How to guarantee that a real estate purchase and sale transaction will take place, what kind of preliminary agreement should be drawn up? What should the receipt be like? Why does the seller usually prefer an advance payment for an apartment as an advance payment, although it is the deposit that is legally enshrined in regulations, but the advance payment is not.
What is the difference between these concepts, how to correctly transfer the deposit when selling an apartment, what to choose in the end: an advance payment or a deposit, so that the purchase is guaranteed to be possible - we will understand all the nuances together with JCat.Real Estate.
Difference between deposit and advance
The advance amount in a real estate transaction is considered as a regular prepayment, but if we talk about a deposit, this is more than an advance payment - it is, first of all, an obligation. For both participants in the process, it is fundamentally important what type of advance payment was made; this takes on special meaning when the deal was disrupted due to the fault of the apartment owner.
It is much easier for a buyer to return his deposit when a planned purchase does not take place than an advance, and yet most sellers insist on receiving an advance. Due to a lack of understanding of the difference between these concepts, a conflict of interest often arises in practice.
Before signing a document on an advance or deposit in writing, it would be useful for the parties to the proposed transaction to understand the essence of such an agreement. It is important to learn about the possible consequences and also get a clear understanding of the types of prepayments in the case of real estate.
Earnest money in a real estate transaction
The deposit as a legal action is discussed in Article 380 of the Civil Code of the Russian Federation. This is a payment of part of the funds from the total cost of housing, which the buyer gives as an advance payment. In other words, this is proof of the seriousness of intentions: those who are interested in the apartment will do everything to make the deal happen.
The deposit performs the function of an advance payment (the apartment will cost less by the amount of the advance payment) and the function of obligation, for violation of which liability is provided - this is a significant difference between a deposit and an advance payment.
Article 416 of the Civil Code of the Russian Federation states that the deposit is returned if the planned purchase of real estate does not take place by mutual agreement of the parties to the transaction, or due to the inability to fulfill the obligation for objective reasons (as a result of death, natural disasters, other force majeure).
But if the deal is unilaterally broken by the buyer, the seller retains the deposit, even the law in this case is on the side of the owner. If the seller himself at some point decides to refuse to sell the apartment, according to the law he is subject to a fine and he returns the deposit to the buyer plus the same amount on top.
All this is enshrined in a written agreement, which is also provided for by law. Without a written agreement on the pledge when selling an apartment, the advance payment will not be considered a deposit - this is another fundamental difference from an advance payment.
Advance in a real estate transaction
Such an advance payment does not provide any guarantee that the apartment will be sold. This is more of a symbolic confirmation of the buyer’s intention to purchase a home; this does not oblige the seller to anything. The concept of “advance” is not legally enshrined in any article of the Civil Code, and therefore the seller can return the advance at any time and refuse the transaction without any penalties.
An apartment on the market may suddenly become more expensive and the owner will easily refuse the deal. In such a situation, the buyer will suffer financial losses, but no one will compensate him for them. Despite this, in practice, an advance payment for real estate is more common.
It should be taken into account that an advance payment for an apartment serves only a payment function; in this case, there are no obligations, like a deposit. From the advance amount upon termination of the transaction, the seller makes a deduction for his expenses that he incurred in connection with the sale of the apartment.
The owner, for example, advertised the sale in the media, began collecting documents, paid off debts with utility services - the seller has the right to deduct all these expenses from the advance payment.
If the purchase and sale agreement did not take place due to the fault of the buyer, then the advance payment for the apartment remains with the seller. By the way, if the deposit is transferred without a written agreement, then such an advance payment is considered paid as an advance payment. When transferring an advance, it is better to draw up a written agreement, as with a deposit. Moreover, in this case it is better to reflect more nuances in the agreement. The more issues the parties agree on and record these agreements in writing, the fewer problems there will be during the proceedings.
Conflicts of interests can be avoided if the transfer of the advance payment is properly completed. But usually, when making an advance payment, they do not pay attention to this; this is more typical for a deposit - perhaps because such an advance payment is enshrined in law.
Why does the agency seek to take away the deposit agreement after the transaction:
Avoid responsibility
As a rule, the agency’s task in a transaction is to receive its commission and not be responsible for anything else. For example, many of the agency's actions violate current legislation.
At the same time, an agreement with an agency is the only document that confirms the agency’s participation in a transaction and can serve as the basis for holding officials accountable.
What laws do agencies violate?
- Law of Ukraine on the protection of consumer rights;
- Tax Code of Ukraine;
- Law of Ukraine “On Advertising”;
- Financial legislation.
