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Home and Land Prices in Chile
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Real Estate Articles in Chile, South America
chile house prices Pricing a home in Chile or real estate in Chile is a bit different from other places in the World. In fact, trying to put a fair market value on any property, home, or real estate in Chile is really really different from other locations in Latin America, South America, and the World. Thus, it is one of the most confusing things for our clients considering buying property in Chile. We take a look at what you need to consider when trying to determine the fair market value of houses in Chile and properties in general. As this is a complex subject, we will try to at least outline the basics of the problem in Chile and the cultural phenomena behind it.
keyIn talking about the price of homes or real estate in Chile, we are going to ignore a couple special situations and locations for the most part in this article. We want to focus here on the stand alone single family home.

The first situation we are going to ignore are the track homes in Chile. These would be developments by major construction companies in Chile and their artificial communities. In our experience, most foreigners are simply not interested in these sorts of communities. In Chile they tend to be developments of up to a 1,000 homes at a time that are exact copies with no variation what so ever from house to house. The price is the price on these, and there are a thousand more just like them next door. Figuring out what they are worth is not hard. If one house has a problem, chances are they all have it.

Second thing we are going to ignore are pricing of houses and apartments in the major cities of the central region of Chile, such as Santiago, Vina Del Mar, and so on. These big metropolitan cities tend to for the most part follow the rules you would find any where in the World, and there are lots of similar properties for sale and a mature real estate market to sell them with a more or less fixed market price.

House Price vs. Property Price in Chile

When considering a home for purchase in Chile, the first thing you need to do is separate the raw property value from the house value. As counter intuitive as it may seem, many times any structure on a property in Chile will more than double the asking price over the cost of what building a similar or even better building on the same property would cost. This is not always true, but it is very common as you move out from the Metropolitan and Central regions of Chile towards more rural areas such as exist in Southern Chile. Towards the end of the article, we will explain a bit of why we believe this is such a common cultural phenomena in Chile.

A good starting point is to look at similar raw land in an area, even if you only wish to buy an existing house in Chile. What does that empty lot next door cost? Look at several lots or parcels to get an idea of what the land is worth.

Chile Real Estate Tip 1:
Whenever looking at advertising in the Chilean papers pay attention to how they order the advertising. Do they say 'house with land', or 'land with house' in the advertising? This is an important clue as to what the seller views as more valuable. Sometimes, houses will be so poor that the seller will not even mention until you are on the property that there is a house. If the land comes first, chances are that is what is being sold.


Social Class Perception in Chile

The reason why checking the raw land values is so important in Chile is to get a feel for what the area is valued at apart from the structure. In Chile, because of complex social histories, two intrinsically equal properties with a comparable house on it can be as much as five times the price or more simply because of social perception of class status. We are not even talking about places that are somehow ghettos or dangerous or run down; simply perceived to be for the lower class or upper class in Chile.

The irony is that sometimes they are not even correct. For example, an area where the upper class or rich of Chile sold their property years before, and the lower to middle class continue to buy in to as the area is perceived among Chileans to be a desirable place to live. For example, owning property in the area around Pucon is often viewed by middle to lower economic classes as proof of their new affluence, even though very few of Chile's old money still owns property there.

Also perception of a mature domestic tourism industry in Chile can play a role in what Chileans view as valuable. Chileans will hold certain areas as being valuable because it is a tourism destination. A foreigner will simply see a tourist trap, and not something you would want to live near.

As a foreigner, you may simply not care about anything other than the house is half the price. Often, what Chileans perceive as the most valuable land and locations in Chile, are from an international perspective some of the most worthless properties.

An example might help better understand the cultural difference at play. Los condes in Santiago ( O.K., just one example ) for example is considered one of the most exclusive places to live by Chileans, especially on the hillsides near the mountains overlooking Santiago. Unfortunately, this is also where all the smog and pollution of Santiago settles in the late afternoon and gets trapped by the mountains. So you neither have a view of the city nor clean air to breath; yet, this is where some of the most expensive homes in Chile are built.

House vs. House in Chile


In the Chilean real estate market often two houses right next door to each other will be like Apples and Oranges; yet, the sellers will view their house as being of equal value to the house next door even if their house is inferior. Does this make sense? No! Again, an explanation will follow shortly.

Home Construction Standards

You must also consider that many homes and buildings in Chile will not meet national Chilean building code. In fact, in rural areas it is common to find buildings that are built illegally as the building permit was never requested. Building permits and code inspection are left to the municipalities in Chile, and depending on their budget may or not be enforced in any given area. The building permits are good things to check on any existing construction being considered for purchase, especially in rural areas; that is, if you do not intend to simply tear them down. Inside larger towns and cities, codes are enforced.

