are given.

Paying an escrow company good money to release funds on your behalf is ridiculous if you have given them bad instructions- and remember, your purchase contract is their set of instructions.

In other words, if you sign a contract, know what you’re signing.

Developers usually use standard contracts that have been prepared by their legal team. This isn’t rocket science—those legal teams are paid big money to protect developers. It doesn’t mean you can’t use their standard contract, but if you do, it’s Buyer Beware.

Read the document carefully. If anything is unclear, do not sign until it has been explained by your attorney or representative- not theirs. Make changes as necessary… take your time, and don’t allow yourself to be rushed. It’s not unusual to run through three drafts of a contract, so don’t get discouraged.

We’re in a buyer’s market, so if you’re the buyer, make sure you stack the cards in your favor. It’s OK to feel the fever, but take an aspirin and sleep on it before signing.

NB: You don’t know what you don’t know. There are additional clauses that I believe should be added to every purchase contract before signing, and next month I will address some of those.

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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