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

The 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 zlotys – or their total loss. When you sign a preliminary agreement and pay money, the form of the entry has a colossal significance 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 the return 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 principle also works the other way around. If the seller decides against the sale, they return exactly what they received from the buyer. An advance payment does not carry compensation sanctions in the event of non-performance of the agreement.

Earnest money as a legal security

Earnest money works completely differently and constitutes a strong legal security for the performance of the agreement. The consequences of its payment depend on the reason why the transaction does not take place.

• If the buyer withdraws from the purchase, the seller may keep the earnest money in its entirety.
• If the seller decides against the sale, the buyer has the right to demand the return of the earnest money in double the amount.

Practical consequences when purchasing on credit

What does this mean in practice? If you are buying an apartment on credit and pay 30,000 PLN as earnest money, and you do not include appropriate protective clauses in the agreement, the situation becomes risky.

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

A safe transaction with ODI Property

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