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Puerto Rico
Nov 11, 2014
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Weedy foreclosures, se vende signs everywhere, Homepath bank-owned homes, even in nice
neighborhoods The Puerto Rican real estate market feels like scorched earth. 2008 hit hard,
and housing never really recovered. Of course this is what makes it so interesting.
Puerto Rico may look a bit rough around the edges, but certain areas hold much potential. Big
money, attracted by the Act 20/22 tax incentives, has started to invest. You can see it on the
streets of San Juan in Condado, in Palmas del Mar just outside Humacao, and along the main
drag in Dorado, home of the recently opened Ritz-Carlton Reserve. Seeds of investment have
been planted, news of the incentives is spreading, and more people are coming to check out the
island.
The hubby and I bought a condo on a golf course our first visit out. This was not something we
planned, but after five years of renting, we found just the right place to put our stuff. Plus we
could get lending, and the math made sense. If we didnt end up liking it, we could rent it out
profitably.
The buying process was definitely different here. As a real estate agent in Nevada for six years,
Ive represented clients on 65 closed transactions, with an additional 14 personal transactions
over the years in Nevada and California. I only mention this so you understand Im no stranger to
the process.
That said, its a little wild west down here, so you need to be careful. Here are 14 things we
learned along the way that may help you if youre a mainlander contemplating a property
purchase on the island.
mind, sorry it cant be shown, its coming soon but not available yet And thats if they even
bother to call back. Apparently some local brokers dont pick up their phones or return calls.
So your future home choices in Puerto Rico may depend on which listing agents actually
respond, which have real sellers ready to sell, and who is open for business that day/week/year.
Since theres no MLS association making sure brokers behave by providing reliable, accurate
data, brokers tend to do whatever, resulting in lots of phantom inventory.
4. Comparable sales data is available, but from a different source.
The lack of widespread MLS participation on the island means that comprehensive, comparable
sales data is not available via this affiliation like it is on the mainland. There is, however, a thirdparty data service called TasaMax that bank lenders, mortgage brokers and real estate
professionals subscribe to that fulfills this need. So if you find a property that looks interesting
and want to make an offer, ask one of these professionals to run a comparable sales report for
you.
You can also subscribe to TasaMax as an individual, which is fantastic for those who like to dive
into the numbers and do their own research. Believe me, sellers here have no problem asking
crazy high prices for their beloved properties. You dont want to be the guy that overpays, not
knowing the market, so check comparable sales before making your move.
Also, square footages are approximate, so dont trust anybody on this issue, not even your
friendly, helpful agents. Bring your own tape measure and check it yourself, or better yet, get a
professional appraisal, even if youre paying all cash.
5. Verbal negotiations are done up front, and everybody uses their own purchase contract.
On the west coast where I come from, agents encourage buyers to make offers in writing, then
the parties negotiate from there. The contracts themselves are standardized within the MLS
system based on member input. This enables agent-members to become extremely familiar with
one local, customary contract. They dont need to create a new one every time or worry about a
bunch of unexpected gotchas, because all the agent-members simply customize the boilerplate
purchase agreement for their clients needs.
In Puerto Rico, everything is negotiated verbally before putting it in writing, which in a way is
more efficient. Each broker uses his own standard preferred contract, written to favor whichever
side he represents. So again, its buyer beware, especially if you are working directly with the
listing agent. Because while he may seem friendly and helpful, you must remember that his
fiduciary duty is only to the seller, with whom he signed the listing agreement.
6. Agreements are structured as option contracts, and deposits are bigger.
On the mainland, contracts between buyer and seller are typically structured as purchase
agreements. The buyer puts up a modest bit of earnest money, for example maybe 1-2%,
contingencies are defined, buyer and seller perform during the due diligence period, and if
everything goes according to contract, money changes hands, the deed is conveyed and title
recorded.
Here in Puerto Rico they commonly structure contracts as option agreements. Buyers put up
option money rather than earnest money, and the amount is much larger, traditionally 5%, which
I think is why people do so much verbal negotiation up front as nobody wants to put down that
kind of money with out being absolutely sure about terms.
Option money is deposited with the listing broker into a trust account, which was a little scary
for someone like me used to dealing with escrow companies (they aren't used here). But there is
a department of real estate on the island, and brokers are licensed here, so rest assured, there is
oversight.
7. You simply must have a lawyer, even if you have an agent on your side.
Again, its a bit loosey-goosey down here compared to the states. Given the lack of a
standardized MLS contract, and with everybody doing their own thing, the few hours in attorney
fees you pay to have someone contractually bound to look after your best interests is priceless.
