The deposit contract is one of those essential things before buying a house . It is the best way to confirm the purchase of the home and to specify the terms under which the transaction will be closed.
Of course, there is more than one type of deposit and not all of them work the same. Knowing the differences will help you choose the best one for your case.
What is an earnest money contract?
The deposit contract is a legal document that confirms the commitment to buy or sell a home and the deposit is the money that is given when signing the contract as a guarantee of that commitment.
It is common to confuse the deposit with the reservation contract , although in reality they are different. The first comes first and, as its name indicates, serves for the buyer to keep the property.
The deposit contract goes further and includes among its clauses the price, the method of payment and the deadline for closing the transaction. In other words, it is a blueprint for what will later be the sales contract.
These deposits also include penalties in the event that one of the parties does not comply with the agreement . This is where the different types of deposits appear.
The deposit contract is a legal document that confirms the commitment to buy or sell a home.
The penitential pledge
They are also known as deposits, as they allow the buyer and the seller to freely back out. In other words, not buying or selling the house in exchange for paying a previously agreed amount.
The penitential deposit includes the “penance” that each of the parties must pay if they withdraw from the purchase.
Article 1454 of the Civil Code establishes the compensation payable. Thus, the buyer will lose the deposit he left, which is usually 10% of the price of the house.
On the other hand, if the seller is the one who backs out, he will have to pay double the amount that the buyer paid in advance.
This is how both buyer and seller are compensated and incentives are created for both to respect the purchase and sale agreement.
This is the most common type of deposit. As a buyer, it gives you the opportunity to not buy the house if, for example, you have trouble getting a suitable mortgage.
The withdrawal deposit is the most common type of deposit and allows the buyer and the seller to freely withdraw.
The confirmatory deposit
This type of deposit is less common, although it is the one applied by default if the use of other deposits is not specified in the deposit contract.
As the name suggests, they confirm the commitment to buy or sell the house. To do this, a deposit is made as a down payment on the final price of the house. In other words, this money will be subtracted from the cost of the house, since it is a first payment for the house.
Confirmatory deposits do not clearly establish compensation if one of the parties backs out. If this happens, article 1124 of the Civil Code could be applied, according to which the injured party may choose between compliance with the contract or compensation for damages.
In other words, the other party can be required to buy or sell the house, even if they don't want to, or, failing that, to pay compensation. However, since compensation is not stipulated in the contract, it is common to end up having to file a lawsuit to establish it.
The confirmatory deposit confirms the commitment to buy or sell the house
Penal deposits
Finally, the penalty deposit does not represent an advance payment of the purchase price of the house. In this case, we would be dealing with money that is given as a guarantee for the sale and will serve as compensation if the contract is breached.
This type of deposit is equivalent to obligations with a penalty clause regulated in article 1152 of the Civil Code, hence its name.
With a penalty deposit, the buyer will lose the amount paid upon signing the contract, while the seller agrees to return it and usually add an additional amount.
Furthermore, since the penalty deposit does not provide for withdrawal from the contract, both parties may demand its fulfillment. To make it easier to understand, if for whatever reason you do not want to buy the apartment, you will lose the money you have paid and the buyer may still ask you to buy the house through legal means.
Ultimately, the deposit contract is a guarantee, but it is important to choose the type of deposit that best suits your circumstances. In this sense, the penitential deposits are the most common because they are the clearest in terms of compensation and the easiest to resolve.
As a buyer, it gives you the option of not closing the purchase of the home if, for example, you cannot find a mortgage or find a more suitable house or one at a better price. Of course, this will mean losing the money you paid as a deposit.
