Down payment in the real estate purchase agreement

Šime Unić
Down payment in the real estate purchase agreement

A deposit is a payment that the buyer pays to the seller as a confirmation of the seriousness of the intention to buy real estate. It is usually paid when signing the preliminary contract for the sale of the property, and is used to ensure that the buyer will not abandon the purchase of the property. Here's everything you need to know about it.

How is a down payment defined?

The down payment is usually calculated as a percentage of the property price. It is important to note that the amount of the deposit can vary depending on the agreement between the seller and the buyer, and that there is no standard amount that is used. However, according to a court decision of the Supreme Court of the Republic of Croatia (VSRH Rev 2229/1993-2 of June 16, 1994), the amount of the deposit should not exceed 10% of the agreed purchase price.

A deposit is usually used as a guarantee to the seller that the buyer will adhere to the agreed terms of the pre-contract and will sign the final contract for the sale of the property. If the buyer abandons the purchase of the property, the deposit is usually used to compensate the seller for lost time and effort.

However, even though the party that gave the down payment is responsible for non-fulfillment of the contract, the seller can demand the fulfillment of the contract if possible, ask for damages, with the provision that the down payment will be included in the compensation or returned or be satisfied with the down payment received.

In other words, if the party that gave the deposit is responsible for the non-fulfillment of the contract, the other party can either be satisfied with the received deposit or can demand compensation for damages due to the non-fulfillment of the contract, whereby the deposit can be included in the compensation for damages or returned, or, if still possible, demand fulfillment of the contract, in which the down payment is credited or returned if crediting is not possible. In the opposite situation, if the party that received the down payment is responsible for the non-fulfillment of the contract, the other party can either demand the return of the double down payment or demand damages due to the non-fulfillment of the contract and the return of the down payment or demand the performance of the contract if it is still possible, whereby the down payment is credited or returned if accounting is not possible.

A down payment can be called for a variety of reasons, so it is important that the signatories discuss the details of the down payment before the pre-contract is signed, to ensure that all parties are clearly informed and comfortable with the terms of the down payment.

What should you pay attention to if you have a down payment in a real estate purchase agreement?

If you have a down payment in a real estate purchase agreement, there are a few things you should pay attention to:

Down payment deadline: The contract should clearly state the deadline by which the buyer is expected to provide the down payment.

Method of paying the down payment: The contract should clearly state the way the down payment will be paid, for example by check, bank transfer or cash.

Down payment amount: The down payment amount should be clearly stated in the contract. This is usually a smaller amount compared to the total price of the property.

How the down payment is used: The contract should clearly state how the down payment will be used in case the customer abandons the purchase.

The right to refund the deposit: If the buyer decides to abandon the purchase of the property, it is important that the contract states the right to refund the deposit in certain circumstances.

What is the difference between a deposit and a cancellation fee?

A deposit is a pre-paid amount of money that is used as a guarantee that the buyer will fulfill his obligations under the real estate purchase agreement. A deposit is usually paid at the signing of the contract and is usually used as part of the total price of the property. The contract is considered concluded when the down payment is given to the other party, and at the same time, the sales contract does not come into being until the agreed down payment is handed over to the other party.

If the creditor has not fully fulfilled the obligations, the down payment cannot be kept, but full fulfillment of the obligation and compensation for damages due to delay can be demanded, or compensation for damages due to incomplete fulfillment can be requested, but in both cases the down payment is included in the compensation.

Cancellation fee is the sum of money that is paid in case the buyer cancels the sale of real estate. This usually happens in the event that the buyer is unable to fulfill his obligations under the contract, such as failure to provide credit insurance. A cancellation fee is usually used as a penalty for the buyer for not fulfilling the contract.

When the party in whose favor the cancellation fee was agreed, declares that he will give the cancellation fee to the other party, then he can no longer demand the fulfillment of the contract. At the same time as the withdrawal, the party withdrawing from the contract must give a statement of withdrawal. What will be the cancellation fee is agreed in percentage or fixed amount.

In Croatian law, the down payment is regulated by the provisions of Article 303 and up to and including Art. 305 of the Obligations Act, while the provision of Article 307 regulates the down payment as a cancellation fee.

When is the deposit considered a waiver?

A down payment is often used as a waiver in a real estate purchase agreement. This means that if the buyer abandons the purchase of the property, the seller can keep the deposit as compensation for the loss of time and effort.

In some cases, the deposit can be used as a cancellation fee, which means that the customer loses the right to a refund of the deposit if they cancel the purchase. However, in other cases, the deposit can be returned to the buyer if the seller does not meet certain conditions of the contract, such as meeting the conditions for obtaining a loan or if the property does not match the description in the contract.

It is important that the contract clearly states how the down payment will be used in case of cancellation of the purchase.

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