If you are going to buy a home or another type of property and you are asked to sign a deposit, you will ask yourself: what percentage of deposit is given in a promise of sale? Can the amount vary depending on the circumstances? In this article we solve all your doubts.
Generally, the deposit contract is signed before the deed or sales contract when certain circumstances occur:
– The seller needs time to vacate the property.
– The buyer must seek financing to buy or need to sell their apartment.
– There is some charge on the property (mortgage or embargo, for example) that must be paid before the sale.
– The property is being built and is being purchased off plan. In these cases, a deposit contract is usually signed, then a private purchase and sale contract and, finally, when the property is finished, the public deed of sale.
A promise of sale is not the same as a deposit contract.
The first thing we must be clear about is that the deposit contract and the promise of sale are two different contracts.
The promise of sale is regulated in article 1,451 of the Civil Code, which establishes that “the promise to sell or buy, with conformity in the thing and the price, will give the contracting parties the right to reciprocally claim compliance with the contract” and that: “Whenever the promise of purchase and sale cannot be fulfilled, the provisions regarding obligations and contracts will govern the seller and buyer, as the case may be.”
A deposit contract is a private agreement between the buyer and the owner of the property, by which an amount of money is delivered as proof of the commitment to buy and sell a property. This amount will be deducted from the final price and will be a guarantee of the operation. However, there are several types of deposits (penitential, confirmatory and criminal) and the effects are different. In our post What is an earnest money contract, what is it for and what types exist, we tell you the differences.
What percentage of the earnest money is delivered in the promise of sale?
Although the Civil Code, when regulating deposits, does not establish a minimum percentage to be delivered, in practice 10% of the purchase price is usually given. This percentage may vary depending on various circumstances such as the following:
The time that elapses between the signing of the deposit contract and the granting of the deed of sale before a Notary. If the period of time is long due, for example, to the buyer’s need to sell their previous home, the percentage of the deposit may increase, however, if the period is short, 15 days, the amount of the deposit could be lower. It may not even be necessary to sign a deposit.
– The price of the property. It is not the same whether the house has a price of 200,000 euros or 1,000,000 euros. For higher prices, a lower percentage of deposit (5% or 7%) may be sufficient guarantee for the seller. On the other hand, if the price of the home is very low, it may be necessary to provide a higher percentage of deposit.
– The degree of involvement of the parties. The amount delivered will also depend on the commitment that the parties want to make in carrying out the sale. Maybe with a high percentage the commitment will be greater and vice versa. For example, if the buyer gives 2,000 euros as a penitential deposit and finds another home that he likes more after having signed the deposit contract, he may be willing to lose that amount in order to buy the other home. However, if you have handed over 10,000 euros, you may not be willing to lose the money.
What should not be missing in your deposit contract
Whenever you sign a legal document, especially a contract, it is advisable to have the help of a specialist lawyer. The same thing happens with the deposit contract, the advice of a lawyer specializing in real estate law is highly advisable. However, it is important that you know the content that the deposit contract must have and the aspects that cannot be missing. They are the following:
– Buyer and seller data. The full names, NIF or CIF must be included and, if it is a commercial company, all the entity’s data must appear, such as the information on the company’s deed of incorporation and the registered office, as well as the company’s details. power of attorney or appointment of the signatory of the earnest money contract in the name of the company.
– Information about the home being sold. The specific location, surface area, distribution, registration data in the property registry and charges (mortgages, embargoes, easements, etc.), among other data, must be included.
– Amount that is delivered as a deposit. At this point is where the percentage of deposit that is delivered is regulated and several aspects must be considered:
Firstly, it is advisable to express the amount delivered in letters and numbers. In addition, the form of delivery must be regulated: transfer, bank or certified check, etc. Finally, it must also be established how the remaining part of the price will be paid and at what time.
– Purchase and sale price. The purchase price is essential information and is also usually expressed in letters and numbers. It is important to analyze the taxes that will be levied on the sale: VAT or ITP, depending on the case.
– Deadline to formalize the sale. This period is very important since, if it passes and the sale has not been signed before a Notary, a contractual breach may occur that brings into play the compensation of the penitential deposits.
– Types of deposit and consequences of non-compliance. It is an essential factor. We have already seen the three types of deposits and that they have different effects. It is important to consider that in Catalonia if we want the deposit to be penitential we must express it clearly in the contract, otherwise the deposit will be considered confirmatory. Furthermore, according to the Catalan Civil Code, if in the penitential deposit the buyer withdraws from the contract because the bank does not grant him the necessary financing to purchase, he will not lose the deposit.
– Payment of the purchase and sale expenses. The sale involves a series of expenses such as the fees of the notary who grants the deed or the registrar who registers it in the property registry, as well as the agency that is in charge of all the procedures (tax payment and registration). In the deposit you can regulate how these expenses will be distributed between buyer and seller.
– Data for notifications. Establishing the addresses and contact methods of the parties is essential for the sale to be formalized or so that a notification can be made if there is a problem.
Once the contract is prepared and supervised by a lawyer who is an expert in real estate law, it is important that the parties sign it on all pages and that each one keep their copy signed by all.
In short, knowing all these aspects will help you sign a deposit contract safely and without running legal risks.
What is a
earnest money contract?
