How to buy property on Roatan
Or Chas's blunt guide to what you need to know!
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The changing situation that is Roatan
Ah COVID how you have changed our lives. The world is a different place than it was a few years ago. Once people were allowed to travel after being locked down in their own homes they descended on Roatan like a swarm of locusts and purchased the majority of the inventory on the island. Clearing out years of old and new stock. There is nothing like being held hostage in your own home to make you realize you are either missing out on the best years of your life or you want to be somewhere you don't mind being trapped if that happens again.
Add to that the worsening economic situation around the world for a myriad of reasons. (No political pundits, no one leader or political party is behind this. Inflation is worldwide.) We have gone from below 1-2% being the norm in the first world to a current rate of 8%. Cash in bank accounts is being devalued as I type, interest rates are rising and what I said last week is no longer true this week. Property is king and you can't get free money anymore. I remember a time when mortgage rates were 17% so you better have them all fixed by now. :)
This will lead to several outcomes over the next few years. Property prices in Roatan are most likely to rise as money costs more to borrow and cash will lose its value. Our general lack of inventory will also probably contribute to a rise in prices as more people compete for fewer places. Finally, expect a massive surge in development as the mainland and foreign developers see a great opportunity to develop and sell properties on Roatan. Any realtor who has been here can feel the difference. This is the first year I have said this to a client.
"I think we need to put an offer in today if you want that place."
I feel like a car salesperson not letting you off the lot until you buy something from me. It is disconcerting but true. We have well-constructed new apartment complexes being built with all the apartments being sold before they are finished. I have seen competitive offers on one property. It is a different place than it was a year or two ago.
Can I legally own land in Honduras?
Yes, a foreigner may own up to 3000 square meters which is approximately ¾ of an acre if you are from the USA. If you wish to purchase property over that limit a Honduran Corporation must be formed to purchase the property. It is initially formed by a Honduran citizen. That corporation is then transferred to you and the corporation purchases the property.
Can I buy direct? Should I use an Agent?
Honduras works much like other countries with real estate transactions. Yes, you can buy direct, any property that is NOT listed with a Roatan Realty Association (RRA) agent, but you better know what you are doing! Have a lawyer you trust totally and be able to read Spanish. Anyone can be an agent in Honduras you just have to pay a fee to the government but only agents in The RRA was formed to provide a set of guarantees to buyers and sellers that they were dealing with ethical agents and brokers. Any unethical behavior can result in your expulsion from the RRA. This means you cannot access the property listings and the buyer/seller who works with you knows there is no one looking over your shoulder to see that you act ethically and legally. The RRA will not let the property be listed that has not been proven to be owned by the seller, and all documents are up today and in legal order. That there are no liens, problems, or issues with the property that would in any way hinder or affect the sale.
If you have a none RRA agent when you are buying a property then there is nothing to stop these agents from acting in an unethical manner. The RRA has very strict ethical professional guidelines and so if a member does something that is not in the best interests of the client, adds extra fees or kickbacks, or is unprofessional in any way they risk being brought up on violations and ultimately losing membership of the RRA. Also when dealing with know names such as REMAX you know their agents have an international reputation you can depend on.
Should I buy in my name or Honduran Corporation?
It is slightly more expensive to purchase with a corporation but I generally advise people do it regardless of the size of the property. You have to pay for the cost of incorporation. There are several advantages. No one knows who the shareholders are of the corporation. Second in the unfortunate case of the corp owners dying then a letter can be left in the care of an Attorney transferring the corp directly to another party. Immediate relatives etc. Without this, your property will have to go through probate and you should have a Honduran will as foreign wills are not recognized here. The probate is not the most comprehensive legal process and property can often go to the first relative that stakes a claim on the property.
Why should I choose you as an Agent Chas Watkins?
Who am I? I have now spent 17 years on the island so I know it well. I have worked in sales and been a sales manager in the USA and Australia. I have started multiple companies and been involved in technology in Silicon Valley. I have been a life coach. Even written an award-winning scientific/philosophical book with thoughts on how to live life. A book which is based on Roatan called "To Hold The Sun".
I am a buyers-only agent. That means I have no listings. My job is simple to find the ideal property for you at the best price you can get it. It makes no difference to me as to who is selling it. So you know my only interest is making sure you are happy.
I believe we all have subconscious leanings and it is impossible to be impartial if you are a listing agent. You make more money if you sell one of the houses you list so unconscious or not they prefer to sell their listings. Some agents feel they can act for both sides by adopting a stance of fiducial duty or impartiality but that in my mind makes them just a transaction agents trying to get the deal done. Being honest and open with both parties and not getting the best possible deal for the buyer.
Also If we can't find what you are looking for on the MLS. I can also find approach property owners on your behalf that are not on the MLS. If we can't find what you want immediately. I will set you up with notifications so that if anything new comes up you are notified on a regular basis.
