Why to sign a pre-agreement when buying a property?

Why to sign a pre-agreement when buying a property?

Purchase of a property cannot be realized in one day. There are various steps in the process of buying real estate that require investing time and money both on the side of the buyer and on the seller side. 

Each of us wants to be sure not to miss the opportunity of buying a property even though we don't have money to buy it at this time. That's why you should sign a pre-agreement and book a desired property. Below you will find the most important information about the pre-agreement related to the purchase and sale of real estate. 

The difference between the purchase agreement and pre-agreement 

Pre-agreement is not the same as a purchase agreement. The purchase agreement is the final document with which you are buying the property and you pay the seller the cost of it. The pre-agreement is concluded prior to the purchase agreement and serves as a way of booking a property. You as a buyer are obligated to sign a purchase agreement with the seller on the agreed date and the seller agrees to sell the property to you. 

At the date determined by the pre-agreement, when the purchase agreement is concluded, the buyer pays the seller remaining of the purchase price. Although the signing of the pre-agreement by a notary public is not practiced by the seller, the pre-agreement has the legal force as well as the purchase agreement. Unlike the pre-agreement, a purchase agreement must be certified by a notary public. 

The pre-agreement does not oblige the buyer and the seller to conclude a purchase agreement if the circumstances from its conclusion have so changed that it would not have been concluded that such circumstances existed at the time of its conclusion (for example, the property that is the subject of the sale was destroyed by fire or earthquake). 

Activities that precede the conclusion of a pre-agreement 

Once you decide on the step of concluding a pre-agreement, it is important that you as a buyer are certain that you want to conclude a purchase agreement with the seller in the near future and ultimately buy the property. 

Prior to signing a pre-agreement, you found a property that suits you, assured it has a proper ownership and technical documentation and you have negotiated with the seller a price that is acceptable to both of you. 

Do not rush to sign a pre-agreement if you are not sure you are ready to buy a property in order to avoid additional costs for yourself and the seller. 

Content of the pre-agreement 

The pre-agreement contains all the essential elements of the real purchase agreement and the following information: 

  • Purchase information (type of property, its price, cadastral municipality, particle number and land registry file, property description ...)
  • Seller's statement that he is the owner of the property and that the property is not burdened with registered or unlisted charges or rights in favour of third parties that dispute, limit or diminish the buyer's right
  • The purchase price expressed in Kunas
  • Date and method of payment of purchase price
  • The amount of the deposit
  • Declaration of acceptance of the obligation to pay real estate sales tax by the buyer or seller
  • Other purchase terms such as the date of conclusion of a purchase agreement, usually determined as a date within 3 months of the date of conclusion of a pre-agreement

Payment of the deposit 

When concluding a pre-agreement, the buyer is obligated to pay a deposit on the seller's account, which usually amounts to 10% of the value of the property. Deposit is contracted as a withdrawal from the purchase and sales process and the buyer agrees to buy the property after the conclusion of the purchase agreement. 

If the buyer withdraws from the purchase, the seller has the right to retain the deposit. Otherwise, if the seller withdraws, he is obliged to pay the customer double amount of the deposit. As a rule, the higher the amount of the deposit, the more secured the real estate purchase is, because neither side is ready to lose money that they have invested in the buying process so far. 

Benefits of concluding a pre-agreement 

As mentioned at the very beginning, no one wants to miss the opportunity to buy the desired property. It is precisely this that is the main advantage of concluding a pre-agreement. In this way, you as a buyer are buying time for funding and then you have more time to take the loan. Then you are sure that the seller has decided to sell the real estate to you. 

For the seller it is a good thing since he doesn't longer have to look for a new potential buyer because one person already commits to being ready to buy his real estate. 

Real estate brokerage assistance 

In order to be assured of the integrity of the entire process and protect your interests, it is recommended that you engage an attorney or a licensed real estate broker who will be ready to compile a purchase agreement in accordance with the legal framework. They will guide you in the process of concluding a pre-agreement and ultimately the real estate purchase agreement.