Money for nothing
Is handing over a deposit to an estate agent to reserve a property on the Costa del Sol the next worst thing to handing over cash to a stranger in the street?
It’s hard to think of another product quite like property. It’s all about scarcity value. Every property, even in the most copy-and-paste development, is unique. There’s only one apartment on that floor with those views in any given building. Once it sells, there won’t be another. Such scarcity can generate fear in clients that they will lose an opportunity, which is why some people are willing to pay a deposit to their agent secure a property.
Paying deposits is standard practice in Spain and particularly on the Costa del Sol. The ‘reservation’ consists in the agent taking a property off the market for an agreed period to give the buyer, or their lawyer, time to conduct due diligence. The amount is usually around 3,000€, but can be more or less depending on the price. And the period is normally two weeks, but, again, can vary, subject to the buyer’s, agent’s, and seller’s wishes.
Spain (with the exception of Catalunya, since 2010, and the Basque Country, from 2015) has no legislation in force regarding estate agents, meaning the industry and its practices are self-regulating or, in other words, essentially unregulated.
Work out who you’re making a reservation with
If, knowing this, you still wish to pay a deposit, what kind of contract should you sign and who should you pay? And does a deposit bind the owner to sell to you? In most cases, the answer is no.
To ensure any advice I give follows the letter of law, I talked to our friendly neighbourhood lawyer, Adolfo Martos Gross of GAM Abogados, to get his expert opinion on the matter from the buyer’s point of view.
The first thing that buyers have to understand, Adolfo explains, is that there are two different, and separate, relationships at play here. One binds buyer and seller together, while the other is between the buyer and the agent, who merely acts as an intermediary to the sale.
Without prior consent, contracts are a waste of paper
Estate agents can ask buyers to sign a reservation contract with or without the permission of the seller. If they do so with the seller’s express written consent, the contract will bind the latter to the terms of the agreement. If not, buyers are only dealing with the agent and any deposit will likely be held by the agent and not the owner.
Such contracts are all too common on the Costa del Sol and, I would say, are a waste of paper for both buyer and seller.
What can also happen, Adolfo notes, is that the agent may ask the seller to authorise a contract after the fact. In this case, however, the seller is under no obligation to agree to, or be bound by, the conditions it contains if it was signed without their prior knowledge and approval.
Pay sellers direct or don’t pay at all
Instead of presuming that all concerned are acting in good faith and, in the worst case scenario, assuming the consequences, Adolfo suggests buyers should always demand to pay a deposit direct to the seller, via bank transfer to an account that can be proven is held in his or her name, under the terms of a contract signed by the seller personally.
If buyers do decide to enter into any other kind of contract and entrust a reservation deposit to an estate agent, the possibility exists that the agreement signed, and any money paid, will only benefit the agent.
At Terra Meridiana, we don’t ask for deposits as a matter of course. Our advice is, once you find a property you want to purchase, make an offer and, subject to your lawyer carrying out due diligence, sign a binding contract before handing over your money.
By Adam Neale | Property News | March 21st, 2017