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Preliminary purchase agreements: Definition, advantages and costs

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Definition of the preliminary purchase agreement

By concluding a preliminary contract for the purchase of real estate, both contracting parties involved commit themselves to the later conclusion of the actual purchase contract. The document serves as a mutual binding assurance for both parties and obligates the parties to conclude the purchase contract. In addition to the purchase, the preliminary purchase agreement for the purchase of a house or for the purchase of a condominium puts other obligatory actions in writing. This may also include an omission, for example, in that the seller promises not to sell the property to any other party. The preliminary purchase agreement for condominiums or houses must have some minimum details. They include details of both parties to the contract, the exact name of the property and any properties sold with it, purchase price, payment terms, deadlines until the contract is concluded, conditions for withdrawal and a damages clause.

Legal aspects of the preliminary contract

In order to become legally binding and legally effective, the preliminary purchase agreement must be presented to and notarized by a notary public. Both for the purchase contract and for the preliminary contract for the purchase of a house, the regulations from § 331b Paragraph 1 of the BGB apply, which state that a contract for the transfer of ownership of a property requires notarization. Accordingly, if the preliminary contract is not notarized, it is invalid and loses its binding effect as a declaration of intent to purchase. However, the preliminary purchase agreement for real estate does not amount to a compulsion, because if one side does not fulfill a stipulated condition of the preliminary agreement, the other side can withdraw from the preliminary agreement. In addition, the contract loses its legal effect in certain cases. This is the case, for example, if the obligations are unreasonable for the buyer, if the buyer is insolvent, if the buyer is unable to obtain financing for the real estate purchase, or if the buyer dies or one of the two parties suffers a severely debilitating accident. Significant damage to or destruction of the property also renders the preliminary contract for the purchase of a house legally invalid.

A preliminary purchase contract when buying a house creates more security for both sides.

Advantages and disadvantages

The preliminary contract in the purchase of land or apartment creates several advantages for both sides. The seller receives an assurance of the serious interest of the buyer, so that he can save himself the further search for potential buyers. The buyer, in turn, receives an assurance that he will receive the property at a later date under the agreed conditions and, moreover, does not have to worry about another buyer acquiring the desired property or the purchase price being subsequently increased. However, with the conclusion of the preliminary contract further additional costs come on top of the actual expenses, because for the notarization notary fees are to be estimated. Who bears the costs is not regulated, but it is not uncommon for them to be added to the incidental purchase costs. It always makes sense to conclude a preliminary purchase agreement for land or real estate if the purchase is delayed - for example, because the financing is not yet in place - or there is some uncertainty about the seller's binding commitment.

Costs for preliminary purchase agreements

The amount of the costs for the conclusion of a preliminary contract depends on the real estate value, the notary fees are based on the specifications of the Court and Notary Fees Act. This provides for double the fee for the notarization of contracts, but at least 120 euros plus 19 percent VAT. The higher the market value of a property, the higher the costs charged by the notary for the notarization of the preliminary contract. For a sales price of 300,000 euros, for example, the notary fees are around 600 euros. In addition, there are possible expenses for out-of-pocket expenses, such as postage or other additional costs. It is also possible to agree a preliminary contract with a down payment.

Frequently asked questions

Written by:

Stefanie Aust, Guest Writer

Stefanie loves to put complex topics from the real estate world into understandable and inspiring words. Whether it's about the right financing, choosing the right type of flat, or a successful property search: Stefanie is happy to inform you.

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