Wednesday, June 06, 2012
Over the weekend, I read an article for travelers on how to avoid paying gringo prices. The writer advised those coming to Latin America to never get in a taxi without a functioning meter.
Now, that sounds like sensible advice. But if I followed his maxim, I’d never travel anywhere. You see, taxis in Panama don’t have meters. Since I don’t have a car, if I waited for a metered taxi in Panama (and many other places in Latin America) I’d never leave home, except on foot.
Yet I still don’t pay those gringo prices for taxis in Panama, metered or not.
Why? Because I’ve taken thousands of taxi rides in Panama, and I know what they’re worth. I know the zones, and I’m familiar with the regulations that govern taxi fares. I’ve got local knowledge.
We know that tourists usually end up paying more than locals for the same things. Taxi fares, for one. It’s not just North Americans who fall victim. A Panamanian visiting Nicaragua is a foreign tourist. A Mexican from Puebla traveling to Puerto Vallarta is also a tourist. We all start off in the tourist zones, where the locals know we’re a tourist - and that they can charge us more. That’s because we don’t know how much the locals pay for a taxi from A to B, or a fish supper, or a hotel room. When we lack this local knowledge, we pay a premium.
It’s the same in the world of real estate. If you don’t know the fair market value for property, you risk paying substantially more than you should. But without easy access to selling prices (usually kept private between buyer and seller in Latin America) or an MLS, how can you figure out fair market value?
Thing is, you can. It just involves some homework. It starts with research. Spend time on local property websites and check out the classifieds section in local newspapers. Ask everyone you come across about real estate pricing - your barman, your tour guide, your taxi driver.
If you have a local attorney, they can help enormously if they handled recent sales in the area you’re looking in. It’s worth talking to local banks, too. Find out their ceiling for property loans in different neighborhoods, and if that has gone up or down significantly in the last 3-4 years; that will give you an idea of the current market and if it’s on its way up - or down.
Look at as many properties as possible. Sometimes sellers aren’t deliberately over-pricing their property. They simply don’t have a realistic idea of how much it’s worth. Either will you, if you only see a handful of homes.
If you get your broker to send you property listings based on your budget and preferences, you can make a shortlist of ones to view. That way, you’ll maximize your time and see as many similar properties as possible.
Using more than one broker helps too. With no MLS, two brokers in the same district will often have a completely different set of listings. Plus, you’ll get different takes on the local property market from different brokers.
Compare apples with apples - pre-construction with pre-construction, condos with condos, ocean-view houses with other ocean-view houses. You need meaningful comps. There’s a world of difference between a 10-year-old condo with a tired kitchen and a glimpse of the sea and a brand new condo with wide ocean views in a building with a ton of amenities.
Find a motivated seller rather than one that’s dreaming of cashing in. I see properties listed way over fair market value by owners who don’t really want to sell. But they will - if a sucker comes along and pays them their inflated asking price. Pay attention if you’re dealing with a family or a group of owners. Owners in a group that want to sell will sometimes push the asking price up, to persuade reluctant group members to go along with the sale.
A motivated seller needs out. They might want cash to pump into another property, or a business venture; they may simply want to move to another home. They’re more likely to price their property realistically. They want it to sell as quickly as possible. They’re also more likely to negotiate to close the sale.
Don’t take sales data at face value. If the seller tells you that the identical piece of land next door sold for $10,000 more three months ago, ask for hard evidence. Sometimes it’s true - sometimes not. Check that a sale took place, too, rather than an option. With options, a buyer promises to purchase the property at a later date for more than the current market value. Often very small sums secure the option, as little as $5,000 - and the sale never closes. An inflated option value isn’t the current fair market value.
Not paying over market value boils down to one thing: local knowledge. The more time you spend in the place where you’re buying a second home or investment property, the more you’ll find out about the local market. You’ll figure out the best brokers, the best locations, and sort the genuine hot deals from the hype.
Best of all, you’ll build up your own knowledge on local market values. You’ll figure out fair market value on the property you want and close the deal - without paying gringo prices.
P.S. Here’s an easy way to get a feel for local property markets - on a Pathfinder chill weekend. These short trips are subsidized by the developers and brokers we work with. You get a mini-vacation - and the chance to investigate property - and they pick up a chunk of the bill. A four-day trip in a Caribbean resort only costs $180, for example. Find out more about chill weekends and property tours here.