In our case, we were representing ourselves, working directly with the listing agent. We had
verbally agreed on basic terms, she sent her contract (which clearly favored the seller), so we
ended up rewriting it based on what we knew from prior experience. After the initial back-andforth edits, we gave it to our attorney to review, who added some protection for us based on local
consumer law and made it contingent on appraisal, which we had not remembered to add
ourselves.
When the property appraised for 25% less than what we had offered, we were not bound to
continue. This one tiny paragraph many times over covered the few hundred dollars that we
spent for her time. It gave us the option to walk away and the leverage to negotiate a lower price,
which we ultimately did.
8. Mainland lenders don't lend here, despite what their websites may say.
One of the great things about buying in Puerto Rico versus other Latin American countries is that
you can get lending here, so you dont have to pay all cash. We liked this option because it freed
up money for other investments.
Shopping for a lender was bit of an adventure. I called all the Too-Big-to-Fails, my bank, a
bunch of Florida banks, and several well-known regional lenders. Even if their websites included
Puerto Rico in the list of states where they lend, we found it wasnt true. I could not find one that
still lent here, although several did pre-2009.
9. Local lending rates are much higher than on the mainland.
I kept hearing about how money is cheaper on the mainland and that it was best to get it there
and bring it here. We later learned that how people do this is to get a home-equity loan on their
residence in the US for under 4%, then move the cash here to buy. Since we didnt have another
residence or any other large line of credit upon which to draw, this wouldn't work for us, which
meant we had to go with local lenders.
In shopping around, we found rates here to be a good 1-1.75% higher here for conventional
loans. If youre getting a jumbo or have a business banking account relationship already set up,
you can do better, but for man-on-the-street types like us, 5.25% was good, with 5.5% as the
going rate in the summer of 2014.
10. Language barriers may limit your mortgage choices, and banks wont guarantee rates.
Even though English is an official language here, not everyone speaks it with any real mastery.
This is generally fine by us because we want to learn Spanish. But when it comes to borrowing
hundreds of thousands of dollars from a lending institution, we needed to understand all the
terms and conditions, payments and penalties, etc So a fluent, English-speaking loan officer
was a must for us.
We called six local lenders, bumbled through horrible phone systems, talked to some nice people
we could barely understand, and narrowed it down to three good choices based primarily on
language skills. Two had similar rates, so we bid one against another. We ended up choosing the
one who had been recommended, even though they were a tad more expensive, because we just
didnt know the other guy and wasnt sure if he could deliver.
In the states lenders will do a rate lock, so that if you sign up for 5% at the beginning of the
contract, they commit to locking it for 45 days so that you know when the deal is done youre not
paying a higher rate even if rates have gone up.
Here none of them would commit to rate lock, which meant we could be potentially sucked in by
5.25% and be paying 5.75% 45 days later at close. Ultimately that didnt happen, thank
goodness, but it could have, and it added a lot of uncertainty to the entire transaction, because
once you start down the purchase path with a lender, youre pretty much committed unless you
want to forfeit your 5% option.
11.You can get a home inspection, but properties sell as-is.
Properties generally sell as-is, where-is in Puerto Rico. You can ask for seller disclosures, and
theyre supposed to reveal what they know, but theres no standard, detailed form they have to
fill out like what you find back in the states, so its really about what they remember, what they
know and what they think to say.
Fortunately there are licensed home inspectors available, so definitely spend the money to hire
one and make your option agreement contingent on it. Although local buyers dont always ask
for repairs, mainlanders often do, so think of a dollar limit that makes sense, and ask for repairs
if youre worried about it. They may or may not agree, and you may or may not trust them to do
the repairs properly, but you can certainly ask.
Where Im from, final property walkthroughs typically happen 1-3 days before closing. This
gives the buyer a chance to see the property one more time to ensure repairs have been done and
that the property is being delivered as promised.
Here it seems you buy the property first, then the seller takes you through and gives you the keys
right after closing. At least that was our experience. For me it was a little unnerving not being
able to check for issues prior to close. When I arrived at the property, the seller's husband was
clearing out the last few things with their housekeeper working frantically to finish up. Inevitably
there were little surprises, but it was also good to have them both personally take me through the
house to show me how it all works, with the ins and outs of maintenance highlighted along the
way.
We were fortunate that our sellers turned out to be such nice people willing to help with post-sale
questions. Weve since met them for dinner in San Juan, offloaded furniture to their family, and
count them among our new friends here on the island. Both listing agents were also helpful,
proactive and professional. Our attorney was fantastic. The banking team did a good job, we just
had to get used to how things are done here. Everything takes more time.
This was just our experience. Others who've moved here may have different stories to tell. The
important thing is to network, reach out and ask for help. If you need help selecting a real estate
professional on the island, please contact me. There are some stellar individuals here, you only
want the best.