The earnest money contract is one of the most important guarantees for closing a real estate transaction. Find out from Emporda Immo what this agreement entails and save yourself some surprises.
An Earnest Money Contract is a written agreement that is signed prior to the purchase of a property. This document serves as proof of willingness to transfer said property from the Seller to the Purchaser. The reservation of the property is therefore made effective by signing the Earnest Money Contract, in which the property price is also settled upon. In Emporda Immo we want to help you in the process of buying your new home so in this article you can discover everything about earnest money contracts, what types there are and how they affect the buying process. Let’s get started!
Purpose of an earnest money agreement
First of all, we must know that an earnest money contract is not really established as a contract but as a clause of a contract of sale of a property.
In general, the earnest money agreements appear as a private document attached to the purchase contract of the property as a reservation of the same. Therefore, we can establish that the purpose of an earnest money contract is to indemnify the buyer of the property in the event that the purchase is not made for reasons related to the seller.
In the same way, the earnest money protects the seller by giving him the right to receive economic compensation in case the sale does not take place due to causes related to the buyer.
There are different types of earnest money clauses , each of them with a specific mission, so let’s see what type of earnest money contract may interest you the most.
Types of earnest money contracts:
Confirmatory
The confirmatory earnest money contract is merely a confirmation that the contract of sale is correct and that in the event that the sale does not take place, the seller of the property will be entitled to keep the amount of the earnest money. Likewise, if the case is the other way around, i.e. if the sale of the property does not take place for reasons related to the seller, the buyer will be entitled to the restitution of double the amount of the amount established as the value of the earnest money.
This type of earnest money is regulated in the Civil Code Article 1454.
Penalty deposit agreement
The purpose of the earnest money contract is to penalize, i.e. to provide compensation for damages in the event of breach of the purchase contract.
This type of earnest money contract is legislated in Article 1124 of the Civil Code.
Penitential deposit contract
The penitential earnest money also known as “arras de desistimiento” regulate the right of both buyer and seller to withdraw from the sale and purchase of the property in exchange for the same penalty as in the previous cases.
These earnest money clauses are also regulated in the Civil Code Article 1454.
As you have seen, these contracts are crucial in a sales contract to guarantee indemnification in case of default by either party.
Now that you know the keys to earnest money contracts, what are you waiting for to look for the house of your dreams? Let us help you get the home you and your family have always wanted by clicking here.
