What is a deposit agreement?

One of the first and most important steps in the process of building a home is finding and purchasing the plot where it will be located.

For this, it can be very helpful to know what a deposit agreement is.

Before going into detail about what a deposit agreement is, we would like to remind you that if you are in the process of looking for a plot, you can read our article on choosing and buying a plot, where you will find the key points for carrying out the necessary checks before purchasing.

The importance of buying the plot

Buying a plot is a very important moment in the process of building a home and a significant part of the budget, potentially accounting for up to 50% of the total construction cost.

In addition, the choice of plot will influence design aspects of the future home, such as its location, orientation, topography, surrounding infrastructure, value and size, or the risk of flooding.

That is why it is very important to choose the right plot on which to build a home and to be able to purchase it at the right time. But what happens if we find the perfect plot and are not ready to apply for the necessary financing and take the final step to buy it?

In that case, it will be very useful for you to know what a deposit agreement is and how to sign one. Let’s get started!

The basics of a deposit agreement

Briefly and simply, we would define a deposit agreement as a private contract signed by the buyer and the seller of the plot in question.

Signing this contract allows you to reserve the right to purchase the plot so that no other buyer can acquire it for an agreed period of time, during which you can finalize the financing for the purchase.

As you can see, a deposit agreement acts as a reservation of a plot for the subsequent formalization of its purchase. Sounds useful, doesn’t it?

So that you fully understand what a deposit agreement is and how it can be enforced, we have outlined 5 key aspects that will help you assess whether or not it is in your interest to sign one.

5 key points of a deposit agreement

1 How to make it effective

To sign a deposit agreement, you must complete a series of required details and pay a percentage of the total agreed price of the plot between the seller and the buyer as a deposit.

This way, you can secure the purchase of the plot you are interested in within the timeframe set out in the contract itself. It is essential to clearly define the amount to be paid, as well as the timeline to follow.

In addition, to avoid surprises later on, we recommend that you pay close attention to all the information that must be completed when signing a deposit agreement. We detail it below.

2 Information included in a deposit agreement

As we have mentioned, along with the financial contribution, signing a deposit agreement must include, at a minimum, the following information:

Here is one of the questions we are most often asked by clients who are interested in buying a plot.

Be careful with the allocation of purchase costs!

Another financial aspect to consider when signing a deposit agreement is the allocation of purchase costs. Normally, the seller covers the costs related to obtaining the public deed.

On your side, as buyers, you will have to pay the amount corresponding to registration with the Land Registry and the Property Transfer Tax or VAT.

4 Who must sign the deposit agreement?

The contract must be signed by both parties: the buyer and the seller. If you are buying as a couple, there are two possibilities.

If you are married under a community property regime, only one spouse’s signature will be required to formalize the deposit agreement. If you are not married or you have a separation of assets regime, both of you will need to sign.

5 Breach of the deposit agreement

Finally, we would like to explain what happens if the deposit agreement is terminated due to a breach by one of the two parties.

It is very important that you are clear about your rights, but also about the responsibilities you take on when signing a deposit agreement.

If you, as the buying party, terminate the contract, you will lose the amount paid, unless there is what is known as a hidden defect; that is, a serious, demonstrable, and concealed defect in the contract that has caused irregularities during the process.