For many people, signing a deposit agreement is the moment when the purchase of a home “becomes real,” because money is exchanged and a date is set for the closing. But not all deposit agreements are the same: depending on how the contract is drafted, one party may be able to back out and forfeit the deposit, or, conversely, may be obligated to buy or sell.
In this guide, we explain what confirmatory earnest money is, how it differs from penitential and penal earnest money, what the contract must include, what checks to perform before paying, and what happens if either party breaches the agreement.
Confirmatory earnest money is a sum of money that the buyer gives to the seller as a sign that the sales contract is in effect and as a down payment toward the final price. Unlike other types of earnest money, it does not entitle the buyer to withdraw from the contract: both parties are obligated to fulfill what they have agreed to.
The Civil Code does not expressly regulate them, so their legal regime is derived from the general rules governing obligations. The key provision is Article 1124, which allows the performing party to demand either specific performance or termination of the contract, with compensation for damages in either case.
Supreme Court case law holds that, unless the contract clearly states otherwise, earnest money is presumed to be confirmatory. Penitential earnest money under Article 1454 of the Civil Code is the exception and requires an express and unequivocal intent by the parties; thus, the wording of the contract is decisive.
The deposit allows time to secure a mortgage, gather the necessary documentation, and prepare the deed, with the property already committed and taken off the market. During this period, the seller cannot accept a better offer without breaching the contract.
The payment of a deposit demonstrates that the agreement is binding and that it is no longer merely a negotiation. This evidence is especially useful if a dispute arises later, as it allows both parties to prove before a judge that they intended to be bound by the agreement.
The price, timeline, payment method, and condition in which the property will be delivered are set forth in writing from the outset. Having these terms documented reduces subsequent disputes and makes it easier for the notary to prepare the deed without any surprises.
If one party fails to comply, the other may go to court to compel them to sign the deed and complete the transaction. This is the key difference from a penalty deposit, where simply forfeiting or returning double the deposit is sufficient to be released from the agreement.
They confirm the existence of the contract and oblige both parties to carry it out. No one may withdraw without consequences, and the party in breach may be legally compelled to perform or to compensate the other party for any damages caused.
These are governed by Article 1454 of the Civil Code and allow either party to withdraw from the contract. If the buyer withdraws, they forfeit the deposit; if the seller withdraws, they must return double the amount. It is an exit clause agreed upon in advance with a known cost.
These function as a penalty clause, governed by Articles 1152 et seq. of the Civil Code. The party in breach forfeits the amount paid as a penalty, but the other party may still demand performance of the contract if this was expressly agreed upon.
Read the contract carefully: if it mentions Article 1454 or expressly states the right to withdraw by forfeiting the deposit or returning it doubled, they are penalty deposits. If it is not clearly stated, the courts tend to consider them confirmatory, and the title of the document is not sufficient, because what matters is its content.
Let’s take a home priced at €200,000 with a deposit of €20,000—that is, 10% of the price. The consequences of a breach vary completely depending on the type of deposit agreed upon:
The contract must include the name, ID number (DNI or NIE), address, and marital status of all parties. If the property is community property or has multiple owners, all of them must sign, because the signature of just one may not be sufficient to bind the others.
The address, registry parcel number, cadastral reference, floor area, and any annexes—such as a garage or storage room—must be included. This description must match the property abstract to avoid problems at the notary’s office or during the bank’s appraisal.
The contract must specify the total purchase price, the amount of the earnest money deposit, and an express statement that it is applied toward the purchase price. This makes it clear that the earnest money deposit is not an additional payment but rather an advance portion of the final amount.
It is recommended to pay via a traceable bank transfer and to document this in the contract. Avoid cash: it leaves a poorer paper trail for proving payment, and the law limits cash payments when a professional is involved.
It is advisable to set a specific date and a notary’s office, or a clear mechanism for determining them. Also indicate whether the deadline is strict—that is, whether failure to meet it allows the contract to be terminated outright—or whether it allows for some flexibility for justified reasons.
The contract must clarify who pays for the notary’s fees, the registration fee, the administrative agency’s fees, and the municipal capital gains tax. By law, the capital gains tax is the seller’s responsibility in a real estate sale, and agreeing otherwise can lead to conflicts if not clearly explained to the buyer.
If the property has a mortgage, the seller must agree to pay it off at the time of signing. If there are tenants, the contract must specify whether the property is being sold with them in place or vacant, and the date on which possession will be transferred.
The consequences will be those expressly agreed upon in the contract. If you want the seller to be able to retain the deposit as minimum compensation in the event of a breach by the buyer, this must be stated in writing to avoid future disputes.
For example, the approval of a mortgage or the obtaining of a permit or certificate. These must be specified with a specific deadline and the consequences if they are not met—typically, the full refund of the earnest money to the buyer.
