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Regulated Realtors? Oh My!

By A Former Realtor

Delsurnewsonline.com recently posted an article which can be read in detail at http://delsurnewsonline.com/alert-to-all-real-estate-brokers-and-agents/ concerning realtors and brokers having to register with a government agency.

Quoting from the article:

“As of March 07, 2016 you have 30 days to register before the Financial Analysis Unit (UAF). UAF is a Nicaraguan government agency which was created as part of the commitments that Nicaragua has with GAFIC (Grupo de Accion Financiera del Caribe), UN and the Organisation of American States in the fight against international organized crime. It is autonomous (operatively, administratively, technically, etc.) and it has the duty to analyse financial, accounting and legal information in the fight against money laundering activities carried out by organised crime.”

This is very interesting news and no one knows what effect it will have on Nica realtors and brokers or the sales process in general. And being Nicaragua it may be years before the real regulations get put in place. Since they mention money laundering, obviously the registration of realtors is only the first step. Will realtors have to start reporting to the government all sales as per the full amount on the sales contract with detailed information on the buyers and sellers? No one knows at this point but sure looks like it may go in that direction.

Selling real estate in Nicaragua has always been a little different. Different realtors do it differently and there is no licensing of realtors though major chains like ReMax do have standards that their employees are supposed to follow. Most real estate sales only have the one realtor and usually one lawyer involved. In the states there would be a listing agent and a selling agent so there is a little more protection. To new expats I usually recommend finding a good realtor and lawyer to help them because it is more important here to ensure the title history is researched and a good realtor and lawyer knows what is going on in their respective sales area. Amazingly, since many expats are out of the country at the time of the closing, the buyer often gives power of attorney to the realtor. To be sure, some expats work a deal directly with a seller but the odds of ownership issues are much higher. Many would argue with that but there are so many stories of deals that went bad because the expat thought he/she knew more than the realtor, the lawyer or the seller.

In a real estate transaction here, everything is negotiable. The seller is supposed to pay the transfer tax since it is really a capital gains tax and the government knows you probably will not report the income gain. The sales contract would show the total sales price since the realtor and lawyer fees would be based on the true sales price. A lower symbolic value is usually on the deed itself which keeps the transfer tax (sometimes) and the annual property taxes down. This is not that unusual since even in the states, some townships have high tax rates but only on a percentage of the home value.

Again, in reality, everything is negotiable. It is not that uncommon to see a seller sell a home on the condition that the buyer pays all selling costs. Some would argue the buyer should pay the realtor commission while others argue the realtor actually works more for the seller so he/she should pay the commission. That is the problem with just using one realtor so ensure all these details are covered in the sales contract to avoid surprises at the closing.

One of the biggest issues is that all costs are not known at the time of the closing. At the closing you receive the testimonio but it may be several months before the deed is registered and then you will know the costs of the transfer tax, registration and other misc fees. A good honest lawyer is very important.

Buying in a development had more problems than buying an individual parcel but most of the incompetent (to use a kind term) developers have now been run out of town. The developers should have been regulated more so than the realtors since they were the ones promising golf courses, beautiful homes, water & electricity to the lot etc. and many never delivered. Homes would take years to build if ever. But things are much better now but do your due diligence and talk to other owners or investors. Two major developments remain in serious trouble but everyone in Nicaragua should now be aware of them. Hopefully they will clean up their act or just go away.

So the registration of realtors remains a mystery on what it will entail but it does have the potential to be good for the buyers by strengthening the good solid realtors and removing the ones who were ripping people off. It all depends on how the Nicaraguan government approaches the issue.

A few years ago the USA IRS starting putting pressure on the Nica banks to report the transactions of USA citizens with accounts here. I thought the Nica banks would tell the IRS to go fly a kite but they knuckled under. This caused the banks to pressure lawyers to put the true sales price of the real estate transaction on the legal documents. Previously, someone would sell a property for $100,000 but the documents would show a symbolic value of $20,000. So the seller would show up at the bank with a document of $20,000 but making a deposit of $100,000 and the IRS would have none of that. Some buyers would show the true value but then they would be paying a property tax many times higher than their neighbors who bought before the new regulations.  Some cities saw this as an opportunity for greater taxation amounts but much of the allure of  Nicaragua is the low cost of living and high property taxes scares away expats not to mention the effect on resales. This is a dilemma but easily solved if the government treats everyone fairly.

Which brings us back to the registration of realtors. It is something we knew was coming eventually and it has the potential of being beneficial to buyers and realtors. Many would disagree but how long did we think such a large industry would go unregulated? It may take years to put the regulations in place but the models already exist in the states, Europe and most other countries so it is not necessary to reinvent the wheel.

I suspect realtors will be facing a lot more documentation and regulation soon but Nicaragua needs a true MLS listing service to bring order to the valuation of property and allow comparison of properties. Perhaps this will lead to more reasonable bank mortgages though Nica banks weathered the economic storms of 2008 better than most countries.

Let’s see what happens and how much teeth will be put in the regulations. It is a shame that the realtors, buyers and sellers have to pay the price for the very small minority of corrupt companies dealing in money laundering.

 

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