What is it - an advance payment when buying and selling a home?
When concluding a purchase and sale agreement for such an expensive item as residential real estate, both parties are worried that the deal will not fall through. To protect their interests, the seller and buyer use different measures, one of them is making an advance payment.
Civil legislation does not provide for separate rules on advance payments, but it does contain such a term.
In advance, based on the contents of Part 3 of Art. 380 of the Civil Code of the Russian Federation, is the amount paid by the buyer to the seller towards the contract price before the bulk of the money is transferred. An advance is a partial prepayment paid before the apartment is transferred from the seller to the buyer. Prepayment is provided for in Art. 487 Civil Code of the Russian Federation.
The law provides for two types of payment: prepayment:
- Advance, “net” prepayment.
- Deposit, advance payment with certain conditions.
The fundamental difference between them is that the parties must stipulate additional conditions for the deposit - at least in the preliminary agreement. Unless the document specifically states that the amount transferred is a deposit, it should always be considered an advance.
How to draw up a deposit agreement when buying an apartment
The deposit registration scheme includes:
- advance payment amount;
- responsibilities of buyer and seller.
The content of the contract must contain certain data:
- about property owners;
- about the buyer and seller of the apartment;
- evaluating characteristics of the apartment;
- about the amount to be paid as a deposit;
- about the apartment (location, size, etc.);
- deadlines for transferring the deposit;
- additional conditions that are established by both parties to the transaction.
The deposit agreement obliges the two parties to fulfill the terms of the agreement. Otherwise, one of the parties may lose a large amount of money.
Don’t forget about the receipt, which will confirm the receipt of funds from the buyer to the seller. This document is always written manually with a ballpoint pen. This is explained by the fact that someone else's handwriting cannot be faked. Consequently, the buyer will protect himself from possible fraud.
How much is the payment?
The legislation says nothing at all regarding the size of the first (advance) payment. This condition is entirely at the discretion of the parties.
In any case, the advance must be less than 100% of the cost of the apartment. Otherwise, we will have to talk about full prepayment, and not about an advance payment.
In practice, the size of the advance varies greatly depending on the price and class of housing . For an ordinary one-room apartment, the seller may ask to pay in advance about 10% of its cost, for luxury, expensive housing - usually no more than 2-3%. However, these amounts are purely indicative: neither the obligation of the advance nor its exact amount is fixed by law, and practice varies depending on the city and the current state of the housing market.
How to properly formalize an agreement between individuals?
In any form?
The law does not provide for requirements for drawing up an agreement on making an advance payment. Formally, you can even conclude it orally. But, since the advance payment acts as a guarantee when concluding a real estate purchase and sale agreement, for which written form is required (Part 1 of Article 550 of the Civil Code of the Russian Federation), it is necessary to draw up this document at least in simple written form.
Neither registration nor notarization is required for an advance agreement. However, the parties have the right to contact a notary and have the advance agreement certified.
Contents and essential conditions
The parties must agree on the following points in the advance payment agreement::
- Subject of the main agreement. The parties must indicate which particular transaction is secured by the advance payment. Therefore, in the advance payment agreement you must either indicate the details of the already signed contract, or describe what kind of housing the advance payment is being made for.
- The price of the main contract and the amount of the advance. The size must be indicated as an exact amount to avoid disputes.
- The method by which an advance payment is made is by transferring cash against a receipt, transferring money to a bank account or seller’s card, etc.
- The period within which the advance payment must be made.
- Responsibility for failure to pay the advance within the period established by the parties.
At the request of the parties, the agreement can be supplemented with other conditions that the seller and buyer considered important for themselves.