The contract must be signed by each of the owners, dated, and, preferably, initialed on each page. Each party must retain a signed original copy, along with proof of the deposit transfer.
There is no legally established amount, and the parties may agree on whatever amount they deem appropriate. The standard practice in Spain is around 10% of the property’s price, though this may vary depending on the type of transaction and the level of trust between the parties.
A very low amount reduces the parties’ actual commitment, while a very high amount increases the buyer’s risk if the transaction runs into complications. Keep in mind that the bank does not advance the earnest money: it comes out of your savings, just like the down payment and closing costs.
Ask the seller for identification and verify that they are the owner or have sufficient power of attorney to sell. If the property was inherited, verify that the inheritance has been accepted and registered in their name.
The property abstract is requested from the Property Registry and shows the owners, any encumbrances, and a description of the property. It’s a quick and inexpensive process that you should always complete before handing over any money.
Check for any mortgages, liens, debts owed to the homeowners’ association, or outstanding property tax bills. Also verify whether the property is occupied by tenants or third parties, as this will affect the move-in date.
Negotiate the final price, the amount of the earnest money deposit, and a realistic timeline for obtaining the mortgage and signing the deed. Also discuss any special conditions, such as whether the property will be handed over furnished or unfurnished, or whether any repairs need to be completed before signing.
Clearly state whether the earnest money is confirmatory, penitential, or penal, and what the consequences are. Ambiguity on this point is the main source of lawsuits, as each party tends to interpret the contract in its own favor.
A specialized attorney or the notary’s office itself can review the contract before signing to identify any problematic or incomplete clauses. The cost of this review is very small compared to that of a subsequent legal dispute.
Make the transfer with a clear description, such as “confirmatory deposit for the sale of property X,” and keep the receipt. Each party should retain a signed copy of the contract and proof of payment.
Verify that the seller is the registered owner and that the property being sold matches the registered description. Discrepancies in square footage or the existence of unregistered additions can complicate the deed transfer and the granting of a mortgage.
A mortgage can be paid off with the purchase price at the time of signing, which is very common. A lien or a preventive annotation, on the other hand, requires more caution, because they can prevent the property from being registered in your name if they are not lifted first.
The buyer is liable for community fees for the current year and the three preceding years (Art. 9.1.e of the Horizontal Property Law), and the property remains subject to any outstanding property tax (IBI). Request a debt certificate from the property manager and the most recent property tax bill.
Unlicensed additions, unauthorized terrace enclosures, or changes in use can lead to problems with the city government. If you have any doubts, check the property’s zoning status before committing to paying the earnest money deposit.
If the property is rented, the tenant may have rights of first refusal and preemption under the Urban Lease Law. Check the lease agreement to see if the tenant has waived those rights.
The seller is required to provide the registered energy efficiency certificate. Also request the certificate of occupancy in communities where it is required and, if available, the building’s most recent technical inspection report.
This is the area of greatest risk for the buyer. With a non-refundable deposit, if the bank denies the mortgage and the contract does not provide for an alternative, the buyer remains obligated to pay the purchase price, and the seller could demand performance or claim damages.
For this reason, it is advisable to include a condition precedent: if the mortgage is denied before a specific date, the contract becomes null and void and the earnest money is returned. The denial must be documented in writing, and it is recommended to establish minimum parameters, such as the amount requested or the financing percentage.
In addition, the deadline for the deed of conveyance must take into account the timeframes set forth in Law 5/2019 on real estate credit contracts: the bank must provide the documentation at least 10 calendar days before the signing, and the buyer must visit the notary for the transparency statement. When you factor in the appraisal and the bank’s review, a timeframe of less than six or eight weeks is usually insufficient.
The seller may file a lawsuit to compel the buyer to pay the remaining balance and sign the deed of sale. This is an uncommon option in practice because the process is lengthy, but it is the natural consequence of a confirmatory deposit.
The seller may also terminate the contract and be free to sell the property to someone else. To do so, the termination must be communicated in a verifiable manner, so that the date and reason are on record.
The seller may claim damages that they can prove, such as the loss of another sale, a drop in price, or expenses incurred due to the breach. The earnest money deposit is not automatically forfeited, unless the contract expressly provides otherwise.
Many contracts allow the seller to retain the deposit as minimum compensation in the event of a breach by the buyer. If this was not agreed upon, the judge will determine the appropriate compensation based on the circumstances; this is why the wording of the contract is so important.
The buyer may seek a court order requiring the seller to execute the deed and deliver the property under the agreed-upon terms. If the seller has sold the property to another party who has already registered the transfer, this option may not be feasible, and the buyer will have to seek compensation.