Is that the only reason you are only a buyer's agent?
No, I came here just like you to live a fun and interesting life on a beautiful island. I enjoy showing people around and sharing it with new people. Being a buyers agent means I can plan my time better, travel, and even do some writing. I never said I was a saint just that doing the best for you is also doing the best for me.
How do I look at property while I am not there?
The RRA runs the MLS which lists almost all the properties on the island. Land, Houses, business, and resorts. I have my site set up to quickly help you locate properties on the MLS just go to www.LifeOnRoatan.com The site works better if you create your own login that way you can save listings and searches that you are interested in and check them out later.
It also has a button for the properties on the island that I find the most interesting or best value at the moment as well as an analysis of sales over the last few months. My site contains lots of information from how to move to the island all the way to details on becoming a resident if that is a good idea.
I am planning a trip and want to see properties!
Neither of us wants to waste your time going to properties that do not fit what you are looking for so I like to have multiple phone meetings before you arrive. During these calls, I will get to know your desires and answer any questions you have about particular properties. If you have never been to Roatan I can help you understand the different areas and the lifestyles that go with them. Is safety your primary concern? Do you want to be near the nightlife, restaurants, and bars? Do you want to be alone on a stretch of deserted beach? I will help you drill down to a shortlist of available properties. Then by the time your trip arrives, we will have a shortlist of your favorites. They could be all over the island which is not important as I like to give people if they have time, a full tour of the island so they get a good general overview.
I hear inventory is low and it is difficult to see some properties.
Yes, we have very low inventory at the moment. In all my years I have not seen properties selling so quickly and now at near asking price and in one case over asking price. COVID changed people's mindsets and after the countries started opening up we had a rush of people deciding they wanted to start living a new kind of life now.
So while properties here would often be overpriced and sit for months if not years before now sometimes they don't even make it to the MLS before they are sold. Prices are rising and there are a lot of new developments on the island.
To see properties we generally have to give 24 hours notice. It is not like the USA where you leave your house with a lock box and it smells of freshly made chocolate cookies. Here properties often have tourists on vacation in them. As you can imagine they are not always happy about an agent and buyers in tow inspecting the property and all their clothes that are casually thrown around their vacation rental. So even 24 hours' notice does not mean a property can be viewed. The worst time to come to look for property is Easter which is the biggest holiday of the year and every place is full and no one wants to let you in the best time is the rainy season when it is cool and for some reason, people don't come. The weather is beautiful that time of year when it is not raining LOL
I have found a property and I want to buy it. What now?
First, forget how it is done in your country. Again this is where the RRA agent is useful. First, if the property is listed on the MLS we know that the property is legally owned by the person trying to sell it and that the broker has all the documents needed for transfer. If you use a non-RRA agent you might wait a long time while your lawyer checks and ratifies all the documents.
Secondly, we have standard contracts that protect both the buyer and the seller. These contracts specify very clearly in English what needs to be provided by each party and by when. Especially with regard to Honduran legal documentation.
In the USA (depending on the particular area) it is normal to make an offer, do a house inspection and then come up with a punch list of things that need to be done before the offer becomes valid. Both parties have to agree on the work being done or a discount or for the list to be refused.
Here the house is bought "as is" which means that you have no recourse after the deal is signed. It is pretty normal for no inspection to be done. You can list the conditions that you require an inspection to be done which you, the buyer, will have to pay for and I know some good inspectors to recommend. This will probably be in the region of $500 but obviously, it depends on the size and complexity of the property.
I will read through the contract with you to make sure you understand exactly what you are signing but in essence, you make the offer you want to make on the property and give the owners a couple of days to agree or make a counteroffer. Offer pricing here is a bit of an art form here. There is no Zillow or equivalent so you can know what the house next door sold for and know exactly what the market thinks it is worth. Most houses are individually designed and built. One person's dream house is another's nightmare and visa versa. This is where your agent's local knowledge really comes into play, I know I have saved people a lot of money on their offers. If your agent is also the seller they have to be perfectly impartial and therefore not helping either of you really.
Once you have decided on a price and it has been agreed upon by the seller. All conditions have been satisfied and the contract has all necessary signatures on it. Then you are in contract. You as a buyer now have a set time usually about 5 business days to get a deposit sent by international wire which is 10% of the agreed price. The money is sent to the seller's broker and this is very important to understand because unless there is a blatant breach of the contract you are not getting the 10% back as it is non-refundable.
You as the buyer get to choose the lawyer and that price and all associated government fees you have to pay. The seller pays all commission on the sale of the property. The buyers' part generally adds up to about 6 to 6.5% of the total price. So when you make the offer you need to understand that each 100K will cost you 106.5K. As I said the choice of a lawyer is up to you but obviously I have my preferences and they are generally because I have worked with them many times and know them to be meticulous, trustworthy, and competent. As an aside here there are two different kinds of lawyers in Honduras. Your normal one and notaries. Notaries are not like the notaries in other countries where anyone can be one. A notary in Honduras is a lawyer that has presented themselves to the supreme court of Honduras and been questioned on any point of law they feel like asking. If they pass they are the most senior lawyers in the land and a bit like walking judges. Every final real estate transfer must be witnessed by a notary to make it legal.