The agreement (or contract) on making an advance payment when purchasing an apartment can be downloaded below:
Comments on the document “Advance payment agreement for an apartment”
Reply 0
| Svetlana | 07/18/2014 at 10:46:18 Is it possible to add a clause that the buyer undertakes to wait 2 months for the seller to leave until the completion of repairs in the other purchased apartment? |
Reply 0
| Nikita | 06/24/2015 at 16:35:09 good deal, everything is clear |
Reply 0
| Alexander | 09/04/2015 at 14:49:09 thank you very much for the sample |
Reply 0
| Marina | 11/16/2015 at 18:22:17 Is it possible to return the advance if the buyer changes his mind about buying an apartment? |
Reply 0
| 5 Igor | 11/26/2015 at 15:04:14 Thank you, very well drafted Advance Agreement. |
Reply 0
| 5 Inna | 11/28/2015 at 15:16:19 Great deal. Thank you! |
Reply 0
| 5 Veronica | 02/12/2016 at 22:57:45 Thanks a lot!!!!!! |
Reply 0
| Lena | 02/22/2016 at 11:28:14 Very good sample, helped, thank you very much. |
Reply 0
| Victor | 03/27/2016 at 20:07:13 Thanks a lot. the standard Advance Agreement form was very helpful |
Reply 0
| Elena | 05/10/2016 at 20:58:57 I downloaded it, I don’t know if I’ll use it or not, it seems long |
Reply 0
| Alya | 09.09.2016 at 15:23:31 Good agreement, you can take an example drinking time |
Reply 0
| 5 Olga | 09.22.2016 at 13:08:12 A very useful document. Thank you |
Reply 0
| Larisa | 10/04/2016 at 12:27:27 Good deal, thank you! |
Reply 0
| Tatiana | 10/05/2016 at 23:51:09 Is it necessary to draw up a preliminary purchase and sale agreement for such an agreement? |
Reply 0
| Tatiana | 10/05/2016 at 23:51:17 Is it necessary to draw up a preliminary purchase and sale agreement for such an agreement? |
Reply 0
| Hope | 10/21/2016 at 10:10:42 Everything is wonderfully written! And most importantly, all the points where you need to be safe are listed |
Reply 0
| Oleg | 10/22/2016 at 11:11:45 pm Unfortunately, paragraph 9 does not apply in court |
Reply 0
| Safura | 06/23/2017 at 11:11:59 good deal. Thanks! |
Reply 0
| 5 Love | 08/04/2017 at 16:24:05 Thank you, it helped a lot! |
Reply 0
| Elina | 09/28/2017 at 09:45:19 useful form. Thank you. |
Reply 0
| Basil | 11/21/2017 at 08:54:18 A good example. 20 characters |
Reply 0
| 5 Zhanna | 01/23/2018 at 00:57:56 Good deal. Thank you. |
Reply 0
| 1 Yuri | 02/27/2018 at 18:32:24 “In the event of failure to conclude a purchase and sale transaction for the Property due to the Buyer’s fault, the advance amount remains with the Seller” After reading this paragraph, I realized that the agreement was drawn up by a 6th grade student... |
Reply 0
| Yuri | 02/27/2018 at 18:57:59 here’s another masterpiece: “state registration of a transaction and transfer of ownership is paid by: _________________________” (Seller buyer) The law clearly states who pays for what... |
Reply 0
| 5 Anna | 05/05/2018 at 21:59:08 Excellent contract, excellent, thank you |
Reply 0
| Natalia | 07/05/2018 at 13:24:13 Everything is simple and clear! |
Reply 0
| 5 111 | 09.18.2018 at 13:20:55 Thank you, useful information |
Reply 0
| 5 Artyom | 10/25/2018 at 12:37:30 The most comprehensive agreement that |
Reply 0
| Artyom | 10/25/2018 at 12:38:03 The most comprehensive agreement that I was able to find on the Internet. |
Reply 0
| 5 Vladimir | 09.11.2018 at 22:58:50 Wonderful template. All that is needed! We haven't forgotten anything! |
Reply 0
| 3 Andrey | 11/14/2018 at 08:51:28 Thanks for the template, it helped with the transaction. |
Reply 0
| Love | 11/23/2018 at 08:32:29 Thanks a lot! High quality professional product. |
Reply 0
| Lyudmila Nikolaevna | 12/14/2018 at 10:51:37 pm reply to Yuri Yuri, I agree with you 100% and not even 6th grade, but much lower. |
Reply 0
| Varvara | 12/18/2018 at 22:29:52 How to include in the advance payment agreement the possibility of returning the advance, but paying for the losses incurred by the seller. For example, I changed my mind about buying |
