When buying a house or apartment in Sochi, it is very important for the buyer to confirm the seriousness of his intentions and make an advance payment to the seller, which acts as a guarantor of the transaction. Of course, this should be done only after you have definitely decided on the property and are one hundred percent sure that this is where you want to live or vacation.
There are two options for prepayment - a deposit and an advance payment. For many, these words are synonymous, but in reality there are colossal differences between them.
Prepayment – what is it for?
Let's assume that you have already found the apartment of your dreams in Sochi and want to become its full owner. Making an advance payment in this case guarantees that the owner is guaranteed to sell it to you and will not consider other buyers.
An advance payment for the property chosen by the buyer is made for a certain period and is counted towards the total cost of the apartment or house. It is imperative to sign an agreement stating that the buyer transferred the funds and the owner received them. By the way, not only the owner, but also his authorized representative can accept advance payment.
For example, an employee of a real estate agency with appropriate powers. In addition, prepayment gives both parties to the transaction certain financial guarantees and fixes contractual obligations. The prepayment can be a deposit, an advance payment or a deposit.
Below we will look at each of the methods in detail, figure out what their main differences are and how to correctly make an advance payment for the apartment you have chosen.
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Deposit
The very definition of the term “deposit” is clearly stated in Article No. 380 of the Civil Code of the Russian Federation. It represents a certain amount of money that the buyer transfers to the seller on account of a future transaction.
In addition to the fact that it acts as an advance payment, it also acts as a guarantor of ensuring all the conditions specified in the contract.
Characteristic features of the deposit:
- If the transaction fails due to the fault of the seller, then the deposit is returned to the buyer in double amount;
- If the transaction fails due to the fault of the buyer, then the deposit remains with the seller;
- If the transaction cannot be completed due to force majeure circumstances (fire, natural disaster), then the deposit is returned to the buyer without imposing penalties on the seller.
The payment of a deposit when purchasing an apartment or house is documented in writing. Moreover, the amount does not really matter here. The agreement can be drawn up by hand or executed on a special form.
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Advance, deposit, pledge - similarities and differences
The difference between a pledge and a deposit and an advance lies in the functions performed and their purpose in mortgage lending. The security role is inherent in all three concepts; the penalty is not specified only in the contract for an advance payment. Without collateral and deposit and advance payment, it is impossible to carry out any transaction for the sale of real estate and its purchase.
The reason for the confusion in the interpretation of terms can be attributed to the difference between an advance and a deposit. The easiest way to understand the difference between a deposit and an advance when purchasing real estate is to look at the example of unfulfilled agreements.
If the advance is cancelled, the money goes back to the buyer in full. No one loses anything financially. The degree of culpability of the counterparties is not taken into account when the event is disrupted. This is the ideal outcome of events when one person returns money to another without trials or litigation. If one of the parties refuses to return the funds to the other, then the opponent begins collecting evidence to resolve the conflict. The outcome depends on how well the documentation was drawn up.
If the contractual terms of the deposit are violated within the prescribed time frame, one party is obliged to pay monetary compensation to the injured person. If the initiative to terminate the agreement comes from the buyer, then the amount given to the seller is not withdrawn. If the owner of the property fails to fulfill the obligations endorsed in writing, the amount is returned to the buyer in double amount.
Exceptions include only the sudden death of the seller or force majeure events that lead to damage to the property beyond the possibility of its restoration. Then the penalties are canceled. Cancellation of a contract is not beneficial to anyone. If the transaction takes place, the deposit becomes part of the payment.
The Civil Code of the Russian Federation describes deposit and advance payment as unequal terms. Their essence is spelled out in and. Only the deposit is subject to legislation. The law of the Russian Federation interprets the payment as an advance payment if the contract did not indicate that the payment was a deposit. In an advance payment agreement and a deposit agreement, the difference is determined by the semantic content .
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The pledge, unlike the above methods of depositing a share of the total amount, does not operate with money. It is expressed not in money, but in property units. A pledge agreement is concluded when real estate is the subject of obligations under a loan (mortgage) agreement. Simply put, the object itself (house, apartment), taken on a mortgage, is the subject of collateral ().
Borrowers often ask whether it is possible to get a mortgage loan without making a down payment. This is possible, but it happens quite rarely. The state has clearly defined the list of persons who can qualify for preferential conditions with a zero rate: military personnel, families of teachers, doctors, participants in various programs, for example, Young Family or using maternity capital, etc.
It turns out that getting a mortgage at a zero rate is quite difficult and not always convenient. Credit institutions put forward a number of additional requirements: purchase only from a specific developer, an expanded list of documents. A down payment for a bank is a way to protect itself from insolvent and unscrupulous citizens.
In the event of failure by the mortgage debtor to fulfill its obligations, the creditor bank has the right to receive back the issued loan. To do this, the property is put up for auction to recover losses.
There is another term - prepayment. The Civil Code of the Russian Federation considers it equivalent to an advance payment (ground). However, there is a small nuance: an advance is a part of the funds, and prepayment is a selective concept and can be paid either partially or in full. In common parlance, an advance payment is called an advance payment; business style, of course, uses the term advance payment. A deposit has a completely different purpose, different from an advance payment.
