“If you put down a HUF 5 million deposit by tomorrow, I won’t show the apartment to anyone else.” – sounds the well-known statement. The amount can, of course, be changed arbitrarily, but we can often come across similar sentences before buying or selling a property. Many people just scratch their heads at this point and ask their legal acquaintances, “Listen, Sanyi, do you think I’ll give a down payment or a deposit now?” Although we don’t know what Sanyi would answer, you can easily decide for yourself from the article below.
Booking or deposit?
Comparing your deposit and deposit is very simple. We are aware that time is precious, so compare them
- Introduced in 2 sentences for those who only have half a minute,
- Table 1 shows those who want a quick overview of the point
- and in a 4-5 minute article for those who want to understand the comparison between booking and deposit.
Interpretation of the deposit and the advance in two sentences
If you give or accept a deposit, you may lose the amount of the deposit if the business fails due to you. If you give or accept a down payment, you will not lose money if the deal fails, but you will have a better chance of the deal failing, as neither party will risk your money in case you change your mind about the planned deal.
Comparison of deposit and deposit in table
|It is a strictly regulated institution that serves to ratify the treaty and is named in the Civil Code||Not regulated in detail|
|Its amount is freely determined, but later, if it finds it excessive, the court may reduce it (practice generally considers a 10% deposit to be acceptable)||It can be freely determined, up to 99% of the purchase price|
|Flat-rate and sanctioning institution – the injured party does not have to prove the damage caused by the failure||Non-sanctioning institution|
|Included in the purchase price||Included in the purchase price|
|The party responsible for the failure to perform the contract will lose the deposit and will be required to refund the deposit twice.||In the event of a contract failure, the deposit will be refunded|
The deposit is a strictly regulated institution that serves to ratify the contract and is governed by the Civil Code. As a general rule, the amount of the deposit is freely determined by the parties, but it is possible for the court to reduce the amount of the deposit at the request of the debtor. The sanctioned nature of the deposit is given by the fact that the party responsible for the failure to perform the contract loses the deposit and is obliged to refund the deposit received twice. So if I received HUF 5 million and I am at fault for the failure of the contract, I am obliged to refund HUF 10 million. If, on the other hand, I gave HUF 5 million as a deposit for the sale and purchase of a property, and then for some reason I do not buy the property, the 5 million will remain with the seller.
Excessive amount of the deposit: It is also important to mention that in the case of a deposit, the court may examine the excessive amount of the deposit. Thus, in spite of the free will of the parties to negotiate the deposit, the court may subsequently find that the deposit was excessive. A deposit of 10% is usually accepted, but of course the court will always examine the circumstances of the case individually.
It is also worth mentioning the nature of the deposit. The injured party does not have to prove the damage caused by the failure, but if he claims a penalty or compensation, the amount of the deposit must be taken into account.
Expand the down payment to make it easier to get an answer: booking or down payment?
The down payment
The advance is not an institution of a sanctioning nature. When the purchase price is born through a bargain between the seller and the buyer, it is usually not usually a lump sum and is not paid immediately. Often the seller asks for a down payment or the buyer offers a down payment, which will later be fully included in the purchase price. The Civil Code does not define the concept of an advance, so in essence it can be seen as a “first installment” that is returned in the event of a contract failure.
Amount of the deposit: Unlike the deposit, the amount of the deposit cannot be overstated. If the parties find it good, the deposit can be up to 99% of the total purchase price. This is irrelevant because if the business is established, the down payment only needs to be replenished to the full purchase price, whereas if the business is not established, it is fully refunded.
When is a deposit and when is it a deposit?
The Civil Code states that ‘money paid to the other party may be regarded as a deposit if it is paid as confirmation of the commitment and that purpose is clear from the contract’ . An amount of money transferred can therefore only be regarded as a deposit if it is clear from the wording of the contract between the parties. In case of doubt, the amount transferred shall be considered as an advance.
What do the deposit and the deposit have in common?
Booking or deposit? Let’s see the similarities first. A deposit or advance is usually given by one party to the other to secure its intention to enter into a contract. While the down payment is, in some respects, a lesser security and only a sign of intent, it can be seen as security. In the event that someone is willing to “release” a certain amount of money from his or her disposal, even temporarily, his or her intention refers to the conclusion of a contract. In the case of both, it is also true that they are ultimately included in the purchase price.
What are the main differences between the deposit and the deposit?
As well shown in the table, the deposit is sanctioned and the party responsible for the failure loses it, unlike the down payment, in which case both parties can walk away in the same way in the event of a business failure as when they met before. While the regulated and excessive amount of the deposit may be reduced by the court at a later date, the down payment functions as a quasi-purchase installment and it may be realistic to set any down payment. Last but not least, the compensatory nature of the deposit ensures that the damage caused by the failure of the contract does not have to be proved to the extent of the deposit.
Which one to choose? Booking or deposit?
Of course, there is no clear answer to this, so below we will collect the most important positional benefits from the buyer and seller side from both the booking and down payment aspects.
It is important to note that a deposit and a deposit cannot be used exclusively to sell or sell real estate. In the case of the examples, however, let’s stick to the sale and purchase of the property and see the pros and cons for and against the down payment and the occupant according to the current status (buyer, seller).
If you’re a buyer: Maybe it’s better to give an advance if you’re not already determined with complete certainty. If you are thinking of even more apartments and cannot make a decision. Of course, what is not risky for you in this situation is not for the other party either. There won’t be any pressure on the seller’s side to lose the deposit either, so if the seller doesn’t end up with you for some reason, they’ll simply return the down payment to you and you’re done.
If you’re a seller and you get a down payment and then find a “better priced” buyer, you’re fine if you don’t take a deposit. In this case, the gap between the price offered by the downstream buyer and the better price remains entirely with you, as you do not have to pass on the amount of the deposit to the “upfront buyer”. Of course, the downside can be that the buyer can keep you insecure and even end up popping up in the end. After all, if the sale fails, you have to return the deposit and nothing is left with you.
If you are a buyer: It is a risk if you give a deposit and as a buyer you do not have the full purchase price yet. Often, potential buyers fall in love with a property and leave the deposit unresolved. It turns out that they fail to raise money for the property or circumstances change. In this case, the potential buyer loses the deposit.
If you are a seller and you get a deposit, you are assured that at least the deposit will remain yours even if the buyer changes his mind. However, if you get a better deal or later, whether for family or other reasons, you change your mind and still do not sell the property, you will have to return the deposit and that again. So you will lose money equal to the amount of the deposit.
So … a deposit or a down payment?
As described above, it will probably be easier for you to decide which is best for you in your life situation; the deposit or deposit.
And another curiosity
The Hungarian National Chamber of Notaries recently conducted an online survey, which was conducted by approx. It was compiled from 700 questionnaires (source: Here ). In this, it was found that half of the people do not know that the down payment will always be refunded if the sale fails later. Furthermore, less than a quarter of the respondents were aware that it is the buyer’s responsibility to check the property register details before paying the deposit, and failure to do so could have serious consequences because four out of ten homes have a problem with the legal status of the property. If the buyer fails, he cannot reclaim the deposit, even if the owner has not reported that the property is encumbered.
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You can access the text of the Civil Code HERE .