When buying real estate, a down payment on the purchase price is standard practice. With the deposit, the prospective buyer secures their claim to the property. If you have found a property that you find attractive, you cannot usually pay for it immediately in cash. Financing is necessary. This often consists of various components. In most cases, you can only apply for financing once the details of the purchase are known. For example, the purchase price and the exact location of the property must be known. You cannot apply to the bank for financing in order to buy a house at some point. This procedure means that after the personal purchase decision has been made, there is initially a period during which the sale is on hold. In order to maintain the claim during this period, the payment of a deposit is obligatory for many purchases. Before you decide to pay a deposit when buying a property, there are a few things to bear in mind. Find out everything you need to know to make a well-informed start to the buying process.
Attention: Please note that all information is provided without guarantee and this article does not constitute legal advice. For detailed information on your individual circumstances, please consult your case officer.
The definition of down payments when buying real estate
The down payment when buying a property is no different from any other down payment you make when you purchase a good or service. The definition is clear in business: it is a down payment if you transfer a predefined part of the purchase price to the seller. A monetary amount can be defined for such a down payment. Alternatively, the down payment is described as a percentage. For example, you may be required to make a lump-sum down payment of EUR 50,000 when buying a property. You can also be instructed to transfer 25 percent of the purchase price to the buyer or the notary in advance.
Four key features characterize the down payment:
– You pay part of the purchase price directly after your purchase decision
– You do not take possession of the property at the time of payment
– If the purchase does not go through, the deposit is returned to you without deduction
– A deposit may also be due upon conclusion of the purchase contract and is then binding
A deposit is not only common when buying real estate, but also for other everyday transactions. For example, you have to pay a deposit when booking a trip. Providers use this to protect themselves against loss of earnings. This means that you do not have the option of reserving a property – or even a trip – for a longer period of time and thus taking it out of the sale. However, buying a property differs from booking a trip in that you will get your deposit back if you change your mind. This is not usually the case with a trip. The reservation conditions of the tour operator apply. As long as you have not concluded a legally binding notarized contract when buying a property, you are under no obligation and can decide to buy another property. Please note, however, that the seller has the same right: He can refund your deposit and sell to another interested party.
Legal background for making a down payment when buying a property
Buying real estate is a special transaction. As such, the conditions for the sale differ from other commercial transactions that you carry out in everyday life. Liquidity plays a decisive role when buying a property. No seller will accept a bid from a prospective buyer if they do not have the necessary funds for the sale. It is therefore customary to submit a Schufa self-disclosure when expressing interest in a purchase. As a rule, sellers are only awarded the property if they can prove that they have a very good credit rating. The deposit serves to confirm the intention to buy. It is not an additional payment: if the purchase goes through, it will be credited in full against the purchase price. This means that you do not lose any money if you make a down payment for the purchase of a property.
Does a down payment make sense when buying real estate?
Many prospective buyers ask themselves whether a down payment on the purchase of a property is sensible and necessary. It is important to know that a down payment does not constitute a purchase contract. This means that you cannot make a claim to the subsequent purchase of the property. You are merely declaring your intention to buy the property. The final purchase of the property is only concluded when you sign a purchase contract with the notary. This must be notarized by the notary. The purchase is completed when you are entered in the land register as the new owner.
Seller may change his mind
Please note that the seller is not obliged to sell the property to you once a deposit has been paid. Assuming that a prospective buyer comes forward after the down payment has been made who is willing and able to transfer the purchase price immediately, the seller can decide in favor of this prospective buyer. From a legal point of view, this is not an offense, as the down payment has no relevance in the legal code. If the seller accepts the bid from another interested party, he must refund the deposit to you. You may be able to claim interest. But you are not entitled to the purchase of the property.
Negative effects of a down payment
A deposit may have a negative impact on the purchase of a property. You should consider this before agreeing to pay a deposit. For example, if the property is very difficult to sell, you may pay too much if you reserve the property too early. The seller is often forced to adjust the price downwards. If you have reserved the property with a deposit, you are bound to the price and do not benefit from a price correction. Therefore, depending on the market situation and the condition of the property, it may be a better decision if you waive the deposit.
Seller benefits from the down payment
The seller benefits from a deposit when buying a property in several ways. If the customer is in a position to pay a larger amount, this speaks for his solvency and also for the fact that he has a serious interest in buying. However, the seller should not invest the deposit immediately, but wait and see whether the purchase goes through. Otherwise, there may be difficulties with repayment.
Down payment when buying a house
What options are there for making a down payment for a house purchase? First of all, the timing of the down payment can vary. As there is no legal requirement, it is possible for the buyer and seller to agree the timing of the down payment individually.
The following periods are usual for a down payment when buying a property:
– Down payment before notarization
– Down payment upon conclusion of the purchase agreement
It is advisable for the buyer to make the down payment only after notarization. The reason for this is that the purchase is only concluded with the notarization. Before this, you as the buyer have no claim to the purchase of the property. This also applies if you have made a large down payment. It also makes no sense for the seller to receive a down payment from the buyer before the notarized contract is concluded. Due to the lack of a legal basis, the buyer has the right to reclaim the down payment, for example if they change their mind about the purchase.
Equity is crucial for a successful real estate purchase
The amount of equity is a decisive factor for a successful real estate purchase. If you can raise part of the purchase price in cash, you will have no difficulty making a down payment. In addition, the financing is on a secure footing because you have to borrow a smaller amount from the bank or savings bank. This means that you not only pay a lower loan installment, but also less interest, as this is based on the amount borrowed.
How much down payment is the rule when buying a house?
What is the amount of a down payment when buying a house? As there are no legal regulations for this either, the buyer and seller are free to agree on the down payment. As a rule, the down payment is at least 20 percent of the purchase price. The usual figure is 30 percent. If you have this amount of equity, you can put your real estate financing on a really secure footing. In addition to the lower interest rates already mentioned, you will also get better conditions for your loan.
Disadvantages of a down payment when buying real estate
Is a down payment binding when buying a property and can you derive rights from it? Section 266 of the German Civil Code states that a debtor does not have to make a down payment as he is not entitled to do so. A purchase price is due in a single sum. Furthermore, Section 337 (2) BGB stipulates that a purchase price must be refunded if the purchase contract is canceled. Furthermore, a down payment violates Section 320 BGB. This stipulates that a purchase is a so-called step-by-step transaction. This means that the seller and buyer must fulfill their contractual obligations at the same time. This in turn means that the goods, in this case the property, must be handed over or delivered immediately after payment.
Conclusion
A down payment when buying a property is not regulated by law. Strictly speaking, it even contravenes various laws of the German Civil Code. Nevertheless, it is customary to make a down payment of 20 or 30 percent when buying a property. As a rule, a down payment of 30 percent is agreed, as this corresponds to the equity that must be raised to securely finance the property. As a buyer, make sure that you only pay the deposit after the purchase contract has been signed. From a legal point of view, you have no right to the transfer of the property before then, even if you have paid a deposit. If the purchase does not go through, the deposit must be refunded by the seller.