The closing process
Depending on a variety of factors the actual time to close from the acceptance of the offer can be anywhere from 30 to 90 days. I generally put "90 days or before by both parties' agreement" on my offers. If you put less then you need to get all parties to sign extensions which can be a pain if the seller has got cold feet for some reason. Lots of things can stretch out the close. Vacations are a big one. Nothing happens during Semana Santa or Christmas. During this time the lawyers and brokers rush around doing all the back-end legal process, making sure everything is in order. If the land has not had a survey done in the last year the municipal will have to come out and check it. This is very important as what they say determines what you are actually buying. If everything is in order the lawyer will draw up the contract in Spanish and provide you with an English translation.
The final monies for the close must be sent a full week before a close. You don't want a deal to fall apart because of a wiring issue. As your agent, my brokerage i.e. REMAX holds the money in our escrow account. The actual closing is usually very fast. All parties or their representatives need to be present. If you can't be present you have to give legal right for someone to sign on your behalf through a "Power of Attorney" for someone to sign for you. I have done many of these for my clients. Sometimes though they can be a pain to create depending on what country you live in yet another reason for the 90-day period. The notary reads through the contract so that everyone understands what they are signing. One thumbprint and signature later and it is all done. The keys are yours.
Taxes, Utilities, HOA, etc.
REMAX makes sure that all bills, taxes HOA fees, etc. are paid and prorated up to the day of close. You are then responsible for all bills from that day going forward. We will help you change the electricity to your name and help with any other issues you have. Property taxes going forward will be about 0.4% of the total price per year. Often the Municipality needs money and will give you discounts for paying in advance.
Honduras is a cash market. Generally, people want it all at the close. Sometimes though for full-price offers they may consider some short-term private financing at 5 to 10%. Usually only for 1 or two years though. I strongly advise my clients not to do this unless they are absolutely sure that the money will be paid long before the time period is up. It is easy to get the property back if you don't pay and everything you paid for will be lost. You will get nothing back. I know one particular hotel that was not selling so even though he didn't want to he offered the hotel for a large deposit and terms over several years. He has now collected three deposits from careless buyers and has made more from the reselling than he would from just selling it for cash.
The New World - New Construction
One aspect has shifted dramatically in the last year and that is new construction. Due to our lack of inventory and the influx of capable builders from the mainland we have a lot of small apartment complexes being built with 2-8 apartments in each complex. They are often 1 to 2-bedroom modern units, delivered with the necessities installed such as a stove, fridge, and ACs. Some with views, and good locations and are priced attractively in the 100 to 200K range.
These apartments are often sold out before the whole building is finished or ready to be delivered. A new way of doing business has grown up around them based on the Promesa de Venta. The Promesa or promise to buy is a completely binding legal contract saying that the seller is bound by law to sell you the property once certain obligations are fulfilled. It is an iron-tight contract and the holder of a Promesa is often just thought of as the owner in most dealings.
So this is how it is generally handled. You are shown an apartment and taken through a walk of it in its unfinished state with maybe weeks or months to go to completion. You also may be shown an equivalent unit that is finished so the final fittings and furnishings can be displayed. If you like it and you know the other unfinished units have already been sold then you know that you need to act fast to buy it.
You are buying "off plan" as they say so you are already buying at a discount to the price it will be sold once it is finished. There may be a little wiggle room in the price but not much. You may also like some minor changes done in the finishings that may or may not affect the cost of the final fit-out.
Your agent will draw up a contract that is structured generally in the following manner.
First your offer price and any changes you would like.
Remember if it is not a full-price offer with no conditions then the owner is at liberty to reject it. The offer will have a date for the signing of the Promesa de Venta which should be the time the unit is to be completed.
The payment may be structured as follows.
The normal 10% down within a few days to lock in the contract.
Then when the unit is completed there will be a signing of a Promesa de Venta which states that you can move in and take occupancy and you will pay 40%. (bringing your payment up to 50%) At this point, the commissions will be paid and you start your life in your unit.
The final 50% and the full close where the title changes hands will happen as soon as the municipal has all the paperwork ready for the titles for the apartments. This is simply because the slow-moving municipal can't keep up with the fast construction. Once all the paperwork is complete and stamped you will be informed and to complete your part of the Promesa the final 50% must arrive within a few days. At which point the Notary oversees the final close and you will become full owners and receive the title when the municipal issues it. Hopefully sometime within the next year.
It is a very simple process and allows both the owner to move in at the first opportunity and the seller/builder to collect money to continue his work and maybe start his next project.