The Purchase & Sales Agreement in Costa Rica: What to Know When Purchasing Property

The Purchase and Sales Agreement is the most important element when purchasing a property in Costa Rica.  This is where the real legal battle happens. Not in court, not after things go wrong, but right here in the negotiation of this document. The terms you agree to now will determine whether you’re protected if problems arise or whether you’re trapped in a bad deal with no way out.

Most buyers don’t realize they’re negotiating the most important document in the entire transaction. They see the PSA as a formality—just paperwork to get through so they can close on the property.

That’s exactly what sellers and realtors want you to think.

What the Costa Rica Purchase and Sale Agreement Actually Is

The PSA is the legally binding contract between you and the seller that:

• Establishes the purchase price and payment terms
• Sets deadlines for each phase of the transaction
• Defines what happens to your deposit under various scenarios
• Specifies who pays for what (taxes, fees, inspections)
• Determines what happens if the seller or buyer defaults
• Controls the due diligence process and timeline
• Establishes contingencies that let you walk away
• Sets the closing date and conditions

Unlike the Letter of Intent, which should be brief and non-binding, the PSA is detailed, specific, and enforceable. Every clause matters. Every deadline counts. Every contingency protects you—or fails to.

The Fundamental Problem: Seller-Drafted Contracts

Here’s what you’re up against: in almost every Costa Rica real estate transaction, the seller or the seller’s attorney drafts the initial PSA.

This means the default contract is written to protect the seller’s interests, not yours.

The initial draft will typically:

• Minimize the seller’s obligations
• Maximize your obligations
• Make it difficult for you to walk away
• Make it easy for the seller to keep your deposit
• Shift costs and risks to you
• Limit your inspection and due diligence rights
• Favor the seller if disputes arise

This isn’t necessarily malicious—it’s just business. The seller’s attorney is doing their job by protecting their client. The problem is that many buyers don’t realize they need to negotiate these terms aggressively.

They think: “This is the standard contract. This is just how it’s done.”

There is no “standard contract” that’s fair to both parties. There’s only the contract you negotiate. A well-negotiated Costa Rica purchase and sale agreement should protect both parties equally, but the initial draft rarely does.

Essential Protective Terms for Buyers

When we review a Costa Rica purchase and sale agreement for our clients, these are the terms we fight for:

1. Due Diligence Period and Rights

What it should say:

“Buyer shall have [30-45] days from the date of this Agreement to conduct due diligence, including but not limited to: title examination, property survey, boundary verification, environmental assessment, building and zoning permit verification, tax verification, lien search, property inspection, and any other investigations Buyer deems necessary. Buyer may terminate this Agreement for any reason during the due diligence period and receive a full refund of all deposits.”

Why it matters:

This gives you time to thoroughly investigate the property and the right to walk away if you don’t like what you find—for any reason. Without this explicit language, the seller may argue that you can only terminate for specific, enumerated problems.

The due diligence period should be long enough to actually complete the investigations. Thirty days minimum, 45 days is better. We’ve seen contracts with 10-day DD periods, which is absurd—you can’t even get a surveyor scheduled that quickly.

Red flags to watch for:

• DD period shorter than 30 days
• Language limiting what you can investigate
• Requirements that you can only terminate for “material defects” (who defines material?)
• Seller approval required for termination
• Non-refundable deposit even during DD period

2. Earnest Money Deposit Terms

What it should say:

“Buyer shall deposit $[amount] into escrow within [5-7] business days of executing this Agreement. This deposit shall be fully refundable if Buyer terminates this Agreement during the due diligence period or if any contingency set forth in this Agreement is not satisfied. If Seller defaults on this Agreement, Seller shall return the deposit to Buyer along with reimbursement for all due diligence expenses incurred.”

Why it matters:

The deposit protects the seller from non-serious buyers, but it should also protect you. If you do your job (conduct DD, don’t default), you should get your money back if the deal doesn’t close for legitimate reasons.

The amount should be reasonable—typically 5-10% of purchase price. Higher deposits favor the seller because they make it more painful for you to walk away.

Red flags:

• Deposit becomes non-refundable before closing
• Deposit becomes non-refundable after DD period (what if financing falls through?)
• Deposit goes directly to seller instead of escrow
• Seller keeps deposit if you terminate for ANY reason, even legitimate ones
• Liquidated damages exceed the deposit amount

3. Financing Contingency

What it should say:

“This Agreement is contingent upon Buyer obtaining financing in the amount of $[amount] at an interest rate not to exceed [X]% within [30-45] days of the date of this Agreement. If Buyer is unable to obtain such financing despite good faith efforts, Buyer may terminate this Agreement and receive a full refund of all deposits.”

