Congratulations, you have finally found the home of your dreams! Now what? Before formalizing the sale contract, the first step is to reserve the property with a deposit contract, a common type of contract which formalizes the commitment to the purchase. Still unsure? We will explain the steps to follow.
The first thing is to know what a deposit contract is. This is nothing more than a private contract between the seller and the buyer to reserve the home and thus prevent parties from withdrawing before the sale is formalized before a Notary Public. If after signing said contract any of the parties retracts from the agreement, it may imply a penalty.
Types of deposits
Several types of deposits are adapted to the needs of each buyer or seller.
Security deposit: In case of non-compliance, it would be necessary to go to court to determine the consequences for the party that has declined to formalize the contract.
Double-rate cancellation penalty: Gives the option to both parties not to formalize the contract of sale. If the seller withdraws from the sale, they will have to return the economic amount of the deposit multiplied by two. If it is the buyer who withdraws from the sale, they would lose the deposit.
Forfeitable money deposit: The difference with the previous options is that this deposit seeks to guarantee the sale. If the contract is not fulfilled, apart from financial compensation, the damaged party may also demand compliance with the contract and compensation for damages.
Validity
The period of validity of the deposit is agreed upon between the buyer and the seller and issues such as the time required by the buyer for mortgage processing or notary office appointments are usually taken into account.
What does a deposit contract include?
Some points are essential when drafting a deposit contract. For example:
Deposit amount: the money that will be deposited to formalize the reservation.
Purchase and sale expenses and property price.
Charges, in case the home is affected by any of them.
Deadline
Penalties for incompletion of the sale operation.
Taxation on the deposit
The most important thing when it comes to knowing how the deposit will be taxed is knowing the condition of the property.
If the property is brand new: the delivery of the property is taxed with VAT since it is the first time it has been delivered, therefore, the buyer, in addition to the deposit, must pay the corresponding VAT.
If the property is second-hand: in this case, the deposit is taxed with the Property Transfer Tax (ITP) and the payment will be made when the sale is formalized before a notary public.
At TM Grupo Inmobiliario we work with earnest money contracts, and we have an expert team in the processing of this type of procedure. If you have any questions about formalizing the deposit for your new home, do not hesitate to contact us.
