What is a down payment in a real estate transaction?

Once you have chosen the property you want to buy, you will sign the preliminary sales agreement, also called the sale commitment. This contract secures the transaction with a commitment from you to the seller and vice versa. The obligations of the signed preliminary sales agreement include a down payment as a first instalment. Unlike the deposit, the down payment does not allow you to withdraw from the contract. Please note that the pre-emption right applies in certain cases and can therefore cause the sale to fail even after the preliminary sales agreement has been signed.

We have chosen to explain what a down payment is, when it applies and how it works.

Definition: principle of a down payment

The procedure of preliminary sale agreement makes it possible to secure both parts before the final signature in front of a notary. By signing this document, the seller commits to sell his property at the determined price and renounces to offer his property to another buyer. In return, the buyer pays a down payment to show his willingness to buy the property. This down payment is neither more nor less than the first payment for your purchase, and therefore a partial payment of the agreed price.

It takes place under precise conditions to avoid any misappropriation. The transaction is officialized and secured by the practice of this down payment.

Although very common, the down payment is not a legal obligation. The use of a down payment is decided on a case by case basis depending on the property in question, but also on the two parties and their requirements. It can be paid either at the time of signing the agreement or at a later date agreed by both parties. However, it is essential to include it in the contract to keep a written record of the exchange.

In what situation is the down payment mandatory?

Although it is a common practice and it is subjected to the goodwill of the parties, the down payment is mandatory in certain specific real estate transactions. Two cases are identified for this purpose:

A preliminary sale agreement considered long term

These are preliminary sale agreements that extend beyond 18 months. The future buyer is then obliged to make a down payment of a minimum of 5% of the price of the property for sale.

The sale in the future state of completion

As this is becoming more and more common in real estate transactions, there are agreements on the amount of down payments that have become an obligation.

For a delivery of the property within the year, a payment of 5% of the estimated price is to be expected. In the case of a delivery estimated in two years, the down payment is then 2%.

How is the down payment calculated?

The calculation of the amount of the down payment has no legal framework. Its value is fixed according to the conditions agreed upon by both parties. However, it should be noted that in most cases, the down payment is the equivalent of 10% of the total amount of the transaction.

This money is then kept in a blocked account under the supervision of the notary supervising the sale and it is intended solely for this purpose.

Legal retraction period and down payment

As a buyer, you have a legal withdrawal period of 10 days. Once this period has elapsed, you will have to justify a legitimate reason to recover your down payment.

Legitimate reasons are given in the suspensive clauses of the preliminary sales agreement. These include, for example, a refusal of a loan to finance the project or the refusal of the local town hall to grant a building permit for the said property. Be sure to read these clauses carefully at the time of signing. They will allow you to recover the down payment without penalty in case of problems.

Nevertheless, if none of the legitimate reasons can be evoked, then the down pament will be given to the seller as compensation for the time and steps taken.

A down payment deducted from the final price of the property

The amount of the down payment is deposited by the notary in a deposit account.

It is important to know that for the release of the down payment, both parties must have a written agreement. If the seller does not wish to sign, it is advisable to go to court to decide what to do with the money.

The down payment remains frozen in the deposit account until the deed of sale is signed. It will then be deducted from the total price at that moment, excluding taxes and levies. You will then only have to pay the rest of the amount of the property you wish to buy. To avoid any misunderstanding, it is therefore essential to notify the amount of the down payment in the preliminary sales agreement.