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Deposit contract: what you should know if you are going to buy a home

When you find the ideal home to buy, you probably want to make sure that it will ultimately be yours. It is with this objective that prior agreements are usually concluded before the closing of a real estate sale. The deposit contract is one of them. Although it is very common, many buyers have doubts regarding it. What should you keep in mind if you are thinking of buying a home and want to sign a deposit contract? In this article by Ahsaas Program will help making it understand more. So, keep on reading!

The earnest money contract may be the best option if you are sure you want to go ahead with the purchase of a home. However, before drafting and signing one, it is very important to know what it is about, what its conditions are and what precautions to take.

What is a deposit contract?

A deposit contract is a document through which the seller of a property and its potential buyer agree to close the sale. Once signed by both, the owner is obliged to hand over the house to the other party under the agreed conditions and not to continue showing it to other interested parties. The buyer, for his part, agrees to acquire the property by reserving it with the payment of a down payment.

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It is a totally optional agreement, that is to say that you can safely carry out a real estate sale without signing a deposit contract. However, celebrating it can be very useful, since it includes all the terms agreed by the seller and the buyer to finalize the transaction. For this reason, it is possible that later the notary will use it to prepare the public deed of sale.

What should you bear in mind if you are going to buy a home and want to sign a deposit contract?

Here we will tell you all the aspects that you should take into account if you plan to buy a home and want to sign a deposit contract.

The differences of the deposit contract with the reservation contract

Many times, the deposit contract is confused with the reserve contract. However, despite the fact that both fulfill the same function, which is to reserve and remove a home from the market by paying a down payment, the reservation contract:

  • It is not regulated by the Civil Code, therefore, it has less legal certainty than the deposit contract.

  • It cannot be terminated only with the payment of compensation, as is the case with some types of earnest money contracts. It is only possible to desist from it if it was specified in any of its clauses, otherwise, justice must intervene.

The types of earnest money contracts that can be signed to buy a home

There are three types of earnest money contracts: penitential, confirmatory and penal. All three of these contracts are available with the team of taj residencia housing scheme . Let’s see what each one is about.

Penitential Arras

It admits the possibility of repentance, since it makes clear the penalties that each of the parties must assume if that happens. It is the reserve signal that works as compensation in these cases. In this way, if it is the buyer who does not comply, this amount is withheld by the other party. On the other hand, if the repentant is the seller, he must return this sum in duplicate to the other party. For this reason, it is recommended to sign it when there is no complete assurance of wanting to close the sale.

Confirmatory charges

Unlike the previous one, it does not admit the possibility of desisting from it facing an economic penalty, since it does not establish them clearly. Therefore, the signal delivered by the buyer does not work as compensation if any of the parties repents. In the event of a breach, the affected party may demand the completion of the sale or compensation for damages, but always attending to justice. For this reason, it is recommended to sign it when there is full certainty of wanting to close the sale.

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Criminal charges

It is halfway between the confirmatory deposit contract and the penitential deposit contract. Although it does not make explicit the possibility of withdrawing from it, the reservation signal does work as compensation in case of repentance. However, the penalties it establishes do not refer solely to the signal. In addition to the retention or return of the money in duplicate, the completion of the sale may also be required. It is recommended to sign it when there is full certainty of wanting to finalize the sale.

The clauses that every deposit contract must include

All earnest money contracts should include the following clauses:

  • The data of both parties.

  • The data of the house.

  • The price of the property.

  • The date of the signature.

  • The amount of the signal.

  • The distribution of expenses.

  • The penalty clause: it varies depending on whether it is a penitential, confirmatory or criminal deposit contract.

The amount of the signal that you must deliver to the seller when signing a deposit contract to buy a home

The deposit contract is a private document, for which there is no amount set by law that the buyer must deliver to the seller to reserve a home. However, the down payment in this type of agreement is usually always 10% of the sale price of the property, but it may vary depending on what is agreed in each particular case. Generally, at the time of closing the transaction, this sum of money is deducted from the total value of the property.

This is the only cost that the earnest money contract has for the buyer, since, in case you want to hire a professional to draft it or there is a real estate agency in between that takes care of it, it will always be an expense that will be borne at the seller’s expense.

The importance of hiring a professional to write the deposit contract

Although the deposit contract is also a free agreement and free drafting agreement, that is, it does not require a professional to be drawn up, it is always advisable to have the help of one. If the seller does not agree or if for some other reason this does not happen, it will be essential to pay close attention when formulating it. The reality is that any mistake or omission can cause inconvenience down the road.

After reading this post, we are very interested in knowing your opinion. If you want to share it with us, you can do so in the “Comments” section of our Blog.

If you find yourself in a situation that you cannot solve on your own, do not hesitate to go to Tajarat Properties. A team of professionals will be at your disposal and will help you throughout the process. We will wait for you!

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Saurabh Chaudhary
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