In the home buying process, one of the most important steps is to ensure that no one else gets ahead of you while you complete your financing or prepare the necessary paperwork. This is where the home reservation contract comes into play, an agreement that ensures that the property is reserved for you while you complete the paperwork. Let’s take a closer look at what this contract entails and why it is important to understand it well if you are thinking of buying a home.
What is a housing reservation contract?
The home reservation contract is an agreement between buyer and seller that ensures that the property will remain off the market for a certain period of time. During that time, the buyer must finalize the details of the purchase, such as financing or review of the property documents. In this contract, the buyer advances a small amount of money, usually between 1% and 5% of the total price, which will be deducted from the final price of the house.
The reservation document is not a binding contract that ensures that the future sale and purchase transaction will be carried out, but it does bind the seller to deliver the property to the buyer, who also has the obligation to purchase it.
Differences between reservation contract and earnest money contract
The reservation contract and the earnest money contract are often confused, but they have key differences. The earnest money contract is regulated by the Civil Code, which gives it greater legal certainty. In addition, this contract is more rigid: if the buyer withdraws, he loses the money paid, and if it is the seller who backs out, he must return double the down payment.
On the other hand, the reservation contract does not have such a strict legal framework, which makes it less secure from a legal point of view. However, this contract can be terminated if it includes a clause that allows it. The main difference is that the earnest money contract can be terminated if the corresponding indemnity is assumed, whereas the reservation contract can only be terminated if a clause allowing it is included.
Advantages of a standby contract
This type of contract has advantages for both the buyer and the seller:
- Time to close the financing: If you are the buyer, it assures you that the home will not be sold to someone else while you finish arranging the mortgage loan. This type of contract gives the buyer time to get the money needed to pay for the home.
- Guarantee of sale: The seller, on the other hand, has the certainty that the buyer is serious and interested, and can start preparing the necessary documents for the sale.
- Lower down payment: Unlike the earnest money contract, the amount advanced in a reservation contract is lower, which may be more affordable for the buyer.
Types of home reservation contracts: new construction and under construction
In the case of new homes or homes under construction, there are two types of reservation contract that you can find:
- Reservation in pre-commercialization phase: This type of contract is used when the home is still in the planning or construction phase and does not have a building permit. It is a more flexible contract and usually allows you to get your money back if you decide not to proceed with the purchase.
- Reservation in the commercialization phase: Here there is already a building permit, and the contract is more formal. The down payment includes VAT and the buyer has about 10 days to decide whether to go ahead with the purchase.
Rights and obligations arising from the signing of the contract
Signing a reservation contract implies commitments for both parties.
Rights and obligations of the buyer
- Right to buy the property under the agreed conditions: The buyer has the right to respect the conditions agreed in the contract, both the price and the delivery date.
- Obligation to comply with payment deadlines: Once the contract is signed, the buyer must comply with the deadlines established for the payment of the total amount.
Rights and obligations of the seller
- Obligation to sell the property: The seller undertakes to deliver the property in the agreed conditions, even if he receives a better offer at a later date.
Frequently asked questions about the housing reservation contract
How much money is given in the reservation contract?
Normally, the down payment ranges from 1% to 5% of the total price of the property, depending on what is agreed between the buyer and the seller.
How long does it take to reserve a property?
The term is usually between 10 and 30 days, which allows sufficient time to arrange financing and complete the necessary documentation.
What happens if the purchase is not formalized after the reservation?
If the contract does not include a cancellation clause, the buyer may lose the money advanced. If such a clause does exist, the parties must comply with the specified conditions to cancel the agreement.
From 1mast, specialists in buying and selling properties in Fuengirola, we take care of all the paperwork and procedures so that you only have to worry about enjoying your property.
