The earnest money contract is a private agreement between buyer and seller in which they commit to the future sale of the property. In the case of buying the property from a real estate agency, with the earnest money contract signed by the real estate agency, you will no longer have to worry about anything, because they will look after your interests and ensure that everything is clear and concise.
Types of earnest money contracts in a sale
Before signing an earnest money contract for the sale of a property, it is essential to know that there are different types, and not all have the same legal consequences. In a real estate transaction, the earnest money can be confirmatory, penitential, or penal, and the economic effect changes completely.
The most common in Spain are penitential earnest money, as they allow both parties to withdraw from the contract under penalty: if the buyer withdraws, they lose the deposit; if the seller withdraws, they must return double. On the other hand, confirmatory earnest money acts as an advance on the price and reinforces the commitment, but does not always allow for easy cancellation without resorting to claims. Therefore, when signing a real estate earnest money contract, it is advisable to clarify what type of earnest money is agreed upon.
What does this document contain?
The earnest money contract must indicate these aspects:
- Buyer’s details
- Seller’s details
- Property description
- Sale price
- Payment methods
- Amount of the deposit
- Maximum period for the sale
- Distribution of sale expenses
- Commitment to sign through public deed
- Signatures of both parties (buyer and seller)
By making a earnest money contract signed at a real estate agency, the client ensures that it is well drafted in accordance with their interests, so that there are no impediments during the sale process and everything is carried out in the most successful way possible.
In addition, a professional real estate agency not only drafts the document but also checks essential aspects before the buyer hands over money as a deposit. For example, the simple note from the Property Registry, possible liens (mortgages, foreclosures), the actual ownership of the property, whether there are pending inheritances, if there are community debts or unpaid IBI receipts are reviewed.
This is key because many issues in the sale arise precisely after signing the deposit agreement. Therefore, having a deposit contract signed by a real estate agency provides peace of mind and reduces risks for both the buyer and the seller.
Essential clauses in a deposit contract for apartment sale
In a deposit contract for apartment sale, in addition to the price and the deadline, it is important to put in writing conditions that prevent future conflicts. Some common clauses are: the distribution of notary and registration fees, the status of liens (free of mortgages or with agreed cancellation), what happens with the furniture, the handover of keys, and the obligation to provide certificates such as the energy certificate or the habitation certificate (if applicable).
It is also advisable to indicate whether the property is delivered free of tenants, if there is any existing rental contract, and what penalty applies if either party breaches the agreement. All of this must be clearly reflected, as the deposit contract is the document that sets the rules before reaching the public deed.
Is the reservation of an apartment refundable?
As a general rule, no. The deposit contract is made so that the buyer reserves the property for the seller, ensuring that the property will be theirs and that no one will outbid them. In Catalonia, Article 621-8 of the Civil Code of Catalonia refers to deposits:
Typically, the deposit or reservation in a deposit contract is usually between 5% and 10% of the sale price, although in some transactions a 15% may be agreed upon if a stronger commitment is desired. For example, in a property priced at €300,000, the usual deposit would be between €15,000 and €30,000.
That is why it is important for the buyer not to sign a real estate deposit contract without being clear about their budget and mortgage viability, as that amount can be lost if the deed is not signed due to reasons attributable to the buyer.
Article 621-8. Deposits.
1. The delivery by the buyer of a sum of money to the seller is understood as a confirmatory deposit, that is, as a signal of conclusion and as an advance on the price of the sale.
2. Penitential deposits must be expressly agreed upon. If the buyer withdraws from the contract, they lose it, unless the withdrawal is justified according to the provisions of article 621-49. If the seller is the one who withdraws, they must return it doubled.
3. In the sale of real estate, the delivery of penitential deposits agreed for a maximum period of six months and deposited before a notary can be recorded in the Property Registry, and in this case, the property is subject to its return. In the event of withdrawal, the notary must deliver the deposited deposits to the corresponding party. The attachment is extinguished:
a) Once sixty days have passed after the agreed period, unless there is a prior annotation of a claim by the buyer. In this case, the attachment is canceled ex officio.
b) When the buyer withdraws and the seller credibly proves it.
c) When the sale is registered.
However, there are exceptions. It may happen that during the reservation period the seller receives a more attractive offer. If that occurs, they may decide to return the reservation, especially if they still come out ahead. Therefore, it is most advisable to sign penitential deposits and establish the condition that if the seller backs out, they must return it doubled to the potential buyer.
The mentioned amount is satisfied at this act and moment, serving this document as a receipt of transfer and an effective payment letter. These deposits are subject to the regulation of article 621.8 no. 2 of book 6 of the Civil Code of Catalonia. In the event of the buyer’s withdrawal, they will lose it; if it is the seller who withdraws, they must return it doubled.
What if the mortgage is not granted?
This is another of the most common fears among potential buyers. It may happen that from one month to the next life changes and suddenly the bank decides not to grant the mortgage. If that happens, the buyer will lose the deposits made.
To avoid this risk, a good practice is to include a suspensive clause for financing, indicating that the contract is conditioned on the granting of a mortgage within a specified period. In this way, if the bank denies the financing and the buyer documents it, the deposit can be recovered without penalty. This clause is especially recommended when signing a model contract for deposits for the sale of housing without legal advice.
In any case, if you buy a property in Catalonia, Article 621-49 states the following about the provision of financing by a third party:
Article 621-49. Provision of financing by a third party.
1. If the purchase contract provides for the financing of all or part of the price by a credit institution, the buyer, unless otherwise agreed, may withdraw from the contract if they document, within the agreed timeframe, the refusal of the designated entity to grant the financing or to accept the buyer’s subrogation in the mortgage encumbering the property, unless the refusal arises from the buyer’s negligence.
2. The buyer’s withdrawal obliges the seller to return the price that has been delivered to them and, if applicable, the earnest money, and obliges the buyer to leave the seller in the same situation they would have been in if the contract had not been concluded, without prejudice to what is established by mortgage legislation.
Although the Catalan Civil Code contemplates the return of the earnest money in case of non-obtainment of the loan, it is most common for the selling party to disagree on conditioning the contract and to have the buying party waive that right in the following manner in the contract.
In the event that the buyer requires obtaining a mortgage loan to satisfy the remaining part of the price, the costs derived from its processing, as well as the risk derived from not obtaining it, will be at their own expense and risk, so that this document is not subject to its effectiveness to the granting of the mortgage loan, with the buying party expressly waiving Article 621.49 of the Catalan Civil Code.
Therefore, it is most advisable for a buyer before visiting a property and signing earnest money to go to the bank or a broker. We can help you with your completely free financial advice.
Is the advance deducted from the remaining payment?
Yes. What is advanced in the earnest money contract, although it is not returned as such, is detracted from the final price of the property. For this reason, it usually ranges from 10% to 15% of the sale price of the property, so that the seller sees that the buyer is serious and intends to purchase it.
Conclusion: why sign an earnest money contract with a real estate agency
Signing a deposit contract signed by a real estate agency reduces errors, avoids abusive clauses, and allows both parties to arrive at the notary with everything prepared. A poorly drafted contract can generate conflicts over deadlines, burdens, financing, or delivery of the property. Therefore, although there are templates or a model deposit contract for the sale of a property, it is advisable to always adapt it to the real case of the property.
Do you have any questions? If you are in a similar process and want peace of mind, do not hesitate to consider the option of having a real estate agency draft the deposit contract in Barcelona. It will be much easier for you.
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