If you are thinking about buy a property, you may need to know what a earnest money contract because, even though it is not a mandatory requirement, you will probably have to sign one. For this reason, from Serra We explain what you need to know to sign a deposit contract with a clear conscience.
What is an earnest money contract and why is it useful?
He earnest money contract It is a private agreement between buyer and seller, prior to purchasing a property, where both parties agree to carry out the future sale of a property. To put it another way, it is a pre-contract where the buyer pays an amount (normally 10% of the total value of the property) in advance of the total to reserve the right to purchase.
What types of deposits exist in the real estate sector?
The deposits that can be agreed upon in a private contract for the sale of real estate can be of three different types: confirmatory, penitential and penal, and are chosen based on the intention of the parties involved.
Confirmatory deposit
The main function of the confirmatory deposit In the contract for the sale of a property, it is to confirm the existence of the contract.
These are materialized with an advance payment from the buyer to the seller with the payment of the amount of a part of the total purchase price.
They are not usually the most common deposits, since they are not contemplated by the Civil Code and do not fulfill a guarantee function nor do they authorize the withdrawal of the contract if the case arises
The penitential pledge
The penitential pledge They allow the parties involved in a sales contract to withdraw from fulfilling the contract, without having to prove damages, such as defects in the property that existed before the sale, for example.
Thus, its function is to allow either party to withdraw from the contract without any cause and in a completely lawful manner. But with consequences in the form of a penalty, hence its name (the most common, as indicated by the Article 1454 of the Civil Code, lose the deposit paid).
In case of abandonment by the buyer, he will lose them and, if it were the seller who withdraws, he will have to return them with the amount doubled.
Penal deposits
The criminal deposit Unlike confirmatory deposits and penitential deposits, they are based on a penalty clause, which serves to claim the fixed amount in the event of breach of contract, in addition to offering the right to subsequently claim compliance with the contract.
These deposits do not represent an advance on the purchase price, but one of their main characteristics is that compensation for damages and payment of interest for the corresponding amount can be claimed in the event of non-compliance.
What information must the deposit contract contain?
A earnest money contract, as a minimum, must contain personal data of the parties involved (seller and buyer), description of the property, purchase price and payment method, monetary amount of the deposit or advance, maximum time period to formalize the contract, commitment to sign the contract before a notary, distribution of possible purchase and sale expenses, The penalty in the event of cancellation by either party must also be specified. and the signature of the parties involved.
Current information of interest
A new law is currently being implemented (art. 621.49 of the Civil Code of Catalonia) which states that if the bank denies the mortgage to the buyer, the seller must return the deposit without any penalty.
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