- An advance is returned in the same amount. A deposit works as a guarantee: the party at fault loses money.
- For a deposit to work, it's made in writing together with a contract for the deal.
- A preliminary agreement for buying a flat is notarised.
Someone finds their dream flat, agrees with the seller and hands over a thousand-dollar deposit. In cash, against a handwritten receipt. A month later the seller says they've changed their mind.
And getting that money back turns out to be almost impossible.
What you call the money is how it works
In a situation like this, everything comes down to what the money was called on paper. And most people don't even know there's a difference.
| Advance | Deposit | |
|---|---|---|
| Buyer at fault | The money is returned | The money stays with the seller |
| Seller at fault | Returns the same amount | Returns double |
| Form | Any written form | In writing, together with a contract for the deal |
If it's an advance, the seller simply returns the same amount and you part ways. If it's a deposit, the law works differently: if the buyer is at fault, the money stays with the seller; if the seller is at fault, they return double.
Why a handwritten receipt won't save you
For a deposit to work, it has to be made in writing and tied to a contract that concerns the deal itself. A handwritten receipt without a sale agreement usually turns into an ordinary debt that still has to be proven in court. And you won't get double back from it.
How it should be done
Sign a preliminary agreement. It states expressly:
- that the money handed over is a deposit;
- the deposit amount and the price of the flat;
- by what date the parties will sign the main agreement;
- what happens if someone backs out.
An important nuance: an agreement to buy a flat is certified by a notary. So the preliminary agreement must be notarised too. Otherwise it's void, and with it the deposit's protection.
Before handing over any money, check the flat. A deposit won't help if the problem is in the property itself.
What to check before paying a deposit
On the secondary market: owners, seizures, mortgages, heirs, children's rights. That's covered in checking a flat. In a new build: the developer and the land; see the article how to check a new build.
More about the service: deposit and preliminary agreement.
Frequently asked questions
What's a usual deposit amount?
The law sets no limit. It's usually a few percent of the flat's price.
What if the bank doesn't approve the mortgage?
That situation is worth providing for separately in the agreement, so you don't lose the deposit.
Can I pay a deposit against a receipt?
You can, but without a contract for the deal itself the receipt protects you poorly.
This article is general in nature and is not legal advice. Every situation has its own nuances.
