Sunday 20 June 2021

Why is m2 value indicator wrong on Costa Rica real estate websites?

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QCOSTARICA REAL ESTATE – When you are ready to put your Costa Rica real estate up for sale, you have various options to market your property. But before you do so, wouldn’t you really like to find out what the value of your property is? How do you find out?

You might call a few real estate agents in your area, or you can check out the comparable properties in the market, to find out the value of yours.  A comparative market analysis (CMA) is an evaluation of similar, recently sold properties (called comparables), which are properties of similar size, condition, age, and style that recently sold in a certain neighborhood.

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Unfortunately, you can only compare equal properties to each other. In Costa Rica, you will be only able to compare if your property is in a condominium where ALL the details of the property are exactly the same.  And even if that is the case, there is no way you can find out what those equal properties are sold for in the past, because the information is not public knowledge.

Ownership

Most condominiums are owned in a “Sociedad Anónima” or corporation and when sold, sellers just transfer the shares, powers of attorney and change the board of directors of the corporation, so they save the cost of property transfer taxes.

So if you cannot see the price a property was sold in the past, how can you do a CMA to find out the real value of your property, and find out what your asking price should be?

The m2 Value Indicator

Sadly enough, many sellers use the m2 (square  meter) value indicator that you can find on many property websites all over the world, in the United States called the square foot value indicator. The m2 value indicator divides the asking price by the amount of square meters of construction in case of a condo, it does the same when the property is a single family home (like the land has no value) but at the same time divides the asking price by the land size (like the construction has no value).

A townhouse in gated community or condo

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Costa Rica real estate price m2 aTake for example this townhouse in a gated community, in Costa Rica also called a condominium. This condominium, with an asking price of $210,000 has 140 m2 construction, which the online system automatically calculates in $1,500/m2.

The land the townhouse is sitting on was not taken into account and the common areas were also not taken into account in this price.

A single family home

This single family home, with an asking price of $380,000 has 300 m2 construction, which leads to a value of $1,266.66/m2 but did not take into account the value of the land.

Costa Rica real estate price m2 bThe land was valued separately at $152/m2, which in turn did not value the construction. In this case, I know the property very well; the price has been lowered by the seller from $450,000 and the house was built around 1978, which would devalue the house 74%, even though it is maintained very well. The property is located in a very nice, middle – high end neighborhood but mixed with modest homes in a low density zoning with certain zoning restrictions.

A luxury home in a gated community

This luxury home is located in one of the most luxury gated communities in Santa Ana, with top of the line amenities.  If you look at the price per m2 land that the system calculated ($617.73) and compare it with the land in the single family home used in the other example ($152), you’ll find the comparison is crazy. Also the cost of construction between the two is like comparing apples and oranges. The gated community has large common areas for leisure, structures for the security guards and entrance and top of the line internal roads.

So what is wrong?

Costa Rica real estate price m2 cThere are several important facts not taken into account when using the m2 value indicator method:

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1.    Location is everything, which makes a huge impact on the value of a property. It’s impossible to compare the land price of a property in Escazu with one in Grecia and another one in San Vito by dividing the asking price by the size of the property, even if the size of the land is exactly the same. Location to certain amenities like a golf course or close to shopping as well as the views the property offers are not taken into account.

2.    The architectural details of a home, especially in a luxury home have a much higher value that the architectural details of a cookie cutter home in a condominium, even if the size of the home is the same.

3.    Structural details such as retainer walls and extra strong foundations, extra amenities like a fence or wall around the property, a swimming pool, horse stables or a home theater are not taken into account.

4.    Some condominiums or gated communities have many more amenities (there is even a difference in the quality of the amenities, like tennis courts or a golf course that make a huge impact on the value of the property.

5.    The construction year of the structure is never taken into account. The value of a new home is the same in this system as a 20 year old home and a 35 year old home that was remodeled 10 years ago. Structures suffer at least 2% devaluation per year.

6.    The prices on websites are asking prices and not fair market values. There is no proof of what properties actually sell for. So the m2 value indicator doesn’t show any more than what a seller wants to ask for his price, which is not based on any expert opinion. You might be trying to compare your property with another one listed at a totally overpriced asking price.

Getting it right

The only way to understand the real value of Costa Rica real estate is with the help of an experience real estate agent who is very active in your area.

 

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FACT CHECK:
We strive for accuracy in its reports. But if you see something that doesn’t look right, send us an email. The Q reviews and updates its content regularly to ensure it’s accuracy.

Ivo Henflinghttps://www.american-european.net
Ivo Henfling, a Dutch expat who has lived in Costa Rica since 1980, founded the American-European Real Estate Group back in 1999 which was the first functioning MLS with affiliate agents from coast to coast. Ivo Henfling can be reached at (506) 2289-5125 / 8834-4515 or at ivo@american-european.net

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