Risks of not signing an earnest money contract when selling or buying a house in the Penedès region

Riesgos de no firmar un contrato de arras al vender o comprar una casa en el Penedès

Whether you are thinking of buying a house in the Penedès or if you own one and want to sell it, you should know that before formalizing the contract of sale the parties usually sign an earnest money contract, a document that guarantees the reservation of the property.

Despite not being obligatory, signing an earnest money contract is almost essential, as much for the buyer as for the seller. For this reason, Casas&Raluy would like to analyze the risks of not doing so, both for the buyer and the seller.

What is an earnest money contract when selling or buying a house in the Penedès and what information should it contain?

Before analyzing the risks involved in not signing it, it is important to analyze what exactly an earnest money contract is and what information must contain in order to be considered legal.

An earnest money contract is a private document that is usually signed by the buyer and the seller of a property to ensure the reservation of the property. Thus, they avoid any of the parties from deciding not to formalize the sale; that is to say, deciding to back out before signing the deed before a notary.

An earnest money contract is a private document signed by the buyer and seller of a property to ensure the reservation of the property.

It is, therefore, a kind of written pre-agreement that guarantees the parties that the purchase and sale of an apartment will be carried out, so that both are legally protected, in case the other decides to back out.

How is it done? To make sure the owner of the property is going to reserve it to the future buyer, the latter gives a certain amount of money agreed between them. Although there is no compulsory amount, the usual thing is to pay between 10% and 15% of the value of the property.

The earnest money contract to buy an apartment in the Penedès must contain a series of information for it to be considered legally valid:

  1. the details of the parties and the property
  2. the terms of the transaction
  3. the maximum term to sign the sale and purchase
  4. the consequences for breach of contract
  5. the type of contract being signed
  6. the distribution of costs between the parties

How is payment made in an earnest money contract to buy an apartment in Penedès?

There are several types of earnest money contracts, but almost all of them follow the same payment procedure:

  • First payment: this is made at the time the earnest money contract is signed to buy a house in Penedès (usually between 10% and 15% of the value of the property).
  • Second payment: the remaining amount is paid and it is carried out at the moment in which it is signed before a notary. It is usually within two months, which is the time considered necessary to request and formalize a mortgage.

What are the risks of not signing an earnest money contract if you want to buy a property in the Penedès? 

Now that we know exactly what an earnest money contract is and what it is for, it is not complicated to realize how important it is to sign it, both for the buyer and for the seller and, consequently, the risks of not doing so.

As we have seen, the earnest money contract guarantees the reservation of a property in order to be able to buy a house in the Penedès, that is to say, that:

  • The buyer: ensures that the owner will not sell the property to another person who offers more money or better conditions for it.
  • The seller: ensures that the buyer will not regret the purchase and decide to buy another property. He will also be protected in the event that the buyer is not granted the mortgage, despite having signed the earnest money contract.

In case of non-compliance, the party who breaks the earnest money contract to buy a property in Penedès must compensate the other party, something that will not happen if there is no such document.

Generally, if the buyer decides to breach the earnest money contract, he will have to pay the seller a penalty – which will depend on the type of document – and, in addition, he will lose the earnest money paid in the first payment.

If, on the other hand, it is the seller who decides to breach the contract, he has the obligation to return the earnest money paid as an advance payment.

Therefore, as we have been able to verify, if the parties involved in the sale of a property decide not to sign the earnest money contract, they will be unprotected if one of them decides to back out of the transaction to buy a house in the Penedès.

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