Why it matters:

Even if you think you can pay cash, circumstances change. Markets shift. Banks get difficult. You don’t want to be legally obligated to buy a property you can’t finance.

If you are financing, this contingency is absolutely essential. Without it, you’re committed to the purchase even if no bank will lend to you—meaning you’d have to come up with cash or lose your deposit.

Red flags:

• No financing contingency when you need financing
• Unreasonably short timeline to obtain financing
• Requirement to use a specific lender
• “Best efforts” language without objective criteria
• Seller can cancel if you don’t obtain financing AND keep your deposit

4. Clear Title Contingency

What it should say:

“Seller shall provide marketable title free and clear of all liens, encumbrances, easements (except those accepted in writing by Buyer), boundary disputes, and defects. If title examination reveals any defects, Seller shall have [30] days to cure such defects. If Seller cannot cure the defects within this period, Buyer may terminate this Agreement and receive a full refund of all deposits.”

Why it matters:

You’re buying property, which is only valuable if you actually own it clearly and completely. Title problems can range from minor (easily resolved liens) to catastrophic (seller doesn’t actually own the property).

This clause forces the seller to deliver clean title or give you back your money. Without it, you might be stuck buying property with unresolved title issues.

Red flags:

• Language requiring you to accept title “as is”
• No requirement that seller cure title defects
• Vague language about what constitutes “marketable title”
• Seller’s deadline to cure is longer than your DD period
• You have to close even if title issues remain

5. Property Condition and Inspection Rights

What it should say:

“Buyer and Buyer’s representatives shall have the right to enter the property at reasonable times to conduct inspections, including but not limited to: structural inspection, roof inspection, electrical and plumbing inspection, septic/waste system inspection, water quality testing, pest inspection, and environmental assessment. Seller shall provide access and cooperate fully with all reasonable inspection requests. If inspections reveal defects that would cost more than $[threshold amount] to repair, Buyer may request that Seller repair such defects or reduce the purchase price accordingly. If Seller refuses, Buyer may terminate this Agreement and receive a full refund of all deposits.”

Why it matters:

Properties in Costa Rica often have hidden problems: foundation issues in rainy areas, electrical systems that are outdated, illegal construction, failing septic systems, water rights issues, pest damage.

You need the absolute right to inspect thoroughly and the ability to walk away or renegotiate if you find problems.

Red flags:

• Limited inspection rights (“visual inspection only”)
• Seller can refuse access or limit timing
• No remedy if inspections reveal problems
• “As is” language that waives your right to object to defects
• Requirement to accept property regardless of inspection results

6. Seller’s Representations and Warranties

What it should say:

“Seller represents and warrants that: (a) Seller has full legal authority to sell the property; (b) there are no pending or threatened legal actions affecting the property; (c) all property taxes are current; (d) all construction was performed with proper permits; (e) there are no boundary disputes with neighbors; (f) all information provided to Buyer is accurate and complete; (g) Seller knows of no defects not disclosed in writing to Buyer. These representations shall survive closing.”

Why it matters:

These representations give you recourse if the seller lied or misrepresented material facts about the property. If they survive closing, you can sue even after you own the property if you discover the seller knew about problems they didn’t disclose.

Without these representations, you buy at your own risk with limited recourse if the seller concealed problems.

Red flags:

• No representations from seller at all
• Representations don’t survive closing
• Vague or weak representations (“to the best of seller’s knowledge”)
• Disclaimers that negate the representations
• Seller liability is capped at an amount less than the purchase price

7. Default and Remedies

What it should say:

“If Seller defaults on this Agreement, Buyer shall be entitled to: (a) full return of all deposits; (b) reimbursement of all due diligence expenses and attorney’s fees; and (c) at Buyer’s option, specific performance or liquidated damages equal to [10-20%] of the purchase price. If Buyer defaults after the due diligence period expires and without exercising a contingency, Seller may retain the earnest deposit as liquidated damages, which shall be Seller’s sole and exclusive remedy.”

Why it matters:

This section determines what happens if someone doesn’t hold up their end of the deal. It should be balanced—if the seller backs out, you get your money back plus expenses. If you back out wrongfully, the seller keeps your deposit but can’t sue you for additional damages.