Reply 0
| Lyudmila | 02/09/2019 at 09:43:36 It seems that everything is clear. We'll see how it turns out. thanks for the help |
Reply 0
| 5 Buyer | 02/23/2019 at 00:42:29 Very useful article, learned a lot of new things |
Reply 0
| marina | 03/24/2019 at 19:33:11 Very good site, well-designed forms |
Reply 0
| ELENA | 09.25.2019 at 22:34:43 WONDERFUL SITE! IT WAS USEFUL FOR ME! |
Reply 0
| 5 Lyudmila | 03/12/2020 at 18:55:14 Detailed, indicating regulatory documents |
Reply 0
| 4 Faith | 03/14/2020 at 18:28:48 good example of a contract! Thank you! |
Reply 0
| 5 Sergey | 07/20/2020 at 14:04:13 I found some very important points in your template! Thank you! |
Reply 0
| 1 Dmitriy | 09/01/2020 at 15:47:56 reply to Yuri ) SOOO, isn’t this practically a deposit written with full deduction or return with a penalty (possibly double)? In my opinion, it is ignorant in its very essence to call a deposit an advance for legal consultations. |
Is it possible to specify the amount in the preliminary agreement?
Until now, we have talked about payment under a separate agreement concluded by the parties. Often, to ensure a future purchase and sale, the parties enter into a preliminary agreement . Is it possible to include an advance payment in its terms? The law does not provide a clear answer on this matter.
However, since this option is not directly prohibited by law, Art. 421 of the Civil Code of the Russian Federation, which provides for freedom of contract. It directly states that the parties have the right to conclude a deal, even if it is not provided for by regulations, by including in it any conditions that do not directly contradict the law.
In this case, the actions of the parties will be as follows:
- A preliminary agreement is concluded.
- An advance payment is paid.
- The main contract is concluded.
- The buyer pays the remaining amount under the conditions specified in the housing purchase and sale agreement.
If the conditions for advance payment are included in the preliminary agreement, then there is no need to separately provide for liability for non-payment. Upon conclusion of the agreement, the buyer transfers money to the seller immediately .
Methods of depositing funds
A down payment on a home purchase can be transferred from the seller to the buyer in several ways:
- By transfer of cash.
In this case, the buyer simply pays the agreed amount to the seller, and he issues a receipt for the money.For accuracy, the receipt can be certified by the signatures of one or more witnesses present at the transfer.
- Via bank transfer.
This method is most often used if the seller is an organization, but no one prohibits non-cash payments for individuals. The buyer deposits money into his bank account or card, and then makes a transfer from there to the seller in the previously agreed upon amount.This method absolutely reliably saves the seller from the possibility of receiving counterfeit bills, but it may take longer: if the parties have accounts in different banks, the transfer may take a couple of days.
In addition, in this case, the buyer will have to pay the bank a percentage for the transfer.
- Using a safe deposit box.
This option is suitable in cases where the parties transfer significant amounts as an advance payment, and the seller and buyer are concerned about the safe transfer. The buyer rents a safe deposit box in a bank depository, stipulating in the lease agreement the seller's right of access to it under certain conditions. After this, the required amount is placed in the cell, which the seller takes from there.This transfer option is safe, but also requires rental costs. In addition, this type of banking services is not available everywhere: in a small city there may not be a bank branch with a depository. Finally, this option is more often used when transferring principal than when making an advance.
