The reservation contract, also known as an earnest money contract, is a private document in which the owner and seller agree on the sale of the property. By paying a certain sum, the buyer reserves the property and the signed agreement is protected under article 1454 of the Civil Code, without requiring the intervention of a notary. To be fully valid, this document must contain the identifying details of both parties, the details of the property from the Property Registry, the costs of the transaction and which party will be responsible for them, the down payment provided and the maximum timeframe for formalising the purchase/sale contract.
What happens if one of the parties does not fulfil the agreement?
Although both parties may withdraw from the contract, it should be remembered that, despite being a provisional contract, it still has to be honoured. Therefore, if the buyer regrets the decision or is not granted the mortgage, they will lose the down payment. If the seller withdraws from the transaction, they must return the deposit and make an additional payment to the buyer equal to that deposit.
What sum should be given as down payment to reserve a house?
Current laws do not establish a specific sum that must be provided as a deposit in the reservation contract and therefore the sum should be agreed by both parties. In most cases, the sum is established at 3,000 Euros or 10% of the property’s value. However, this does not mean that you cannot agree a smaller sum as down payment, provided the seller agrees.
Ideally, we would hand over the lowest sum possible so as to minimise any loss we might suffer if the bank does not approve the mortgage. But if we are confident that the bank will approve the mortgage and that this is the house we want, it is advisable to hand over a larger sum, as this will make it harder for the seller to withdraw from the transaction.