Red flags:

• Seller’s remedies for your default exceed your deposit (unlimited damages)
• Your remedies for seller’s default are limited (deposit refund only)
• Seller can cancel for vague reasons and keep your deposit
• No reimbursement of your expenses if seller defaults
• Mutual release not required if deal falls apart

8. Closing Date and Extensions

What it should say:

“Closing shall occur on or before 2026, subject to extension by mutual written agreement. If closing cannot occur by the scheduled date due to seller’s failure to satisfy conditions of this Agreement, Buyer may either: (a) extend the closing date; or (b) terminate this Agreement and receive full refund of all deposits plus reimbursement of expenses.”

Why it matters:

Closings in Costa Rica often get delayed: paperwork issues, registry delays, title problems, seller complications. You need flexibility, but you also need an exit if delays become unreasonable.

Red flags:

• Automatic extensions that favor seller
• No remedy if seller-caused delays exceed reasonable time
• Buyer must close regardless of delays
• Time is “of the essence” language that’s too rigid given Costa Rica’s bureaucracy

9. Escrow Requirements

What it should say:

“All deposits and the balance of the purchase price shall be held in escrow by [reputable escrow agent] pursuant to the terms of an Escrow Agreement to be executed by all parties. Funds shall be released only upon satisfaction of all conditions and signatures on the deed of transfer, or as otherwise agreed in writing by both parties.”

Why it matters:

Escrow protects both parties by ensuring money only changes hands when all conditions are met. Without escrow, you might wire money that the seller receives before delivering clear title—and getting it back if problems arise becomes exponentially harder.

Red flags:

• No escrow required (seller receives funds directly)
• Escrow agent is seller’s attorney (conflict of interest)
• Funds released before closing conditions are satisfied
• Vague release conditions

10. Governing Law and Dispute Resolution

What it should say:

“This Agreement shall be governed by the laws of Costa Rica. Any disputes shall first be subject to good faith mediation. If mediation fails, disputes shall be resolved through binding arbitration in [location] under the rules of [arbitration body], with the prevailing party entitled to recover reasonable attorney’s fees and costs.”

Why it matters:

Litigation in Costa Rica is slow and expensive. Arbitration is usually faster and cheaper. The prevailing party fee recovery discourages frivolous claims from either side.

Red flags:

• Jurisdiction in a distant or inconvenient location
• No fee recovery for prevailing party
• Waiver of your right to arbitration
• Seller can choose venue unilaterally

Terms You Should Always Reject

Some PSA clauses are so one-sided that you should refuse them outright:

“As Is” Clauses: Never agree to buy property “as is” without inspection rights and the ability to walk away based on what you find.

Waiver of Due Diligence: Never waive your right to conduct thorough due diligence.

Non-Refundable Deposits Before Closing: Your deposit should be refundable if legitimate contingencies aren’t met.

Unlimited Seller Remedies: If you default, the seller’s remedy should be limited to your deposit, not unlimited damages.

Acceptance of Known Defects: Don’t agree to accept property with known problems unless the price reflects those problems and you’re willing to fix them.

No Title Warranty: Never buy without a warranty that seller will deliver clear title.

Merger Clause Without Representations Surviving: If the contract says all prior representations merge into the written agreement and nothing survives closing, the seller can lie to you with impunity.

The Negotiation Process

Understanding protective terms is half the battle. Actually getting them into the contract is the other half.

Here’s how to approach PSA negotiation:

1. Expect to Negotiate

The first draft is always the seller’s wish list. Your attorney should redline extensively. If the seller accepts your first round of changes without pushback, their initial draft was egregiously one-sided.

Expect 2-4 rounds of negotiation before reaching final terms.

2. Know Your Dealbreakers

Before negotiation starts, identify your non-negotiables:

• Minimum DD period you need
• Must-have contingencies
• Maximum deposit you’ll put at risk
• Timeline requirements

Be willing to walk away if these aren’t met. There are other properties.

3. Prioritize Your Battles

You won’t win every point. Focus on the terms that provide the most protection:

• Due diligence rights and timeline
• Deposit refundability during DD and if contingencies fail
• Clear title requirement
• Balanced default remedies

You can compromise on less critical issues like who pays for minor closing costs.

4. Get Everything in Writing

Verbal assurances mean nothing. If the seller or realtor promises something will be fixed, or certain conditions will be met, it must be written into the PSA.

“We’ll handle that after closing” = It will never be handled.

5. Don’t Rush

Sellers and realtors create artificial urgency: “Another buyer is interested, we need to move fast.”

