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Earnest money contract, everything you need to know 2022
July 4th, 2022 |
When carrying out a home purchase operation, there are several papers that we will have to carry out to formalize the transfer and carry out the transaction legally and safely for both parties. Within all these bureaucratic procedures the earnest money contract is framed.
In this article we are going to see what a deposit contract is and what types of deposit contracts there are, so that we know which one is best for us according to our specific situation. If you want more direct and in-depth information about deposit contracts, do not hesitate to contact us, our group of professionals will wait for you with the best care.
What is an earnest money contract?
The deposit contract is a document, a private contract, which is carried out during the sale and purchase operation. This document accredits the amount that the buyer gives to the seller of the house as a guarantee for the fulfillment of the contract. It is also called pre-contract of sale, due to its function.
The conditions of the commitment to close the transaction are agreed in the deposit contract and if they are not fulfilled by any of the parties, sanctioning measures will be taken, also established in the deposit contract itself.
Therefore, the commitment that certifies the deposit contract is inescapable and an element of security for both parties, buyer and seller, that the operation will be carried out under the agreed conditions.
What information does the contract include?
The deposit contract must include everything agreed by the buyer and the seller. Among this information we highlight that the amounts agreed for the sale of the home must be included, the amount paid by the buyer as a deposit to acquire the house must also be included, the contract must have the personal information of both the buyer and the seller and a detailed description of the house that includes all the important data of the property.
These data are essential, but more information may be included in the deposit contract, it is usually included, as we have already mentioned, the sanction clauses in case any of the parties fails to comply with its part of the contract and suspends the operation, as well as the reasons why the transaction could be suspended without any penalty.
Why is it important to sign a deposit agreement?
The signing of this document will provide us with security when carrying out the operation. When we want to buy a house, and while we carry out the procedures with the bank, it is important to know that they are going to reserve that house for us and that if another buyer appears, they are not going to sell it to him.
For this, the deposit contract is signed, to ensure that the house will be for us and when paying a deposit to the owner that this payment is recorded in writing, as well as all the conditions of the reservation of the property.
For both the buyer and the seller, signing an earnest money contract is a guarantee that the agreed conditions will be met so that the purchase and sale operation is carried out.
What are the types of earnest money?
Depending on the intentions of the parties participating in the deposit contract, we can speak of three different types of deposit contracts. Let’s see them below:
Confirmatory deposit contract
In this type of confirmatory deposit contract, an expression of binding force is exercised. In this case, if one of the parties breaches the contract, the other may choose between demanding compliance with the obligation or its resolution with a payment of damages in its favor, although the damages must be legally proven.
Penal deposit contract
In this case, the amount provided as a deposit is not part of the price of the house, but works as a penal clause. These criminal deposits will replace compensation for damages in the event of breach of contract, always in accordance with the provisions of the Penal Code.
Penitential earnest money contract
In this deposit contract, the buyer and the seller agree that, if there is a breach of the contract by the buyer, he will lose everything delivered in the concept of penitential deposit, while, if the fault of the breach is attributed to the seller, he must pay double the amount delivered by the buyer as a down payment.
As you have seen, the deposit contract is important in the transaction of buying and selling a home, whether you are a buyer or a seller, it is useful and provides security in the face of the operation and the problems that may arise. For all these reasons, it is necessary that you have the best team of professionals at your disposal so that they advise you and inform you in the most precise way, and you can know which is the best decision for you. Come to Homewatch and meet our team, in it you will find the security of a professional dedicated to his clients.
Article by Vanesa Mena, Jul 04, 2022