Due Diligence in Costa Rica Real Estate. Learn Before You Buy

Do the Due Diligence in Costa Rica Real Estate before you buy. You’ve negotiated a solid Purchase and Sale Agreement with a 45-day due diligence period. The contract protects your right to walk away if you find problems. Your deposit is safely held in escrow.

Now comes the most critical phase of the entire transaction: actually investigating the property to determine if it’s worth buying.

This is where most buyers fail. Not because they skip due diligence entirely—most understand it’s important—but because they don’t know what to investigate, how deep to dig, or what red flags should trigger an immediate exit.

They hire an inspector who walks through the house and says everything looks fine. They ask the seller’s attorney if there are any title problems and accept “no” as a complete answer. They assume the seller disclosed all material defects.

Then they close on the property and discover:

• The septic system is failing and discharges directly into a creek (illegal, expensive to fix)
• The second floor addition was built without permits (can’t be legalized)
• The property boundary is 10 meters different from what the seller represented
• There’s a right-of-way easement through the middle of the lot that limits development
• The water comes from a neighbor’s well, not a legal water concession
• The seller never paid municipal taxes and there’s a lien for $12,000

Every single one of these problems should have been discovered during due diligence. Every single one was preventable.

What Due Diligence Actually Means

Due diligence is the comprehensive investigation you conduct to verify that:

1. The seller actually owns the property and can legally transfer it to you
2. The property is what the seller claims it is (size, boundaries, zoning, use)
3. The property has no hidden defects or liabilities
4. All construction was done legally with proper permits
5. All taxes and fees are current
6. The property can be used for your intended purpose

This isn’t a courtesy or formality. This is you doing the seller’s job for them—verifying every claim they’ve made and discovering everything they haven’t told you.

Costa Rican law operates on “caveat emptor”—buyer beware. The seller has minimal obligation to disclose defects. It’s your job to find them.

The Complete Due Diligence Checklist

Here’s what thorough due diligence looks like:

1. Title Examination

What you’re investigating:

• Who legally owns the property
• Whether the seller has the right to sell
• Whether there are any liens, mortgages, or encumbrances
• Whether there are any annotations, restrictions, or reservations
• Chain of title (ownership history)

How to investigate:

Your attorney conducts a title search at the National Registry (Registro Nacional). This involves pulling the property’s folio real (title record) and examining all inscriptions.

What you’re looking for:

• Clear ownership: The seller shown on the PSA matches the registered owner
• No liens: No mortgages, mechanic’s liens, tax liens, or judgments against the property
• No annotations: No pending legal actions, bankruptcy proceedings, or adverse claims
• No restrictions: No limitations on transfer or use (except standard zoning)
• Clean chain of title: No gaps or irregularities in ownership transfers

Red flags:

• Seller is not the registered owner (needs power of attorney or heir documentation)
• Recent ownership transfer (flipping, possible title laundering)
• Mortgages or liens that seller claims will be “paid at closing” (require proof)
• Annotations indicating boundary disputes or adverse possession claims
• Property owned by a corporation that’s delinquent or dissolved
• Rights of way, easements, or servitudes not disclosed by seller

Time required: 3-5 business days for initial search, longer if problems emerge

Cost: Usually included in attorney fees, or $200-500 if separate

2. Property Survey and Boundary Verification

What you’re investigating:

• The property’s actual boundaries and dimensions
• Whether the property size matches what’s registered
• Whether there are encroachments or boundary disputes
• Whether improvements are within property lines

How to investigate:

Hire a licensed surveyor (topógrafo) to conduct a boundary survey. The surveyor will:

• Locate the property corners based on registered coordinates
• Mark boundaries with physical monuments
• Measure the property and compare to registered dimensions
• Identify any encroachments (your improvements on neighbor’s land or vice versa)
• Check whether structures respect setback requirements

What you’re looking for:

• Boundaries match the registered description
• Property size matches what seller represented
• All structures are within property boundaries
• No neighbor encroachments onto the property
• Your planned construction fits within usable area

Red flags:

• Significant discrepancy between registered and actual dimensions (more than 3-5%)
• Boundary markers missing or disputed by neighbors
• Neighbor’s fence, driveway, or structure crosses the property line
• Building setbacks violated (structure too close to boundary)
• Usable area much smaller than total area due to slopes, easements, or wetlands
• Survey coordinates don’t match registry coordinates (possible fraud)

Time required: 2-4 weeks (scheduling, fieldwork, report)

Cost: $800-2,500 depending on property size and terrain

3. Zoning and Land Use Verification

What you’re investigating:

• What the property can legally be used for
• What construction is permitted
• What restrictions apply (coastal zone, environmental, watershed)
• Whether seller’s claims about development potential are accurate

How to investigate:

Your attorney requests a land use certificate (certificado de uso de suelo) from the municipality. This official document states:

• The property’s zoning classification
• Permitted uses (residential, commercial, agricultural, etc.)
• Building restrictions (height limits, lot coverage, setbacks)
• Special restrictions (archaeological sites, environmental protection zones)

What you’re looking for:

• Zoning permits your intended use
• Seller’s representations about what can be built are accurate
• No undisclosed restrictions that limit development

Red flags:

• Seller claimed you can build a hotel but zoning is residential only
• Property is in a protected zone where construction is severely limited
• Property is in the Maritime Zone (requires concession, not ownership)
• Property is in a watershed protection area
• Zoning recently changed and limits previous rights
• Certificate shows different property dimensions than title

Time required: 1-3 weeks

Cost: Usually included in attorney fees

4. Construction Permit Verification

What you’re investigating:

• Whether all existing construction was done with proper permits
• Whether permits match what was actually built
• Whether construction complies with approved plans

How to investigate:

Your attorney requests construction permit records from the municipality and the National Registry’s cadastral records. Compare these to what’s actually on the property.

What you’re looking for:

• All structures have permits
• Construction matches permitted plans
• Permits are in good standing (not expired or revoked)
• No illegal additions or modifications

Red flags:

• Structures exist but no permits on file (illegal construction)
• Permit shows 100m² but house is 250m² (illegal additions)
• Permitted residential but being used commercially
• Construction started but permit was never finalized
• Seller claims permits exist but can’t produce them
• Building official states “no record of permits for this property”

Common scenario: Seller shows you a beautiful two-story house. Permits only exist for the first floor. The second floor is illegal and cannot be legalized without expensive demolition and reconstruction. You bought a one-story house at a two-story price.

Time required: 2-3 weeks

Cost: Usually included in attorney fees

5. Tax and Municipal Fee Verification

What you’re investigating:

• Whether property taxes are current
• Whether municipal fees are paid (garbage, water, etc.)
• Whether there are any outstanding tax liens

How to investigate:

Your attorney requests a property tax certificate (certificado de bienes inmuebles) from the municipality showing payment history. Also check for:

• Municipal service fees (garbage collection, street maintenance)
• Water and sewer fees if applicable
• Any special assessments or improvement fees

What you’re looking for:

• All taxes current through the present year
• No outstanding balances on municipal services
• No tax liens filed against the property

Red flags:

• Multiple years of unpaid property taxes
• Seller claims taxes are paid but can’t provide receipts
• Municipal lien for unpaid fees
• Special assessment pending (neighborhood infrastructure improvements)
• Property value declaration doesn’t match sale price (potential tax issue for you)

Who pays delinquent taxes: This should be negotiated in the PSA. Typically, seller pays all taxes through closing date. Don’t close with outstanding tax debt unless price is reduced accordingly and you’re willing to pay it.

Time required: 1-2 weeks

Cost: Usually included in attorney fees

6. Water Rights and Utilities

What you’re investigating:

• Legal source of water supply
• Whether utilities are actually available as claimed
• Costs and connection requirements

How to investigate:

For water, determine the source:

• Municipal water (AyA): Verify connection exists and account is current
• ASADA (community water): Verify membership and rights
• Private well: Verify legal concession from MINAE/SENARA
• Neighbor’s water: Verify written easement agreement (dangerous)

For electricity (ICE/CNFL):

• Verify service exists and meter number
• Check for outstanding bills
• Determine if capacity is adequate for your needs

For internet/phone:

• Verify availability (don’t assume)
• Check actual speeds available, not just “yes, we have internet”

What you’re looking for:

• Legal, reliable water source with proper documentation
• Electricity connected with adequate capacity
• Utilities are in seller’s name and transferable
• No outstanding utility debts

Red flags:

• Water comes from neighbor’s well (no legal right, can be cut off)
• Seller claims well but no concession documents exist (illegal)
• Electricity is temporarily connected (not permitted construction)
• Utilities in someone else’s name who isn’t the seller
• ASADA states property has no water rights
• Dry season water shortages not disclosed
• Well produces insufficient water (check actual yield, not just “yes, there’s a well”)

Time required: 2-3 weeks (coordinating with multiple entities)

Cost: Minimal for verification requests

7. Environmental and Geological Assessment

Regarding the environmental research, it is not always required and depends on whether the property is located close to a biological reserve, national park, forest or close to the beach.
Costa Rica has extensive environmental regulations with the intention of protecting the natural habitats.

But in a lot of instances it may be sensical to do a geological assessment if you are planning to build or if there is already a construction on a slope.

What you’re investigating:

• Soil stability and foundation conditions
• Drainage and flooding risk
• Septic system capacity and condition
• Environmental contamination
• Landslide or erosion risk

How to investigate:

• Hire a structural engineer for foundation and stability assessment
• Inspect septic system (or verify municipal sewer connection)
• Check soil conditions if planning construction
• Review property during rainy season if possible
• Talk to neighbors about flooding, landslides, or drainage issues

What you’re looking for:

• Stable soil suitable for construction
• Proper drainage (water flows away from structures)
• Functional septic system or sewer connection
• No evidence of landslides, erosion, or subsidence
• No contamination from nearby agriculture or industry

Red flags:

• Cracks in foundation or walls (settling, poor soil, landslide movement)
• Water damage or moisture issues
• Septic system failing or improperly located (too close to well, too close to property line)
• Neighbors mention flooding during heavy rain
• Evidence of previous landslides
• Property downslope from unstable area
• Agricultural chemicals used on adjacent properties
• Previous dump site or industrial use

Time required: 1-2 weeks

Cost: $500-1,500 for engineering assessment

8. Physical Property Inspection

What you’re investigating:

• Structural condition
• Roof condition
• Electrical and plumbing systems
• Major systems and appliances
• Pest damage (termites, dry rot)
• General maintenance issues

How to investigate:

Hire a qualified home inspector to conduct a thorough inspection. In Costa Rica, standards vary widely, so:

• Use an inspector with verifiable experience
• Accompany the inspection personally
• Ask questions about anything concerning
• Get a detailed written report

What you’re looking for:

• Sound structure with no major defects
• Roof in good condition with years of remaining life
• Electrical system safe and adequate
• Plumbing functional with no major leaks
• No active pest infestation or significant damage
• Normal wear and tear only, not deferred maintenance

Red flags:

• Foundation cracks or settling
• Roof leaks or damaged tiles
• Electrical hazards (exposed wiring, overloaded circuits, no grounding)
• Major plumbing leaks or galvanized pipes needing replacement
• Termite damage in structural members
• Mold or water damage
• Pool or septic system in disrepair
• Inspector can’t access areas (seller blocking inspection)

Time required: 1 day for inspection, 1 week for report

Cost: $300-800

9. Legal Encumbrances and Easements

What you’re investigating:

• Rights of way across the property
• Utility easements
• Conservation easements
• Access easements for landlocked neighbors

How to investigate:

Your attorney reviews:

• Registered easements (appear on title)
• Unregistered easements (require document review and physical inspection)
• Access road rights
• Utility easements

What you’re looking for:

• All easements are disclosed and acceptable to you
• Your property has legal access to public road
• Easements don’t interfere with your intended use

Red flags:

• Right of way crosses through your planned building site
• Neighbor has easement rights seller didn’t disclose
• Property access is through neighbor’s land without written easement
• Utility easement limits where you can build
• Conservation easement restricts development more than seller represented

Time required: Included in title examination

Cost: Included in attorney fees

10. Corporate and Ownership Structure Review

What you’re investigating:

If property is owned by a corporation (SA):

• Corporation’s legal status
• Whether corporate records are current
• Who actually controls the corporation
• Whether there are corporate debts or liabilities

How to investigate:

Your attorney reviews:

• Corporate charter and bylaws
• Share registry (who owns the shares)
• Corporate standing with tax authorities
• Outstanding corporate debts
• Board resolutions authorizing the sale

What you’re looking for:

• Corporation is in good standing
• Seller actually owns/controls the corporation
• No corporate debts that will become your problem
• Proper authorization for the sale

Red flags:

• Corporation is delinquent or dissolved
• Share ownership is disputed
• Corporate records are incomplete or missing
• Undisclosed corporate debts
• Board authorization is questionable
• Seller claims to own corporation but isn’t on share registry

Time required: 1-2 weeks

Cost: Usually included in attorney fees

How to Manage the Due Diligence Process

Conducting thorough due diligence requires coordination and project management:

Create a Due Diligence Timeline

Start on day 1 of your DD period:

• Week 1: Attorney begins title work, order survey, request municipal certificates
• Week 2: Schedule property inspection, engineering assessment
• Week 3: Review all reports as they come in, identify issues
• Week 4: Address any problems found, make final decision
• Week 5-6: Buffer for delays (surveys always take longer than promised)

Coordinate Multiple Professionals

You’ll need:

• Attorney (title, zoning, permits)
• Surveyor (boundaries)
• Home inspector (physical condition)
• Engineer (if needed for structural/geological)
• Utility companies (verification)

Someone needs to coordinate these people. Your attorney should help, but you need to stay on top of it.

Document Everything

Keep organized records of:

• All reports received
• All correspondence with seller
• All problems discovered
• All seller’s responses to issues raised
• All costs incurred

If you end up in a dispute, documentation is everything.

Communicate Problems to the Seller Promptly

When you discover issues, notify the seller in writing immediately:

“Our survey revealed a 12-meter discrepancy in the property boundaries. Per Section X of the PSA, please provide documentation showing the correct boundaries within 10 days.”

Don’t wait until day 44 of your 45-day DD period to raise issues. Give the seller time to respond or cure.

 

What to Do When Due Diligence Reveals Problems

You will find problems. Every property has issues. The question is whether they’re dealbreakers.

Minor Issues (Proceed with Purchase)

Examples:

• Small amount of deferred maintenance
• Minor zoning technicality that can be easily resolved
• Property is 2% smaller than registered (common surveying variance)
• One year of unpaid property tax ($300)

Response: Proceed with purchase, possibly negotiate small price reduction or require seller to fix before closing.

Moderate Issues (Negotiate or Walk)

Examples:

• Roof needs replacement soon ($8,000)
• Septic system is undersized ($5,000 to fix)
• Property boundary is 8% off (not huge but material)
• Some construction done without permits but can be legalized ($3,000 in fees)

Response: Request seller cure the issue, reduce the price to reflect the cost, or provide a credit at closing. If seller refuses, decide if you’re willing to accept the property with these defects and pay to fix them yourself.

Major Issues (Probably Walk)

Examples:

• Half the house is built without permits and cannot be legalized
• Property is 25% smaller than seller represented
• Title is clouded by an adverse possession claim
• Property is in an environmental protection zone where seller claimed you could build
• Septic system discharges illegally and replacement will cost $30,000
• Foundation has significant structural damage

Response: In most cases, walk away. Even if the seller offers a big price reduction, these problems often multiply. You’re buying a lawsuit, not a property.