Too bad. Good contracts take time. If the seller won’t give you a reasonable period to negotiate properly, question why they’re in such a hurry.

Red Flags in the Negotiation Process

Watch for these warning signs:

The seller refuses to modify any terms: Every contract should be negotiable to some degree. If the seller won’t budge on anything, they’re either desperate (bad sign) or don’t actually want to sell to a buyer with legal representation (worse sign).

The realtor discourages legal review: If your realtor suggests you don’t need an attorney or that legal review will “kill the deal,” fire them immediately.

The seller’s attorney is aggressive about deadline pressure: Legitimate transactions have reasonable timelines. Artificial urgency is a manipulation tactic.

Your reasonable requests are characterized as “unusual” or “difficult”: Buyers asking for DD periods, escrow, and contingencies aren’t being difficult—they’re being smart.

The seller won’t agree to escrow: This is a massive red flag. Walk away.

What a Balanced Costa Rica Purchase and Sale Agreement Looks Like

A fair PSA protects both parties:

• The seller is protected from non-serious buyers by the earnest deposit
• The buyer is protected by contingencies and DD rights
• Both parties have clear remedies if the other defaults
• Timelines are realistic given Costa Rica’s bureaucracy
• Costs and risks are allocated fairly
• Escrow protects everyone

If the contract feels heavily weighted to one side, it probably is.

The Cost of a Bad PSA

Signing a poorly negotiated Costa Rica purchase and sale agreement can result in:

Forced Closing on Bad Property: You discover serious defects but have no contingency allowing you to walk away. You either close on a problem property or lose your deposit.

Trapped Deposit: You have legitimate reasons to terminate but the contract doesn’t provide for refund under those circumstances.

Unexpected Costs: The PSA assigned costs to you that should have been the seller’s responsibility (back taxes, lien clearance, survey costs).

Post-Closing Liability: The seller misrepresented material facts but your contract doesn’t let you pursue remedies after closing.

Extended Delays: Seller-caused delays drag on for months but you have no exit strategy.

Litigation: Ambiguous contract terms lead to disputes that end up in court, costing tens of thousands in legal fees.

A few hours of careful PSA negotiation can save you from any of these scenarios.

Your Attorney’s Role

Your attorney should:

• Review the initial PSA draft and identify problematic terms
• Prepare a comprehensive redline with protective terms
• Explain the implications of each major clause
• Negotiate on your behalf with the seller’s attorney
• Advise when terms are unacceptable and you should walk away
• Ensure the final PSA aligns with your due diligence findings

What your attorney should NOT do:

• Pressure you to accept terms you’re uncomfortable with
• Minimize concerns about one-sided clauses
• Suggest you skip due diligence to close faster
• Defer to the seller’s attorney on disputed terms
• Discourage you from negotiating

If your attorney is doing any of the latter, you need a different attorney.

Questions to Ask Before Signing

Before you sign the PSA, ask yourself:

• Can I conduct thorough due diligence before I’m locked in?
• Can I walk away if DD reveals problems, even if they’re not “material defects”?
• Is my deposit refundable if legitimate contingencies aren’t met?
• What happens if the seller defaults—am I made whole?
• What happens if I default after DD period—are damages limited and reasonable?
• Does the seller warrant clear title and ability to sell?
• Do I have adequate inspection rights?
• Are closing costs and responsibilities allocated fairly?
• Is escrow mandatory?
• Have all verbal promises been reduced to writing?

If you can’t answer these questions confidently in your favor, don’t sign.

The Bottom Line

The Purchase and Sale Agreement is where your real estate investment is protected—or left vulnerable.

This isn’t boilerplate. This isn’t just formality. This is the contract that will govern whether you can walk away from a problem property, whether you get your deposit back if things go wrong, and whether you have any recourse if the seller misrepresented the property.

Every term matters. Every contingency protects you. Every deadline affects your options.

Don’t sign a PSA that doesn’t protect your interests just because the seller or realtor is pressuring you to move fast. There are other properties. There’s only one chance to negotiate terms that protect your investment.

In our next article, we’ll break down the due diligence process itself: what to investigate, how to investigate it, what red flags to watch for, and what to do when DD reveals problems.

Need Help?

We review and negotiate Purchase and Sale Agreements daily. We know which terms to fight for, which to compromise on, and when to walk away.

Don’t sign a contract that doesn’t protect you. Let us review your PSA before you commit.

Contact us to schedule your PSA review.