Confirmatory deposits: What they are, differences and what information to include
Buying or selling a new home is one of the most important decisions in our lives. Completing the purchase contract can be a real bureaucratic challenge and it is normal to have doubts about what to include and what not to include. In order to avoid possible legal problems in the future, it is essential to be well informed on the subject and for both parties to agree on all the conditions in advance.
One of the essential steps in a sale is the earnest money contract between the buyer and the seller, a private agreement to formalise the commitment to buy. It is also known as a deposit and includes, among other things, a deadline for the first payment to be made. In today's article, we will explain in detail what types of deposit contracts there are, focusing on one of them in particular: the confirmatory deposit. Read on!
What is a confirmatory deposit contract and what is it for?
Confirmatory deposits are a type of earnest money contract in which the seller receives from the buyer an advance on the total price to be paid, which has been previously agreed by both parties and included in the sale contract.
In other words, it is a private pre-contract between the two parties that is included as an additional element in the contract of sale. On the one hand, the buyer pays the agreed amount of money to guarantee his commitment to buy the house, while the seller agrees to reserve the property until the entire purchase is completed.
When we decide to buy a home, new circumstances may arise that slow down the time it takes to purchase the property. For example, finding finance or applying for a mortgage. This is to ensure that the seller does not transfer their home to a third party during this period of negotiation on the buyer's part.
Confirmatory deposits, unlike other types of deposit contracts, are a way of ensuring compliance with the obligations of the buyer and the seller.
Consequences of non-compliance with the deposit
There are consequences for failing to comply with the confirmatory deposit. Let's see below what they are:
- If the non-compliance comes from the buyer, the seller can force payment. On the contrary, you will lose the deposit and you will certainly have to pay damages, in addition to the interest resulting from the breach.
- IF the breach comes from the seller and you decide not to sell the property after the agreed period, the buyer can force you to do so, in addition to receiving interest on the amount of the deposit.
In any event, the aggrieved party can demand compliance. If the defaulting party does not fulfil his obligations, you will have to go to civil court to demand that the contract be performed or that it be settled with the payment of damages, in addition to any interest that may be due.
What should be included in the confirmatory deposit contract?
Confirmatory deposits are not expressly regulated in the Civil Code, although they are widely used when buying or selling a property. In this case, both parties must leave the amount to be paid in writing. This is included in the final price of the sale.
The deposit agreement can be a private document, although it is advisable to formalise it in a public deed before a notary to ensure that it is formalised. These are the details that must be included in order to guarantee its validity:
- The personal identification details of the buyer and the seller.
- The description of the property that is going to be included in the purchase and sale contract.
- The final sale price of the property, the method of payment and the terms (if any).
- The amount of the deposit, that is, the percentage of the total purchase price that the buyer must pay to the seller in advance.
- The nature of the deposit and the consequences of not paying it.
- The signatures of both parties.
What is the difference between a confirmatory deposit and a penalty deposit?
Confirmatory bonds are not the only type of bond. There are also penitentiary and penal deposits, but the consequences of non-compliance are different:
- Confirmatory deposits act as an advance on the final amount and a guarantee to support the transaction in the future. Penalty deposits, on the other hand, are intended to provide compensation in the event that one of the parties withdraws from the agreement, while criminal charges are a sanction in the event of non-compliance.
- Confirmatory deposits, like criminal deposits, are intended to reinforce and secure the commitment of the transaction. On the contrary, criminal penalties do not create an obligation to formalise the contract.
- Non-compliance does not relieve the offender of his responsibility and the other party can demand the formalisation of the sale. This is not the case with penitentiaries.
- Another difference between penitential and confirmatory deposits is that the former must be expressly mentioned in the contract of sale. In contrast to confirmatory deposits, if the contract does not clearly specify the type of deposit, it is assumed to be a confirmatory deposit.
Guarantee your real estate purchase and sale with Prime Invest
In any situation, regardless of the type of deposit you wish to use, it is advisable to have the advice of a specialist. At Prime Invest we have a wide range of new construction properties in the most luxurious and residential areas of the Costa del Sol, Ibiza and Punta Cana.
Furthermore, our experience and knowledge of the trends in the property market make us your ideal ally when it comes to finding professional advice on the purchase and sale of a property. Our team of expert real estate agents are at your disposal to provide real estate advice and guide you through every step of the buying and selling process. Count on Prime Invest as your ally in making a wise buying. Contact us and experience a calm and secure buying and selling process.