Still, if you find a house built to U.S. or European standards of construction expect to pay U.S. or European prices. Say, in the 250,000 to 500,000 U.S. dollar range because it was most likely built by one of the larger construction company in Chile. Good building cost money. Lower your expectations, if you want to be cheap or simply plan to build yourself. You can often build something in Chile much cheaper than you can buy something. Does that make sense? No!
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Real Estate Values in Chile and Inspection

So, how do you determine the value of the house? Well in most locations, you could send in an inspector or appraiser. We often do both for our clients that are considering an existing structure.

First, we send in our appraiser to give the point by point evaluation as you would find anywhere in the World as a baseline. Our inspector actually works part-time doing appraisals for banks in Chile and European companies.

Chile Real Estate Tip 2:
Be careful with the word "Engineer" in Chile. There are many professional degrees that use the word Engineer in Spanish. For example, forestry engineer, information engineer, and so on. You want to hire a construction engineer.


We then send in our engineer to inspect the overall structure and evaluate the cost of fixing the problems of the house. Just because a house is only worth say 40 million pesos, does not mean that for another say 5 million pesos you could not have a 60 million peso house. It simply might be something the sellers are unwilling to invest in fixing prior to the sale, and thus is a good point to negotiate in to the price. A 5 million pesos repair might translate in to a 10 million pesos discount on the sale price.

This is another thing to consider. Often when people sell houses in Chile they will not invest anything more in to the house other than a new paint job or trimming the hedge. In other countries, people will often do major remodels just to get more money on the market. Exactly because a run down house or a brand new house will have about the same asking price on it, sellers will not view it as worth the effort or the money to remodel. That said, they will move on price if you point out the problems with the house; just do not over do it. Chileans are easily embarrassed and if you are too pushy the negotiation will be over before it starts. The seller will simply shutdown.

Bank Value in Chile

So what do banks do in Chile? Banks do send aprasars in Chile before issuing loans. The problem is in addition to all the problems mentioned above, the banks are for the most part trying to protect their money and will likely appraise buildings at far below the market rates to insure that they can easily recover their money on a mortgage in the event of a loan default.

Insurance value in Chile


How to insurance companies appraise houses in Chile? Well, similar the way banks are trying to protect their money. That said, this is likely a good rule of thumb in determining the value of house in Chile. What would be the replacement value should say the house burn to the ground to build it stick for stick? If the owner is asking 40 million pesos, the land is worth 10 million pesos, and the building could be built again for 20 million what are you willing to pay? This is the key. What are YOU willing to pay?

International vs Chilean Real Estate Prices.


So what is the real value of any give house in Chile? The simple anser depends on what is it worth to you. I do not mean to confuse the reader. I am very serious. You can use these cultural quirks to your advantage to search almost any area in Chile for that undervalued diamond. You are not locked in to some book somewhere that says in area X prices are between such and such, and you must pay that price.

WHY IS THE CHILEAN REAL ESTATE MARKET LIKE THIS?


This leads us to the very critical explanation of why sellers will so radically and irrationally price their properties differently in Chile. This covers both existing buildings and raw land. What sellers in Chile fail to understand is that their property when a foreigner considers it for purchase is competing in a Global WORLD WIDE real estate market.

By this I mean that as the buyer you have many choices. First, you could choose from anywhere in the World to live. Many of our clients could buy real estate, or already own real estate in other countries. At the very least, a foreigner will own some real estate in their home country.

Second, you could buy real estate anywhere in Chile. Often our clients are at the same time considering purchases in multiple regions of Chile. They are perhaps comparing the property they are looking at in the mountains of Futaleufu, against the view from a property in Chiloe they looked at the day before.

The sellers simply do not understand this. They often have very limited travel experience even inside Chile. They do not understand that as a foreigner you do not appreciate that a piece of property is near a particularly important Chilean resort town, or that you are valuing the property based on a view of mountain and not the great pasture land. They most certainly will not understand your concept of what a great house should look like, or how it should be built.

So, contrary to popular belief, often the Chilean selling property is just as inexperienced as the foreigner that just landed in Chile about the complexities of how the real estate industry works in Chile. In many way the foreigner is a greater advantage as they have extensive experience buying and selling real estate. The Chilean most likely has only bought or sold one or two properties in their life. The foreigner knows they need to hire attorneys and other professional help to assist in a purchase and has the resources to do it. The Chilean seller will often not even list their property with a real estate agent to avoid paying a commission on the sale.

The good news though. If you like a location, a detailed search will probably find you the price you want to pay. If all else fails, you can almost always build the house you want for less money. So, on some level the chaotic natureof the Chilean real estate market is to the advantage of the buyer. It simply creates more choices, and that can be confusing.

The number one advice we give all of our clients is take your time.