You have already found the ideal house that you would like to move into in the next few months. Now you will have to start negotiations with the owner to close the sale. You have been recommended to sign a deposit contract to secure the transaction and you are not entirely sure what this document entails. It is advisable to resort to a professional to draw up the contract to avoid foreseeable disagreements with the seller.
What is the purpose of the earnest money contract?
The earnest money contract serves, above all, to reserve the right to purchase the property. It is a document that you must sign whether you are buying a new or second-hand flat and with which you commit to acquiring the property within the stipulated time and conditions. For their part, the owner or the developer, if it is a newly built house, are responsible for selling it under the terms set out in the contract.
What clauses should the deposit contract include?
Ideally, the deposit contract should include all the clauses that will be included in the sales contract and that will be signed later.
- Description of the property and its annexes. The data that perfectly identifies the property for sale must be included. It is advisable to include the registry data of the property to be sold so that there is no doubt that it is free of encumbrances.
- Sale price and payment method. The amount that the buyer must pay at the time of signing the deposit document as a deposit and as a guarantee of the commitment made must be specified. Generally, 10% of the sale price is usually paid. Remember that the amount paid on account is subject to VAT in the case of newly built homes. For second-hand homes, the amount allocated to the reservation is subject to the Property Transfer Tax. Normally, it is considered a payment on account of the total price if the sale is formalised. Therefore, it is important to check that the contract expressly mentions that all advance amounts will be deducted from the final price.
- Deadline for the public deed.
- Which party is responsible for the costs of the sale. That is, notary fees, registration fees, etc. Normally, it is the new owner who bears the costs corresponding to the change of ownership of the property.
- Penalties in the event that one of the parties does not comply with the agreement: This is perhaps the most relevant clause in a deposit contract and one that can protect you in the event of a hypothetical withdrawal by the seller. Generally, it is usually established that the owner reimburses the interested party double the amount of the amount given as a deposit or deposit.
The contract will also include any penalties you will face if you as the buyer breach the agreement. If, in the end, you decide not to buy, you will lose the money you paid in advance.