The deposit and the advance payment when buying a flat - what are the differences?

There are two terms connected with the preliminary contract of purchase of an apartment: deposit and advance payment. Since they are similar to each other, be careful not to confuse them. What unites them and what is different? When to pay the seller an advance payment and when a deposit? These and other questions will be answered in the following article.

Both of these forms of payment have the same purpose - they guarantee that the developer or owner of the apartment will keep to the sales contract. On the surface it may seem that each of them protects us in the same way. However, this is a mistaken belief - the form in which we choose depends on the consequences imposed on us or on the seller in the event of failure to comply with the contract.

What is an advance payment?

Advance payment is a defined amount of money paid by the buyer during the conclusion of the contract (usually a preliminary contract). If the contract is carried out correctly, the amount of the advance payment is included in the price of the apartment. If the contract is not fulfilled, the advance payment will be returned to the person who paid it.

It is worth being aware that the notion of advance payment does not function in the provisions of the Civil Code. This means that issues relating to the possible repayment of an advance have not been precisely formulated and are not subject to the general rules on the implementation of reciprocal agreements.

What is a deposit?

Contrary to the advance payment, the notion of advance payment is clearly formulated by law (Article 394 of the Civil Code). It follows from the regulations in force that if one of the parties fails to perform the contract, the other party may retain the deposit paid. The party who paid the deposit (in this case the buyer) has the right to obtain twice the deposit amount.

Advance payment and deposit - what to choose?

As can be seen from the above information, the main difference between advance payment and deposit lies in the fact that the other form more effectively protects the interests of both parties to the contract. In most cases the deposit will be the preferred option - it guarantees us, i.e. the buyers, higher compensation in case of failure to keep the contract by the seller. It should be remembered, however, that when we resign from buying an apartment, we will lose the entire amount of the deposit to the person selling the apartment. It will be different with the advance payment. If we choose this form of security, we will be able to demand a refund even in the event of our resignation.

In order to choose the form best suited to our interests, we can take advantage of professional advice.

Deposit and advance payment - amount

None of them is regulated by law. When selling real estate, it is customary to assume that both the advance payment and the deposit amount to 10% of the value of the flat or house which is the subject of the agreement. However, the parties may agree on any other amount of advance or down payment.

Remember that when signing the preliminary agreement, it is necessary to specify what form of financial security has been paid by the buyer on account of the property. In this way, we protect our interests in the event that the seller fails to keep to the contract.