After doing all the checks required of you, and your solicitor has given you the all clear sign, you can commit to making the purchase by signing a private contract and paying a deposit. Below is an explanation of why this is the most common way to proceed as much as it’s not the only one.
If you’re in a position to do your due diligence quickly, it’s possible to skip signing a private contract and go straight to signing the public deed. Private contracts are only useful in buying you time to prepare to sign the public deed after getting all the relevant information form the vendor.
There are a variety of private contracts that can be signed prior to signing the public contract before a notary. You need the notary’s signature in the public deed to inscribe the sale of a property into the lands register. At the same time, a private contract is not binding to 3rd parties like the vendors creditors. Always have your Real Estate agent or lawyer present to check all contracts and advice on the way forward before any signing can be done.
Option contract – Contrato de opción de compra
With this type of a contract, you are required to pay the vendor an agreed amount, say 5% or 10% of the agreed price. The vendor is required to commit to sell the property to you at the price you’ve agreed upon, should you purchase the property within the agreed timeframe. At this point, the contract becomes a fully binding private contract of sale and the payment that you’ve made counts towards the full payment. In the event that you fail to go through with the purchase in the agreed timeframe, you lose the money you paid, and the vendor is now free to sell the property to another person. You should only sign this contract if you’re sure that you are willing to continue with the process and you’ve done full due diligence.
Reservation contract – Documento de reserva
With this contract, you are required to pay a deposit that allows you to reserve the property for a fixed amount of time – usually 30 days. When the time runs out, you risk losing your deposit should you pull out. Should still be interested in the property, you now move to a contract such as deposit contract, private sale contract or public deed which commits to you making the purchase. The contract mandates the vendor to sell you the property at the agreed price and your deposit counts towards the sale price. Most deposits range between 3,000 to 6,000 euros.
Should you feel the need to take the property off the market for a while especially when buying from a private individual, then it’s best to use the option contract. Never sign a reservation contract without the advice of your Real Estate Agent.
Deposit or “Arras contract” in Spain– Contrato de arras
As a buyer, this contract requires you to pay a deposit that normally 10% of the agreed price when signing it. When you back out of the contract after signing, you will lose your deposit. A vendor who backs out prior to signing the deed will have to pay you double the deposit. This makes it expensive for either side to back out and yet it allows one to back out.
Only sign a deposit contract after doing the necessary due diligence and receiving clearance from your Real Estate agent.
Private purchase contract in Spain – Contrato privado de compraventa
Similar to a down payment contract, a private purchase contract is a binding contract that has no procedure of backing out unless the two parties agree to do so. The difference between this contract and the down payment one is that it doesn’t allow you to back up losing the deposit – and neither allow the vendor by paying double. The private purchase contract is just as binding as a public contract the only difference is that it can’t be inscribed in the property register as its not signed in front of a notary.
All the contracts must also have explicit details about:
The buyer, vendor, property, agreed price, deadline for signing the deeds, vacant possession, debt free title, how the transaction costs will be paid, clauses that allocate responsibilities, any conditional clauses that need to be met for the contract to be valid and how any disputes will be handled. In the event that you’re also buying other items like furniture, ensure that they’re included in the inventory attached to the contract.
Finally, anytime you sing a contract that requires you to pay a certain amount of money, ensure that it’s indicated in the contract or the vendor should give you a signed receipt.