Earnest money contract. What is it and how it works?

sign a earnest money contract It supposes a guarantee for the buyer as well as the seller of a property. We explain what you should know about this real estate practice, and the different types of deposit contracts that exist.

What is an earnest money contract?

He is known as earnest money contract, It is a commitment in the form of a contract that can be private, only between the parties with or without a lawyer or professional or public, before notary. It supposes the commitment to carry out a sale of a property in a future time. How to proceed?: The buyer of the home, house, flat or property in question will deliver a certain amount of money as a reserve.

It is a delivery on account of the final price. In this contract all the details of the agreement will be collected: the amount, the form of payment, the distribution of the different expenses, the term of formalization of the contract, etc.

What classes/types of deposit contracts exist in our legal system?

We can differentiate three types of earnest money contracts, depending on the type of contract that we sign, the consequences will be different:

Confirmatory deposit

The confirmatory deposits are the advance payment of the perfection of the contract of sale at a future moment. These do not give another option other than the perfection of the contract, repentance is not possible for either party.

In accordance with article 1124 of the Civil Code, if one party fails to comply, the other may demand compliance with the purchase contract judicially with this contract, it will be the judge who decides whether or not in his resolution/order/sentence it will also be accompanied by compensation for damages and payment of interest, when said damages are proven

It is very important that in the event that nothing is specified in the contract, it will be understood that the agreed down payment is confirmatory.

penitential deposits

In accordance with article 1454 of the Civil Code, these penitential deposits are also known as withdrawal deposits. They differ from the confirmatory deposit contract precisely in that they allow any of the two parties, buyer or seller, to withdraw freely from the contract.

In the event of default by the buyer, he will lose the amount delivered.

If the breach was attributable to the seller, he will return the amount he received and another of the same amount.

Penalties

In the case of criminal deposits, they are similar to penitential ones, and it is also possible to agree in the deposit contract a penalty greater than the amount delivered in the form of deposit, in case of withdrawal or reversal in the fulfillment of the contract of sale of the property. All of them in accordance with article 1152 of the Civil Code.

In other words, in the case of criminal deposits, the model contract must include a penal clause establishing that, in the event of non-compliance by one of the parties.

What amount to disburse?

Normally, the quantity or amount to be disbursed is between 5 and 10% of the purchase price; in practice it will depend on each case and the specific circumstances, as it is a free agreement between the parties.

This section has been developed thanks to the section Notaries of Terrassa from the Terrassa1877 portal.

The notary in a sale

Surely we are wondering who pays the notary in a sale. The notarial expenses in the sale of a property are established as follows:

• The expenses of granting deeds will be paid by the seller.
• Those of the first copy and after the sale will be at the buyer's expense, unless otherwise agreed.

Article 1455 of the Civil Code establishes that the deed expenses in which the presence of a notary is necessary, are from 0,3% to 0,5% of the total amount. These expenses are regulated by law (€600 to €875), depending on the home and its location. Finally, note that if a parking space is added to the sale, the notarial expenses are assumed by the buyer.