Understanding a Deposit Contract in 3 Steps

Deciding to buy a property is not something you should take lightly. There are many factors involved during the process of buying a house, such as the price, the state the property is in, and whether it fits your budget.

Now picture this: you have found THE house of your dreams, it is located in your favourite neighbourhood, it has a decent size, you can afford it (financially speaking), and it only needs a few modifications. But… it is in high demand.

What could you do in this situation? If the property is being sold through a real estate agency, and you have informed the property owner that you are definitely interested in buying it, our recommendation is that you sign a deposit contract sooner, rather than later.

If you need some more information about what should be included in a deposit contract, this article will tell you all about the details in 3 steps, so you will understand what a deposit contract is, and why you would want to sign one.

1. What is a deposit contract?

If you are considering buying a property in Barcelona, you shouldn’t just look at the price of the property, because you should also think of taxes and other expenses associated with this type of transaction. Until you have paid them all, you will not be the owner of your new property.

If, however, you are absolutely and 100% sure that this is the place you want to buy, then you and the seller can agree and sign a deposit contract.

So, what is a deposit contract in general terms? It is a legal document that guarantees that the seller will sell the property to the buyer by means of a down payment, and this down payment is usually 10% of the total value of the property.

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Both parties should stick to the obligations in this contract:

• The seller, as we have mentioned before, must commit to selling the property to the buyer, and he/she cannot accept other offers.
• The buyer must buy the property, and he/she has to comply with every clause written down in the contract.

Depending on the type of deposit contract you will be signing (which we will discuss in the following paragraph), this legal document must include specific information, and it must be agreed upon by both parties involved.

The deposit contract must contain at least the following basic information:

• Personal details of both parties
• Description and identification of the property
• Property price
• Type of deposit contract (in Spanish the three types are called: penitenciales, confirmatorias or penales)
• Description of how the deposit will be transferred
• The amount of the deposit (this amount will be deducted from the total price later on)
• Consequences for breach of contract
• Deadline for formalising the deed
• Who takes care of which costs associated with the property transfer
• Signature of both parties

The security deposit contract

The security deposit contract is referred to in article 1124 of the Civil Code, and this type of contract  is similar to the penalty contract, as a sum of money is also transferred as a down payment.

If, however, this contract is breached, it doesn’t allow for the contract to be terminated and the down payment will not serve as compensation for the affected party. As a result, both parties can demand that the sale will be carried out anyway, or the other party may be sued to claim damages.

Related article: Should You Rent or Buy Property in Barcelona?

The earnest money contract

The earnest money contract is regulated in article 1152 of the Penal Code, and it states that the transferred down payment is compensation if there is a breach of contract by either of the two parties involved.

The affected party can also demand that the contract be fulfilled, and, therefore, that the transfer of the property must be carried out at the notary.

If the the property is being sold through a real estate agency, then the agency will be in charge of drawing up the deposit contract. This will save you the hassle of having to do it yourself.

ShBarcelona can draw up the deposit contract for you, and we can also act as an intermediary between both parties, even at the moment of paying the deposit of the property, as we will receive the deposit and will then transfer it directly to the buyer.

Related article: 8 Advantages of Hiring a Real Estate Agency

Download the penalty contract template

If a real estate agency is not involved in the buying process and it concerns a transaction between individuals, then you can draw up the deposit contract yourself with the template we are giving you below. This is the type of deposit contract that is currently most common when buying/selling a property.

Download a deposit contract template here

Take precautions once you have completed the template, and have the draft of your deposit contract checked by a professional to make sure clauses described are all correct. Also make sure both parties agree with all the information in the deposit contract, as this document will be used later on by the notary to formalise the deed of sale.

Do you still have questions about the deposit contract?