When to Walk Away

Sometimes due diligence reveals that the property simply isn’t what you thought you were buying. In these cases, exercising your contingency and getting your deposit back is the right move:

Walk away if:

• Seller misrepresented material facts (property size, zoning, permits)
• Title problems can’t be cured (disputed ownership, adverse possession claim)
• Major structural or environmental issues exist
• Property can’t be used for your intended purpose
• Cost to remedy discovered defects exceeds your budget
• Seller is uncooperative or dishonest in responding to issues
• Your instinct says something is wrong

Don’t feel guilty about walking away. That’s exactly why you negotiated a due diligence period and refundable deposit. Using your contractual right to terminate is not being “difficult”—it’s being smart.

 

Common Due Diligence Mistakes

Mistake 1: Relying on Seller’s Representations

“The seller showed me permits” is not the same as your attorney verifying permits with the municipality. Sellers lie. Sellers show fake documents. Sellers genuinely believe things that aren’t true.

Trust, but verify. Actually, just verify.

Mistake 2: Superficial Inspection

Walking through the property with the realtor is not due diligence. You need professionals investigating things you can’t see: title records, permit files, boundary coordinates, septic systems, structural foundations.

Mistake 3: Not Following Up on Red Flags

Your inspector mentions cracks in the foundation but says “probably nothing.” That’s not a clearance—that’s a red flag requiring follow-up with a structural engineer.

When professionals use words like “possibly,” “might,” “could indicate,” or “recommend further investigation,” they’re telling you there’s a problem. Follow up.

Mistake 4: Trusting the Timeline

Every professional you hire will underestimate how long their work will take:

• Surveyor says “10 days” means 3-4 weeks
• Attorney says “we’ll have the title report next week” means 2-3 weeks
• Inspector says “report in 3 days” means 5-7 days

Start due diligence immediately and budget extra time.

Mistake 5: Not Reading Reports

You paid for expert reports. Read them. All of them. Carefully.

Don’t just ask your attorney “did anything bad come up?” Read the title report. Read the survey. Read the inspection report. Ask questions about anything you don’t understand.

Mistake 6: Letting the Seller Control the Process

The seller’s timeline, the seller’s preferred inspector, the seller’s urgency—none of this matters. You have a contractual DD period. Use all of it.

If the seller pressures you to wrap up DD early “so we can close faster,” that’s a red flag. What are they trying to hide?

 

The Psychology of Due Diligence

Due diligence often reveals problems that create an emotional conflict:

You’ve fallen in love with the property. You’ve imagined yourself living there. You’ve told friends and family about it. You’ve already mentally committed.

Then due diligence reveals issues.

Your emotional brain wants to minimize the problems: “It’s not that bad. We can fix it. The seller will take care of it.”

Your rational brain knows you should walk away.

This is where buyers make expensive mistakes. They’ve invested time and emotional energy, so they rationalize continuing with a bad deal.

Advice: Make a list before starting DD of what would constitute dealbreakers. When you find those issues, honor the commitment you made to yourself when you were thinking clearly.

 

The Bottom Line

Due diligence is your only opportunity to discover what you’re actually buying before it’s too late.

Every corner you cut, every investigation you skip, every red flag you ignore increases the risk that you’ll end up owning a problem property with no recourse.

Thorough due diligence costs money—typically $2,000-5,000 in professional fees. That seems expensive until you compare it to discovering after closing that:

• You bought 25% less property than you thought ($100,000 mistake on a $400,000 property)
• The house has illegal construction that must be demolished ($80,000 mistake)
• The septic system is failing and can’t be replaced in its current location ($35,000 mistake)

Every single one of those problems should have been caught during due diligence. Every dollar spent investigating is insurance against much larger losses.

In our next article, we’ll discuss escrow: how it works, why it’s essential, what protections it provides, and what can go wrong when buyers skip this critical safeguard.

 

Need Help?

We conduct comprehensive due diligence on every property our clients purchase. We know what to investigate, who to hire, what reports to request, and what red flags to watch for.

Don’t discover problems after you’ve already closed. Let us investigate before you commit.

Contact us to schedule your due diligence coordination.

This is Article 2 in our Real Estate Series. Next up: [Escrow: Your Safety Net in Costa Rica Real Estate Transactions]

Previous: The Purchase & Sale Agreement: Essential Terms That Protect Your Investment