The procedure for returning money in case of dishonest fulfillment of obligations of the prepaid payment system is exactly the same as for an advance payment. Is the advance or deposit or prepayment refunded? The clear answer is all three methods of calculation, but depending on the conditions.
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Prepaid expense
An advance is a certain amount of money that the buyer transfers to the seller to cover expenses. This is a preliminary method of payment for an apartment and, as a rule, its amount is 1-3% of the total price of the property. There is no clear definition of this term in the Civil Code of the Russian Federation.
The main difference between an advance and a deposit when buying an apartment is that if the deal is disrupted for any reason, the advance is fully returned to the buyer.
However, if part of the money has already been spent on collecting and verifying documents, then the funds will not be returned in full.
On the question of what is the difference between a deposit and an advance, all experts are of the same opinion that an advance is a simpler method of prepayment that does not carry strict liability for both parties to the transaction. However, the deposit protects the interests of the participants in the event of dishonesty of one of them.
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Why pay an advance or deposit?
An advance or deposit in the form of a deposit when selling an apartment is transferred to the seller by the buyer in several cases:
- The apartment is purchased with a mortgage, and in order to confirm the intention to conclude the main DPA, the parties draw up a preliminary DPA with a deposit. With a mortgage, it takes time for the bank to approve the transaction, and you often have to wait several weeks. To be sure that the transaction will go through, the buyer can give the seller a deposit.
- The seller has debts and they need to be paid off. For example, if an apartment is pledged to a bank under a mortgage, the buyer can transfer to the seller an amount equal to the balance of the debt so that he deposits them into a bank account, and the bank removes the encumbrance. After this, Rosreestr will register the transfer of ownership.
- The buyer only has part of the price for the apartment, but he needs the seller to hold it for him. The pre-contract upon transfer specifies the period within which the main contract must be concluded.
Important! Most transactions are carried out with a deposit or advance payment. The first part of the amount is transferred to the seller on the day the contract is concluded and documents are submitted for registration, the remaining part is transferred after registration of the transfer of ownership.
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What is better to choose - a deposit or an advance agreement?
Choosing a suitable prepayment method should first of all be based on your personal wishes. For example, if you are one hundred percent committed to a transaction and are pursuing the goal of establishing the responsibility of the parties, then choose a deposit that strictly regulates all rights and obligations.
If you are worried that the deal may fall through for some reason and do not want to lose money, then it is better to consider the option of an advance payment.
We have already found out what is the difference between a deposit and an advance. Let us just note once again that regardless of the prepayment method chosen, it is very important to record everything in the contract - specify the amount, termination procedure and other nuances.
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Collateral - what is it?
Another way to show the seriousness of your intentions regarding the purchased property is a deposit. In practice, it occurs quite rarely, but it does occur, so we have dedicated a separate paragraph to it.
Often for buyers there is no obvious difference between a deposit, a deposit and an advance. Now that we’ve sorted out the differences between the latter, let’s move on to the pledge.
So, collateral is a method of prepayment in which the buyer transfers to the seller not finances, but some valuable item. This category may include real estate, jewelry, cars.
Each case is considered individually, since not all sellers want to receive someone else's property as a financial guarantee.
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How to draw up a contract correctly?
Whichever method of making an advance payment you choose, it is very important to pay due attention to drawing up the contract. It must necessarily reflect the following points:
- Seller and buyer data;
- Detailed information about the property;
- Amount and terms for which advance payment is made;
- Necessary actions of the parties (for example, the owner must prepare certificates of absence of debt, consent of the spouse);
- Deadlines for deregistering an apartment;
- The time frame within which the owners must vacate the apartment;
- Factors and reasons that may interfere with the transaction;
- Signatures of the parties.
It is also mandatory to specify in the contract the date and place of the transaction.
If the seller turns out to be dishonest and refuses to return the advance payment, then, if there is an agreement and a receipt for receipt of funds, you can always return the money in court.
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Risks
As you can see, the advance and the deposit have significant differences - both regarding their functions and regarding the conditions of return.
There are advantages to an advance agreement for both the seller and the buyer.
The seller, if he changes his mind about selling or is offered more favorable terms for the transaction by other buyers, does not risk anything and can simply return the deposited amount.
The buyer, if he changes his mind about buying or finds a more advantageous offer, also does not risk anything and can demand a refund of the deposited amount.
However, these risks can be easily mitigated by including in the agreement penalties for various cases, such as unmotivated refusal to buy/sell or reimbursement of expenses incurred by each party in preparing for the purchase and sale transaction.
A deposit undoubtedly adds seriousness to the agreements of the parties and disciplines both the buyer and the seller, especially if the deposit amount is 5% or more of the price of the property.
It is better to make a deposit in cases where the buyer is absolutely sure that he will purchase this property. Concluding an agreement on a deposit does not guarantee that the parties will fulfill their obligations, but at least it gives more confidence that the transaction will take place.
As with any monetary obligation, there is a risk that the seller may not have what it takes to return the money. In this case, the funds can be returned in court.