Hide illegal activities
The contract specifies some actions that the agency does not have the right . Namely:
- keep funds for safekeeping;
- accept payments in foreign currency;
- seize original documents from the owner and store them at home.
Don't pay taxes
In this case, the agency works according to a “gray” scheme. Hides income and does not pay taxes. And each such agreement is evidence of receiving a large sum of money on which taxes have not been paid.
Written agreement
Article 380 of the Civil Code of the Russian Federation states that the agreement on the deposit (regardless of the amount in question - the parties determine this by agreement) must be drawn up in writing. The document is drawn up both on a pre-prepared form (the law does not provide for a special form) and in any form, it can even be a receipt.
Not only in the legislation of the Russian Federation, but also in the international legal field, the receipt has legal force, like any other agreement.
The receipt retains its weight, regardless of the amount indicated in it (conventionally, it can be one ruble), and does not require notarization if it is drawn up in accordance with all the rules. What must be included in it:
- surnames, names and patronymics of the parties to the transaction from both parties;
- passport details, place of residence of the owner of the property being sold and the potential buyer;
- the amount of prepayment, which is expected in the form of a deposit;
- deadlines for execution of the purchase and sale agreement and full payment;
- put the seller’s signature on receipt of money (it is fundamentally important to sign, as in a passport) indicating the date.
In addition, the following information can be reflected in the written deposit agreement:
- The total cost of housing, including the deposit, is included in this amount.
- In what cases is the deposit amount returned (the terms can also be specified).
- Information in detail about the housing for sale, including the number of owners, how many are registered in the apartment, and so on.
- List of necessary documents to complete the transaction (consent of the other spouse, if the apartment was purchased during cohabitation, an extract from the house register, a certificate stating that there are no debts to public utilities, if a minor is registered, a certificate from the guardianship authorities and other documents will be needed).
- You can specify the date and place of execution of the purchase and sale agreement, who will bear the costs of registering the transaction and registration of the apartment, etc.
It is better to cover and specify as many points as possible in the deposit agreement: the more specific, the better. In order for the apartment to definitely become the property of the buyer in the future, he needs to puzzle the seller as much as possible so that he does not change his mind. Both a receipt and a document in the form of a written agreement allow you to record all agreements.
How an agency intervenes in a deal and protects its interests
As a rule, to give significance to the signing process and to justify the need for the agency’s presence in this action, a clause is included in the contract stating that it is executed in the presence of an agency representative who is a witness to everything that happens. The representative puts his signature on the document and certifies it with the agency’s seal.
For example, with this form of agreement, the agency signs another separate agreement with the buyer, which obliges the buyer to pay for the agency’s services in a pre-agreed amount. In our example, this amount is $1,000.
According to the agreement, the buyer makes an advance payment for the agency's services in the amount of, for example, $200. He undertakes to pay the remaining amount of $800 after execution of the main contract.
In some cases, the deposit agreement between the buyer and the seller and the buyer’s agreement with the agency are combined into one 3-party agreement, which states who pays whom how much and for what. But this does not change the essence.
Agency task
The agency’s task is to receive a deposit from the buyer and a promise to pay the remaining amount at the final stage of the transaction.
In addition, the agency strives to bind both parties as strongly as possible with mutual obligations so that the main agreement is ultimately concluded. After all, only in this case the agency will receive its reward in the amount of $800. This is the agency's interest in the transaction.
In order to tie the buyer more tightly to the upcoming transaction, he is “tied” with two deposits - one deposit is transferred to the seller, and the second to the agency. In our example, this is 2 thousand and 200 dollars.
The original documents must remain with the seller
As a rule, when transferring the deposit to the seller, the agency representative takes the original documents from him and leaves them at the agency “for safekeeping”. It should be noted that such actions are not legal. Never leave original documents at the agency.
For “literate” sellers who do not want to leave documents with the agency , a compromise option is provided. The agency retains “for safekeeping” the amount of money that the buyer transfers to the seller.
For example, this is 2000 dollars. The clause stating that the deposit remains in storage at the agency is included in the contract. That is, in this case, the buyer’s deposit does not go to the seller, but remains with the agency. But this does not solve the problem.
How to correctly transfer the advance amount or deposit
It is better to transfer an advance payment, as well as a deposit in the form of a deposit when selling an apartment, through a written document confirming receipt of the amount. This serves as a guarantee that the buyer, if the owner changes his mind, will receive his money back.
