Earnest money versus advance payment - the difference that protects your money

Meaning of words in property law

For many people, the concepts of earnest money and advance payment sound almost identical. Meanwhile, in property law, the difference between them often amounts to tens of thousands of PLN or their total loss. When you sign a preliminary agreement and deposit money, the wording is of colossal importance if the transaction ultimately does not take place.

Understanding these mechanisms allows you to avoid costly mistakes. Securing financial interests at the stage of the preliminary agreement is the foundation of a safe transaction on the property market.

Advance payment and refund of funds

Advance payment is simply a prepayment towards a future transaction. If the buyer changes their mind or the bank refuses a loan, the seller is obliged to return the advance payment in full.

This rule also works the other way around. If the seller decides to cancel the sale, they return exactly what they received from the buyer. The advance payment does not carry compensation penalties in the event of non-performance of the agreement.

Earnest money as a legal safeguard

Earnest money works completely differently and constitutes a strong legal safeguard for the performance of the agreement. The consequences of its payment depend on the reason why the transaction is not completed.

• If the buyer withdraws from the purchase, the seller can keep the earnest money in full.
• If the seller decides to cancel the sale, the buyer has the right to demand the return of the earnest money in double the amount.

Practical consequences when buying with a mortgage

What does this mean in practice? If you are buying an apartment with a mortgage and deposit PLN 30,000 as earnest money without introducing appropriate protective clauses into the agreement, the situation becomes risky.

The lack of a condition for the return of earnest money in the event of negative bank decisions - for example from two or three institutions - may mean the loss of the entire paid amount in the event of financing problems.

Safe transaction with ODI Real Estate

Are you planning to buy a property? Visit odi.propertyi.pl and gain full legal support from the first agreement to the notarial deed. Contact our real estate agency to carry out the transaction without the risk of losing funds.