When buying property in Costa Rica, one of the most important questions for a foreign buyer is: who holds the money during the transaction?
In a properly structured transaction, the buyer does not necessarily have to send the purchase funds directly to the seller. An escrow arrangement can place the money with a neutral third party that holds and releases the funds according to agreed conditions.
This structure can be particularly useful for international buyers who are purchasing property remotely and want additional protection while completing due diligence and closing.
Who Holds Buyer Funds in a Costa Rica Property Transaction?
The answer depends on the structure of the transaction.
A buyer may provide a deposit directly under the terms of a purchase agreement, but an escrow company can instead hold the funds until predetermined conditions are satisfied.
In a typical property purchase escrow in Costa Rica, there are three main participants:
- Buyer: Provides the purchase funds.
- Seller: Transfers the property according to the agreement.
- Escrow agent: Holds and administers the funds according to written instructions.
Alliance International Services describes this structure as a process where the buyer deposits funds into an escrow account, requirements are verified, and the money is released once the agreed conditions have been satisfied.
What Is an Escrow Company?
An escrow company is a third party that holds funds during a transaction and releases them according to specific instructions.
The purpose is to separate the buyer’s money from the seller’s control until the transaction reaches the agreed stage.
For international real estate purchases, escrow can be particularly useful because the buyer and seller may be located in different countries and may not have an established financial relationship.
Is Escrow a Neutral Third Party?
An escrow provider is intended to act according to the terms established in the escrow agreement rather than simply giving the funds to whichever party requests them.
The agreement should clearly establish:
- Who deposits the funds
- Who receives the funds
- Conditions for release
- Required documents
- Authorization procedures
- What happens if the transaction is cancelled
- Procedures for returning funds
The exact legal structure and responsibilities should be reviewed before funds are deposited.
Does the Seller Hold the Deposit?
Not necessarily.
A deposit can be structured in different ways depending on the purchase agreement. When an escrow arrangement is used, the deposit can be held by the escrow provider instead of being transferred directly to the seller.
This can give the buyer additional control and transparency because the money remains subject to the agreed escrow instructions.
Alliance International Services offers escrow account services specifically for situations where a buyer has funds abroad and needs an impartial third party to facilitate payment during a transaction.
Can a Lawyer Hold the Purchase Funds?
The answer depends on the lawyer’s role, the transaction structure, and applicable professional and financial rules.
Buyers should not assume that an attorney’s client account is automatically equivalent to an independent escrow account.
Before transferring funds, confirm:
- Who legally controls the account.
- What type of account is being used.
- Under what conditions funds can be released.
- Who authorizes the release.
- What happens if the purchase does not close.
For significant international transactions, buyers should understand the difference between legal representation and independent escrow administration.
Who Authorizes the Release of Escrow Funds?
The release should be governed by the written escrow agreement.
Depending on the transaction, release may require evidence that specific conditions have been fulfilled, such as:
- Completion of the purchase
- Execution of closing documents
- Confirmation of the transfer
- Satisfaction of contractual conditions
- Written authorization required under the escrow instructions
The escrow provider should not simply release funds based on an informal request from the buyer, seller, broker, or another participant when the agreement requires additional documentation or authorization.
What Happens if the Transaction Fails?
This is one of the most important questions to ask before depositing money.
If a transaction fails, the answer depends on the purchase agreement and escrow instructions.
Possible outcomes include:
- Returning funds to the buyer
- Releasing funds to the seller if contractual conditions require it
- Holding funds while a dispute is resolved
- Following a specific dispute-resolution procedure
The escrow agreement should explain what happens before money is deposited—not after a dispute occurs.
How Does Escrow Protect Buyers?
Escrow can provide several practical benefits:
Separation of Funds
The buyer’s money is held separately from the seller until the agreed conditions are met.
Clear Release Conditions
The parties know in advance what must happen before the funds can be released.
Transaction Transparency
The movement and release of funds can be documented throughout the transaction.
Reduced Payment Risk
A buyer does not necessarily have to transfer the entire purchase price directly to the seller before closing.
Alliance International Services provides fiduciary and escrow-related services in Costa Rica, including escrow accounts and trust structures designed for different transaction needs. Their services include escrow account services and trust solutions for real estate transactions.
You can also learn more about Alliance International Services and its approach to escrow and fiduciary services in Costa Rica.
What Should Buyers Verify Before Depositing Money?
Before using a third-party real estate funds Costa Rica arrangement, buyers should verify the escrow provider and understand the contractual structure.
Ask:
- Who owns the escrow account?
- Who administers the funds?
- What documentation is required?
- When can funds be released?
- What happens if the transaction fails?
- What fees apply?
- What happens if buyer and seller disagree?
Costa Rica’s financial regulator, SUGEF, provides information about entities and activities subject to applicable registration and anti-money-laundering requirements. Importantly, SUGEF itself states that registration of certain designated non-financial activities does not constitute authorization to operate or a guarantee of the business’s solvency or security.
Therefore, buyers should independently evaluate the provider, its contractual terms, and the specific escrow arrangement.
How Does Escrow Fit Into a Costa Rica Property Closing?
Escrow is only one part of a safe real estate transaction.
A buyer should still complete legal due diligence before committing significant funds. This can include verifying the property title, registered owner, liens, cadastral information, taxes, permits, and other applicable restrictions.
The Registro Nacional de Costa Rica provides official digital registry services for property-related information and certifications.
A legal professional can review the property and purchase agreement, while the escrow provider manages funds according to the agreed instructions.
Frequently Asked Questions
Who holds funds when buying property in Costa Rica?
If an escrow arrangement is used, an escrow provider holds the buyer’s funds according to written instructions until the conditions for release are satisfied.
Who holds the money in a property transaction?
It depends on the transaction. Funds may be held by the buyer, seller, attorney, fiduciary, or escrow provider. Buyers should confirm the exact structure before transferring money.
Does the seller hold the deposit?
Not necessarily. A deposit can be placed with an escrow provider instead of being paid directly to the seller.
What is an escrow company?
An escrow company is a third party that holds and administers transaction funds according to predetermined contractual conditions.
Who authorizes the release of funds?
The escrow agreement determines the release procedure. The provider should release funds only when the required conditions and documentation have been satisfied.
What happens if the transaction fails?
The escrow agreement and purchase contract should determine what happens to the money. Depending on the circumstances, funds may be returned, held pending resolution, or released according to contractual provisions.