The buyer may choose to terminate the contract and recover the earnest money deposit. This is the most common option when the buyer has lost interest in the property or when the breach makes it impossible to proceed with the transaction.
The buyer may claim damages that they can substantiate, such as appraisal fees, mortgage underwriting costs, or the higher price paid for another similar property. It is advisable to keep all invoices and receipts to prove these expenses.
The return of double the deposit is characteristic of penalty deposits, not confirmatory deposits. In the case of confirmatory deposits, the buyer must prove the damages suffered, unless the contract specifies a penalty equivalent to double the deposit.
Gather the signed contract, proof of payment of the deposit, communications between the parties, and any document substantiating the breach. Organizing the evidence properly speeds up any subsequent negotiations or proceedings.
Send a certified fax with content certification or a notarized demand letter to the other party. This provides a record of the date, the content of the communication, and the fact that the other party received it—which is essential if the dispute goes to court.
In the communication, clearly state what is being demanded: the signing of the deed by a specific date or the termination of the contract with a refund of the amounts paid. Set a reasonable deadline for a response, typically ten to fifteen days.
As of April 3, 2025, Organic Law 1/2025 generally requires that an appropriate means of dispute resolution, such as negotiation or mediation, be attempted before filing a civil lawsuit. A burofax containing a specific proposal can serve as evidence of such an attempt.
If no agreement is reached, a lawsuit is filed seeking specific performance or rescission with compensation for damages. The procedure will depend on the amount claimed, and it is advisable to consult an attorney from the outset to evaluate the options.
The buyer has the assurance that the seller cannot sell to someone else simply by returning double the down payment. If the seller receives a better offer, they remain obligated to fulfill the contract signed with the buyer.
The seller obtains a firm commitment from the buyer and a down payment toward the purchase price, which provides some peace of mind. Additionally, the seller can enforce the contract if the buyer backs out without a reason specified in the contract.
If personal or financial circumstances change—for example, due to a denied mortgage or a job change—there is no easy way out. That is why it is so important to include provisions in the contract that would allow for its termination at no cost.
A lawsuit involves expenses for attorneys, legal representatives, certified faxes, and, often, years of waiting before a judgment is issued. In many cases, these costs exceed the amount of the deposit, making it advisable to seek a settlement before going to court.
In our projects, the earnest money contract is a key document because it sets the timeline for the purchase, and in transactions lasting 6 to 12 months, a delay in the deed signing affects the entire plan. As Óscar Peñaranda, COO of Domoblock, says, “Selecting the right project is crucial for achieving high returns in a short period,” and that selection includes reviewing the terms of the purchase agreement.
In binding agreements, the deposit is part of the purchase price and is taxed upon sale. If the seller retains a forfeitable deposit because the buyer backs out, the seller realizes a capital gain that is included in the general taxable income for personal income tax purposes—not in the savings tax bracket—since it does not result from a transfer of property.
No. Signing the deposit agreement alone does not trigger Property Transfer Tax or VAT: the tax becomes due upon the sale and transfer as recorded in the deed. Only for new construction purchased from a developer may advance payments be subject to VAT at the time they are made.
Yes, if both parties agree. All that is required is an addendum signed by all parties that modifies the type of deposit and its consequences. A single party cannot change them, and the new text should expressly cite Article 1454 of the Civil Code.
The contract does not terminate: the obligations pass to the heirs, in accordance with Article 1257 of the Civil Code. They must accept the inheritance before signing the deed, which may delay the transaction. It is advisable to include an additional time frame in the contract for such cases.
The deposit agreement does not require a specific form, so it can be established through messages and a bank transfer. The challenge lies in proving its exact content: type of deposit, amount, term, and conditions. For a residential property, it is always prudent to have a document signed by all owners.
The agency may hold the deposit in trust if the contract provides for it, but the money belongs to the parties as agreed. Check what happens to the deposit if the sale does not go through and ensure that the agency’s commission is handled separately.
The earnest money deposit can determine whether the purchase of a property is firmly committed, what deadlines the transaction must meet, and what the consequences of a breach would be. When evaluating Domoblock’s tokenized real estate projects starting at €200, review the contractual information and associated risks: the 100% online investment and the blockchain provide traceability, but they do not replace a legal analysis of the sale.
Confirmatory earnest money deposits provide security, but they also create binding obligations: neither party can simply withdraw by forfeiting or returning the deposit. Before signing, put in writing the type of earnest money deposit, any conditions regarding the mortgage, and a realistic deadline for the deed, and review the property title abstract. If the wording leaves any doubts, seeking legal advice beforehand costs far less than a lawsuit. Remember that all real estate investments involve risks of illiquidity, delays, and loss of capital.
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Rúa Progreso, 27
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1.575.297,50 €
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