In the end, this can be achieved through court if there is written confirmation and the injured party proves that the deal fell through due to the fault of the other party. Yes, sometimes buying a home results in litigation.
Usage
If circumstances stipulated by the agreement occur, the amount of the security payment is counted towards the fulfillment of the corresponding obligation (clause 1 of Article 381.1 of the Civil Code of the Russian Federation).
If the relevant circumstances do not occur within the period stipulated by the contract or the secured obligation is terminated, the security payment is subject to return, unless otherwise provided by agreement of the parties (Clause 2 of Article 381.1 of the Civil Code of the Russian Federation).
EXAMPLE 1. WE INCREASE PAYMENT DISCIPLINE
The lease agreement for non-residential premises provides for the accrual of interest for late payment of rent at a rate of 30% per annum (clause 1 of Article 395 of the Civil Code of the Russian Federation). Thus, two types of monetary obligations are established for the tenant - rent and “penalty” interest. At the expense of the security payment, the lessor has the right to repay interest by notification without affecting the principal amount of the debt (Article 319 of the Civil Code of the Russian Federation). This condition increases the tenant’s payment discipline.
The agreement may provide for the obligation of the relevant party to additionally make a security payment upon the occurrence of certain circumstances (clause 3 of Article 381.1 of the Civil Code of the Russian Federation). Such a circumstance may be the use of the amount of the security payment to compensate for losses or penalties.
Interest on the amount of the security payment for the use of funds (established in Article 317.1 of the Civil Code of the Russian Federation) is not accrued, unless otherwise provided by the agreement.
Thus, the recipient of the security payment actually receives an interest-free loan. EXAMPLE 2. “CREDITING” AT THE EXPENSE OF THE RENTER
A car rental agreement provides for a security payment in the amount of 50% of the market value of the car in case of compensation for losses of the lessor in the event of an accident. Essentially, this is a method of interest-free lending to the landlord. If the lessor is an individual, then he does not receive any material benefit subject to personal income tax (clause 1 of Article 212 of the Tax Code of the Russian Federation).
Which is more profitable?
On the part of the buyer, making an advance payment in the form of a deposit is a beneficial action, because he receives more guarantees that the purchase will be completed. After all, if the seller breaks the deal, he will not only have to return the deposit, but double the refund amount, which is provided by law.
It is beneficial for the seller to take a deposit if he has decided to turn the property into money (the so-called net sale). In other cases, the owner may offer the buyer an advance payment. Then, as experts advise, as a compromise option, you can sign an agreement on receiving an advance payment, and stipulate in it that after some time (the period is set by the parties to the transaction) this amount will become a deposit.
If the terms of the advance agreement are not met, you can extend or terminate the transaction and fulfill what is specified in the contract. If the buyer decides to terminate the transaction and the purchase and sale agreement ceases to be valid, then the prepayment (regardless of how it was made - in the form of a deposit or an advance payment) remains with the seller.
When the seller himself suddenly decides not to sell his home, then in the case of a deposit, he returns 2 times the amount of the advance payment. And from the advance payment he can also deduct his expenses, for example, those spent on advertising for sales and others (if the written advance agreement does not provide for a clear return mechanism).
Buying and selling a home is a delicate matter.
With JCat.Real Estate you will learn the best way to buy or sell a home. In order for the planned transaction to be profitable, you need to approach this issue competently, having studied all the nuances. We are ready to help with this. Stay informed of your rights with JCat.Real Estate.
Purpose
A security payment, a pledge, a deposit are all independent ways of securing obligations (Clause 1 of Article 329 of the Civil Code of the Russian Federation).
A security payment is an amount of money that one party to the contract contributes to the benefit of the other party in order to compensate the latter for possible losses or penalties in the event of a violation of the contract (clause 1 of Article 381.1 of the Civil Code of the Russian Federation). Unlike a security deposit, a deposit is given by one party against payments due from it under the contract to the other party. Features of a deposit that distinguishes it from an advance (clause 1 of Article 380, clause 2 of Article 381 of the Civil Code of the Russian Federation):
- if the party that gave the deposit is responsible for the failure to fulfill the contract, it remains with the other party;
- If the party that received the deposit is responsible for the failure to fulfill the contract, it is obliged to pay the other party double the amount of the deposit.
Definition of collateral
Pledge, according to Article 334 of the Code, is property or funds that the debtor transfers to the creditor, and in the event of failure to fulfill the agreement, the creditor has the right to dispose of the pledge at his own discretion.
The pledge has only a guarantee function - the lender will not suffer a loss in the event of termination of the transaction or failure to fulfill its terms.
