Prepayment in the framework of the purchase and sale of real estate, including apartments, is expressed in the form of making a small part of its basic price, which the buyer sends to the seller in order to confirm that he intends to purchase one or another housing.
How is the purchase paid?
As a rule, when concluding documents on transactions between individuals in the secondary market, cash can be transferred from hand to hand. And when you purchase a new building from the builder, the money is transferred to the cash desk of the institution or can be sent non-cash to its account. This is done as a so-called security payment. Deposit or advance? We will understand these concepts in more detail.
Practical methods for depositing money when buying an apartment
In the primary market, issues such as making a prepayment during the purchase of an apartment, for example, the period, amount, conditions for the transfer of money, are entirely decided by the developer - that is, the construction company. In this situation, nothing depends on the buyer. Below is an example of a case in which the buyer will independently influence the process associated with making a preliminary payment, and will also determine the conditions for the transaction.
Prepayment period
Any prepayment for an apartment for transactions of purchase and sale is paid for a specific period of time under a contract or agreement, and is also counted in the amount of upcoming payments for the transaction. Preliminary funds are entitled to receive both the owner of the apartment, that is, the seller, and the agent named by him, including a real estate agency that sells his client’s apartment. Will it be a deposit or an advance?
Prepayment made during the purchase of an apartment is paid as an advance or a deposit. So, what are the main differences between an advance and a deposit when making transactions on sale? And also what is most often used in the practice of the real estate market and for what purposes? This will be discussed below.
Transfer of a deposit when buying a property
The deposit carries a prepayment form when buying an apartment, when in cases where, for some reason and fault on the part of the buyer, the transaction was not completed, the funds for the deposit remain with the seller of real estate.
In situations where the intended transaction was not completed within the agreed time due to the fault of the seller, he must return the amount of the deposit to the buyer in double size. What to apply - a deposit or an advance?
Due to these conditions, the deposit has the function of reliably securing obligations between both parties. Thus, the person who is guilty of disrupting the transaction must be held financially liable.
Some nuances
At first glance, the above conditions seem quite logical, but there is one “but”, which lies in the fact that it is because of the existing financial responsibility that such deposit agreements are used very rarely when buying an apartment. Often, real estate agencies accept an advance payment for an apartment, but try not to take it as a deposit, which means that they do not bear any financial responsibility when the transaction breaks down due to the fault of their client, that is, the seller of the living quarters.
Deposit or advance - what is the difference? This question interests many.
The concept of deposit and advance
The deposit as a concept is regulated by law, the essence of which is clearly spelled out in article 380 of the Civil Code of the Russian Federation. Unlike a deposit, the law does not have a clear definition for an advance, although the term itself is still mentioned there. It is generally accepted that if, when transferring an advance payment, the parties did not specify a deposit in their contract when buying an apartment or in the agreement that it is a deposit, then the law will interpret this amount as an advance.
Advance value when buying an apartment
An advance is money paid as a prepayment, which is transferred by the buyer to the seller as part of future payments for the upcoming transaction, but there is no security function. That is, in a situation where the transaction could not be completed for any reason, the advance in the usual manner returns back to the buyer. No one bears responsibility at the same time. The deposit agreement when buying an apartment involves financial responsibility.
At its core, an advance is the same as a deposit, the difference is that there can be no consequences associated with liability for participants in a transaction. As such, it does not have much significance, since it does not provide any obligations.
Sellers like an advance
In fact, real estate sellers try to avoid getting an advance payment on the conditions of a deposit, they prefer to take an advance. But advance agreements provide for penalties for buyers. That is, in the case when they refuse to buy real estate without any reason. In such a situation, the advance will not be returned, because it will be withheld as a fine. And if the seller decided not to sell the apartment, he can simply return the full amount of the advance to the buyer without any penalties. Such conditions can hardly be called equal, but such is the current market practice.
Obtaining an advance instead of a deposit simplifies the formation of alternative transactions, since in such cases one seller depends on another, which means that he must assume monetary responsibility for its failure, which in the case of a deposit will be unreasonable. That is why when building a strategy for transactions, they prefer to apply an advance.
Agreement on advance and deposit upon purchase of an apartment
In the secondary market, an agreement, as well as an advance agreement, is drawn up between individuals in arbitrary written form, while the main participants in the transaction are the buyer and seller, the same works with respect to the deposit. What to choose, a deposit or an advance, is up to the participants of the transaction themselves.
There are options when the advance is paid, or accepted by a trustee on behalf of the seller or buyer, or real estate agency.
The contract of sale of an apartment with a deposit can be drawn up and notarized, however, this is not necessary, although it implies a more reliable and competent execution of the transfer of money to an individual. The notary, among other things, is the main and official witness of the ongoing transfer of money, and this can complicate the seller’s reluctance to bear responsibility in situations of transaction disruption.
The most important conditions of the advance agreement are the amount of the deposit and the terms for making, as well as the cost of the apartment, passport details, address and full name both seller and buyer.
It is also important to indicate, within the framework of the contract, the key points for the transaction, namely, the place of mutual settlements, whether the funds will be used - cash or non-cash. In addition, it is determined whether the contract of sale will be signed in notarial or in writing, whether it is planned to distribute expenses between the parties, and whether the amount of the advance payment is included in the purchase price.
Many do not understand what is being returned - an advance or a deposit.
The advance agreement requires the conditions for the return or non-refund of pre-paid funds, and if both parties consider it necessary, penalties with forfeit must be indicated and the level of responsibility should be established if either party refuses to complete the apartment purchase and sale transaction on certain earlier conditions.
A good example of an advance agreement for the sale and purchase of an apartment in the secondary market is presented below.
The deposit agreement is performed similarly, but it clearly states that it is a deposit. Only after that, the provisions prescribed in the legislation will be applied to the document, namely, those specified in Articles 380 and 381 of the Civil Code of the country.
Which is better - an advance or a deposit? About this - below.
Other types of agreements
An advance agreement may also be a preliminary agreement for the sale of an apartment, abbreviated MPC. Such a document is concluded between individuals in the secondary market. The main thing is not to confuse it with the contract for transactions between the developer and the shareholder. In principle, this is the same as the advance agreement, but the emphasis in this situation is on a detailed statement of the conditions of the upcoming transaction, in the framework of which the advance payment, i.e. advance payment, is listed. Similar preliminary agreements for the sale of apartments are used by some real estate agencies.
For the primary market, instead of an advance agreement, developers often use an agreement for reservation or reservation of an apartment, but this does not change the essence of the agreement. An important difference here is that when you purchase a new structure of the item itself, to the payment address of which preliminary cash is transferred, does not exist yet. That is why the identification of real estate occurs in a similar situation, however, as in the case with the main contract with the developer, solely according to the design documents, and not on the basis of the existing mailing address. In general, all the necessary conditions of the advance agreement are also respected here.
What is the result: an advance or a deposit?
Thus, in real estate practice, when depositing money to a real estate agency, the deposit mainly performs the function of an advance, which carries the seriousness of the intentions of one of the parties to the transaction, since when it is broken, this part of the money is returned to the person who contributed it. A receipt of the deposit is drawn up (sample is presented above). Therefore, so often among realtors there is confusion in the definition of these concepts. It is important to just remember and know that when a sum of money deposited in an agreement or agreement is designated as a deposit to be transferred by the buyer to the seller, if the transaction is broken, this is likely to lead to negative consequences, within which the norms and deposit rules prescribed by law.
What is the difference - a deposit or an advance? We have answered this question.