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Market Appraisal is Sure Cure for Blue Sky Syndrome

by Garland M Baker on October 29, 2007

Today many property owners seem to be drunk on blue sky.

Blue sky is not a brand of guaro — an alcohol derived from pure sugar cane — or other intoxicating beverage, but an addiction to the recent skyrocketing real estate prices. Most are familiar with the term. It means the intangible portion of a price above what is reasonably supported by the current market.

Those with real estate training use the term to represent the difference between the price a seller puts on their property and what the market probably will bear in price.

Sellers can be found sitting on out-of-the-way properties counting imaginary dollars, drunk on “blue sky” waiting for a movie star or Arab prince to come along and pay an outrageous price for their land.

It seems many expats are on a blue sky high, and some of them are killing themselves waiting for their dream to become a reality. Many are land poor — meaning they own land but lack the capital to improve or maintain it. Some are literally starving to death because they have no income. Other expats have lost all their money in one or another investment scam over the years and all they have left is their land.

Blue sky is deadly for those who want to transform the status of their property from “for sale” to “sold.” Like a princess-in-waiting from a lack of suitors, over-priced properties sit lonely, isolated from potential buyers because unobtainable prices create a lack of enthusiasm in the market.

A real estate agent can help bring property prices and owners down to earth — or they can be the culprit, enabling the drunken seller to stay inebriated on blue sky. Many real estate agents share the same affliction as property sellers. Some of them are still working illegally here, waiting for a big commission before scooting out of town.

There are responsible real estate people in Costa Rica and a good real estate agent, or a smart buyer, can bring a seller down from his blue sky high.

One cure is a dose of reality from an independent property market appraisal. A property market appraisal is different from a property appraisal.

The meat of a property appraisal in other parts of the world is the sales comparative or sales comp. A real estate sale creates this number. When a property changes from a caterpillar to a butterfly — from “for sale” to “sold” — it leaves behind the sale comp, usually in some form of public record. Verified sales comparatives are almost impossible to find in Costa Rica.

Why are there no verifiable sales comps to be found here? The answer: People do not want to pay property taxes based on the actual sales prices. Most buyers usually pay a much higher amount for a property then they declare in the transfer deed.

Without accurate sales prices, how does one find anything that resembles a sales comparative? Most do not find them.

The best way to determine the probable selling price is to use a property market appraisal.

In Costa Rica, a market appraisal is more than a stroll around the neighborhood and a check of the local multiple listing services. It is a document that defines a micro-market, the immediate area in which the property is located, and compares it to a macro-market, the extended area in which the property is located to determine where buyers are most likely to invest their money, place their property bets. It can be part marketing plan, part property appraisal.

A real estate expert representing the seller should ask a property owner, “Do you want to be a seller — or do you want to sell?” If the owner prefers to sell, the real estate expert should promote the use of a property market appraisal to define the market and price for the seller. When the agent is working for a buyer, the market appraisal is an excellent foundation on which to formulate an offer.

An independent and neutral third-party market appraisal in Costa Rica offers focus in a sometimes hard to define market. Saying “goodbye” to blue sky and “hello” to a property sale turns equity into cash.

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