If desired, the parties may use other payment methods permitted by law.
Consequences of refusing a deal
Many people are concerned about the question of whether the advance is returned or not in case of cancellation of the deal. In the event that an advance is made, but one of the parties to the contract decides to refuse the transaction, the consequences depend on the liability conditions included in the contract.
If there are no additional measures in the contract, the advance payment is returned to the buyer in full . Moreover, if the deal fell through due to the fault of the seller, then the buyer has the right to demand from him not only an advance, but also interest in the amount of the discount rate of the Central Bank of the Russian Federation (Article 395 of the Civil Code of the Russian Federation). However, to do this, the buyer must first demand the return of his funds: interest will be accrued only after the seller does not fulfill his request on time.
Here the advance is fundamentally different from the deposit. For deposit Art. 381 of the Civil Code of the Russian Federation provides the rules:
- If the buyer is to blame for the failure of the transaction, the deposit remains with the seller.
- If the seller refuses the contract, he returns the money in double amount.
- If the contract is terminated by mutual agreement of the parties, then the seller simply returns exactly as much as he received.
Often, many buyers confuse “deposit” with the concept of “advance payment” . However, this does not mean that an advance is worse than a deposit. The conditions for the deposit are strictly stipulated in the Civil Code of the Russian Federation - and in the agreement on the advance, the parties can prescribe any measures of liability for a failed deal and delay in returning the money.
Provided by Art. 395 of the Civil Code of the Russian Federation, interest is applied only if the contract between the seller and the buyer does not provide for other conditions.
When purchasing an apartment, not only an advance or deposit can be used, but also a deposit, which you can read about in other materials.
What additional documents can be requested from the apartment seller?
For your own peace of mind, it is advisable to ask the seller of the apartment for additional documents such as:
1. An extract from the house register (it shows everything registered and written out, it is issued at the passport office).
2. An extract about the absence of debt on utility bills, you can get it from the EIRC (unified information and settlement center).
3.Extract from the Unified Register of Civil Rights (USGP). Issued at the place of registration and contains all transactions on ownership rights that were carried out in this apartment.
4.Technical passport. It displays the original plan of the apartment, against which you can check whether the redevelopment took place and whether it was legalized.
advance payment agreement when purchasing an apartment, you can follow this link.
How to draw up an advance payment agreement when buying an apartment?
It will be necessary to check the “purity” of the object of the transaction, i.e. find out who is registered in the apartment, whether there are minor children, and whether there is a ban or seizure of the apartment.
If the seller of the apartment is officially married, then the written consent of the spouse will be required to carry out the transaction for the sale of the apartment.
It is recommended that the advance payment agreement for real estate include a clause stating that if circumstances are discovered that prevent the buyer from taking ownership of the purchased apartment, the advance payment must be returned to the buyer in full and within the period specified by him.
You can find out how to obtain your spouse’s consent to sell an apartment in this article.
The main thing that the buyer should pay attention to at the stage of concluding an advance payment agreement is the “purity” of the documents, in particular, to:
- no encumbrances on the apartment;
- passport information about the owner (or owners) of the apartment;
- authenticity of documents on ownership of the apartment;
- availability and legalization of apartment redevelopment;
- the presence of apartment owners who have not reached the age of majority (if there are any, you will need permission from the guardianship and trusteeship authorities to sell the apartment).
More information on how to check the cleanliness of an apartment when purchasing is contained in our new publication.
Today, a technical passport is not required to draw up an advance agreement.
It is also worth considering carefully the status of the seller at the time of the transaction, this may relate to incapacity, for example, the age, health of the seller and excessive alcohol consumption.
Therefore, it is worth paying special attention to checking documents and all points of the advance payment agreement, because if you discover any unfavorable information about the apartment for which the advance payment was paid, you can lose it.
What is the difference between a deposit agreement and an advance payment agreement when purchasing an apartment, you can find out in this video:
