Advance or deposit when buying an apartment: what is the difference between these concepts, and also how does a deposit differ from them and what is better for each of the parties to the transaction?

What are advance and deposit, and what are the differences between such terms? – Let’s figure out what common features such concepts have and what the difference is in accordance with the Civil Code.

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Often transactions are made where partial or full prepayment takes place. And here it is worth clearly understanding what is being done - payment of an advance or a deposit.

It’s worth figuring out how to qualify a payment. After all, the legal consequences in case of failure to fulfill the obligations assigned under the contract will depend on this.

The concept of advance in the Civil Code

There is no clear formulation of what an advance is in the Civil Code. The meaning of this concept is interpreted on the basis of a systematic explanation of the norms in the comments to legislative acts.

⇒ Important to know! A prepayment made is considered an advance unless it is stated in writing that the payment is a deposit!

The advance serves a payment function. It is paid at the conclusion of a transaction as an advance payment for a product or service.

An advance payment is made so that the object of purchase is not intercepted by others. If either party fails to fulfill obligations, the advance is subject to a 100% refund.

The transfer of money is formalized by a bilateral agreement on the payment of an advance. The document describes the rights and obligations of the parties and liability in case of violation of obligations.

All documentation must be concluded in accordance with the legislative acts in force in the territory where the transaction is made.

If the contract stipulates obligations that are contrary to the law, then, by a court decision, liability arises in accordance with the law, regardless of what is stated in the agreement of the parties.

How do the concepts differ from each other?

A deposit as a concept is regulated by law, the essence of which is clearly stated in Article 380 of the Civil Code of the Russian Federation. Unlike a deposit, there is no clear definition for an advance in the legislation, although the term itself is still mentioned there. It is generally accepted that if, when transferring the prepayment, the existing parties did not stipulate in their contract the deposit when purchasing an apartment or in the agreement that this is a deposit, then the law will treat this amount as an advance.

An advance is an advance payment for goods. The essence of the advance is to determine the relationship between the seller and the buyer regarding payment for the apartment. Legally, no one bears responsibility if the transaction fails: if the signing of the contract does not take place, the advance payment is returned to the buyer.

Important! The terms and obligations for making an advance are regulated by law in

Article 487 of the Civil Code of the Russian Federation

.

The advance payment performs only a payment function - the buyer contributes this money to pay for the purchased housing.

The advance can be made in the amount of:

• 
  full prepayment;

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• partial prepayment;
• installment plan (the amount of the property is divided into parts);
• combined form of payment - part is transferred before receiving the apartment (this is usually a kind of demonstration of “serious intentions”), and the rest (the entire balance or in parts) - after or during receipt of the subject of the contract.

It is necessary to formally conclude an agreement on the payment of an advance towards the cost of the purchased housing. This type of agreement does not need to be notarized, although it is recommended to do so.

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We talk in more detail about the concept of an advance and how to correctly draw up an agreement on it in a separate article.

The concept of a deposit

According to Art. 380 of the Civil Code of the Russian Federation, a deposit is a sum of money that guarantees the fulfillment of obligations.

The deposit of funds is formalized by a written agreement, which necessarily stipulates the rights and obligations of the parties.

If the document does not state that the amount paid is a deposit, if a dispute arises, the court will decide that the amount is an advance and must be returned if the transaction is refused.

If the party who has undertaken the obligation to purchase the property refuses to complete the transaction, the deposit is not returned.

If the seller for some reason changes his mind about selling the property or is prevented from doing so by circumstances, he is obliged to return the funds to the potential buyer in double amount.

If force majeure occurs: war, flood, hurricane, the contract is suspended until the end of the disaster.

The recognition of force majeure circumstances as force majeure is made by a decision of the Chamber of Commerce and Industry.

It is important to understand the difference between a deposit and a pledge. These are completely different concepts.

Pledge concept

You can pledge valuables and property owned by the pledgor. Serves as a guarantee of repayment of the loan in part or in full

When renting an apartment, a security deposit is paid, which is a guarantee of ensuring the integrity of the property located in the apartment and the proper condition of the apartment itself. The contract takes into account the degree of wear and tear during operation. When tenants move out, the owner checks the integrity of the apartment. If everything is in order, the deposit is returned. If damage is detected, the damage is assessed and paid from the deposit amount.

When purchasing a home on credit, the collateral is the purchased real estate. The bank issues funds as collateral; if the borrower fails to fulfill its obligations to repay the loan, the bank will sell the property at auction to recoup its losses.

The pledge agreement must be registered with a notary. A sum of money cannot act as collateral.

How to apply for a deposit when buying an apartment

Let's consider what is better to arrange, a deposit or an advance payment when buying an apartment.

Purchase and sale transactions are carried out in the following sequence:

1. They sign a deposit agreement, which indicates the full name, passport details, place of registration and actual residence of both parties, the amount of the deposit and a full description of the terms of the transaction.
2. The deposit agreement is certified by a notary, one copy remains in his custody.
3. The buyer transfers the agreed upon amount of the deposit to the seller into the hands or custody of the real estate agent.
4. The documentation necessary for the sale of real estate is drawn up (certificate from the BTI, management company, if children are registered in the living space, you need to obtain permission to alienate the property from the guardianship authorities).
5. Concluding a purchase and sale transaction.
6. Calculation, handing over keys.

The deposit guarantees the fulfillment of obligations by both parties. The person who refuses the transaction bears financial liability in the amount indicated by the amount of the deposit.

What is the difference between a pledge and an earnest money deposit?

Earnest money and collateral are often confused. From the point of view of the law, these are different legal concepts. A common form of collateral when purchasing an apartment is a mortgage. Pledge is a way of ensuring the fulfillment of accepted obligations.

The buyer often establishes a contractual relationship regarding the collateral not with the seller, but with the bank. The bank, by lending to the buyer, helps pay the cost of the apartment. In turn, the buyer pledges the apartment to the bank.

The main difference between a pledge and an advance and deposit is that its subject is often not money, but other property. For example: an apartment, cars, precious metals, jewelry and other expensive items.

Second difference. Advance and deposit act as preliminary partial payment. There is no pre-payment deposit, but in case of improper fulfillment of obligations, it is collected as a final payment.

A deposit is possible between the seller and the buyer. Two contracts are drawn up:

1. Contract of sale.
2. Pledge agreement.

A note is made in the purchase and sale agreement that the apartment is sold with an encumbrance - a pledge. The subject of the pledge and the conditions are stipulated by the parties in a separately drawn up agreement, which reflects:

1. place and date of compilation;
2. subject of the contract;
3. description of the pledged property;
4. the conditions on which it is pledged;
5. term and procedure for termination of the pledge.

The pledge is regulated by the norms of paragraph 3 of Chapter 23 of the Civil Code of the Russian Federation and the law imposes a number of requirements on the subject of pledge:

1. The collateral cannot be rights that are inextricably linked with the personality of the mortgagor, for example: the right to alimony.
2. The subject of the pledge must belong to the pledgor by right of ownership.
3. The property pledged must be separate and alienable, for example: an apartment must have a separate entrance, bathroom and kitchen.
4. When property is in joint ownership, it is necessary to obtain the consent of all co-owners.
5. The pledge is subject to state registration and notarization.
6. Collection of the collateral is possible only by court decision.

Pledge is an effective mechanism for legal settlement. The buyer pledges his property instead of cash, thereby guaranteeing the repayment of the debt for the purchase of housing.

The rules of law in the field of pledge are regulated in the Civil Code of the Russian Federation (Chapter 23, §3 “Pledge”). In addition to the apartment, the following objects can be pledged:

1. 
   jewelry (metals, stones and products made from them);

2. securities and shares;
3. vehicles.

The agreement on the provision of collateral is drawn up in writing. The person posting the bail is the pledgor. And the one who provides funds on loan or at interest is a mortgagee.

It is not necessary to notarize such an agreement unless the contrary is stated in the purchase and sale agreement.

Attention! When pledging property other than real estate, some types of this property may be given for use to the pledgee, who can use them to cover the debt. In this case, the term “mortgage” is used.

Why you need a deposit and how to properly arrange it when buying and selling an apartment, we tell you here.

A significant difference between a pledge and a deposit is their functions. Collateral is a guarantee of the return of borrowed funds. The deposit is a guarantee that both parties will not refuse the transaction.

In this case, the deposit is part of the funds that are included in the total cost of the property, and the pledge is a promise to fulfill the terms of the contract. At the same time, it is impossible to use cash as pledged items.

The second important difference between a pledge and a deposit is that the buyer, if he refuses the purchase or sale transaction, loses the deposit, and the deposit is returned.

When purchasing an apartment with a mortgage, the deposit and advance payment are always expressed in monetary units, while collateral is a method of encumbering the subject of the transaction. Thanks to the registration of this type of security for the fulfillment of obligations, the apartment is limited in turnover. Most often, the collateral form of obligations is used when concluding a purchase and sale agreement that involves installment payment. This action prevents the disposal of the property until the cost has been paid in full.

The classic and most common example of collateral is a mortgage. The law provides for the mandatory execution of a contract or agreement, and the subject of the executed pledge must be officially insured. The procedure for foreclosure on mortgaged property and the rules for its sale are regulated by the Civil Code of the Russian Federation.

How to make a deposit

The pledge agreement is drawn up in writing and certified by a notary. It is a guarantee of ensuring the circumstances of one party in relation to the other.

The debtor or his authorized representative can act as a pledgor. A minor cannot mortgage property without the permission of his representatives and guardianship authorities.

Instructions for concluding a contract:

1. You will need documents for the mortgaged property. The collateral must be assessed by expert organizations, or by agreement of the parties.
2. The agreement specifies the property being pledged and its detailed characteristics, the reasons for concluding the pledge agreement, and who will own the object of the transaction.
3. The agreement is registered with a notary and the justice authorities.

After the conclusion of the agreement, the pledged property can be held by both the pledgor and the pledgee.

Upon expiration or if circumstances change, the contract may be renewed. This requires the consent of both parties.

How to apply for an advance

Unlike a deposit, the definition of an advance is more of an economic nature. This procedure is not regulated by legislative acts.

An advance payment is most often made in the amount of no more than 10% of the cost of the purchased object. It is better to confirm the deposit of the amount with documents with the signatures of witnesses or register it with a notary. The law does not impose strict requirements for making an advance payment when purchasing real estate.

If the transaction did not take place and the seller turned out to be dishonest, problems may arise with returning the amount paid if the agreement was not registered with a notary.

What to choose when buying an apartment: advance payment, deposit, deposit

Let's consider what type of payment to arrange when purchasing real estate, which does not return the deposit or deposit.

A deposit is paid when housing is purchased with a mortgage. The bank must have guarantees of the return of funds paid. The apartment or house is pledged until the buyer pays the full amount specified in the contract.

After the pledgor fulfills his obligations, the pledge is returned to the owner.

Registration of the deposited funds as a deposit is beneficial to both parties.

The buyer is calm that the seller will not refuse the purchase and sale transaction or raise the price. If the seller refuses the buyer for some reason, he must return the amount paid as a deposit in double amount.

The seller will keep the money if the buyer backs out of the deal.

When making an advance payment, both parties bear the risks, although it is widely believed that when buying an apartment, it is most profitable for the buyer to formalize the amount paid as an advance payment as an advance payment. The seller is the opposite.

If an unscrupulous seller refuses to complete the transaction, it will be difficult to obtain the advance amount from him. Courts in such disputes last for years.

Prepayment period

Any prepayment for an apartment for purchase and sale transactions is made for a specific period within the framework of the contract or agreement, and is also counted towards the amount of upcoming payments for the transaction being carried out. Both the owner of the apartment, that is, the seller, and the authorized person named by him, including the real estate agency involved in the sale of his client’s apartment, have the right to receive preliminary funds. Will it be a deposit or an advance?

The advance payment made at the time of purchase of the apartment is made as an advance payment or deposit. So, what are the main differences between an advance and a deposit when making sales transactions? And also what is most often used in the practice of the real estate market and for what purposes? This will be discussed below.

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Is the deposit refunded or not?

If the pledgor fails to fulfill his obligations to the creditor, his property becomes the property of the latter.

The deposit is returned:

• the debt is paid to the creditor;
• the creditor poses a threat of loss or damage to property, the contract is terminated in court;
• sale of the collateral to repay the debt;
• termination of the object's existence.

If the above circumstances arise, an appropriate entry is made in the register in which the agreement is registered.

Advance payment for an apartment is refundable or not

The advance payment is made as an advance payment. If the transaction does not take place, the amount of money must be returned in full.

The contract states:

• passport data in full;
• term of transfer of property;
• sequence of paperwork for sale;
• the amount paid, a receipt confirming its receipt;
• signatures of the parties.

You should not make a payment without documenting it. Notarized registration of the advance payment is a guarantee of payment of funds if one of the parties refuses to complete the transaction.

What is the end result: an advance or a deposit?

Thus, in real estate practice, when depositing money into a real estate agency, the deposit mainly performs the function of an advance, which carries with it the seriousness of the intentions of one of the parties to the transaction, since if it fails, this part of the money is returned to the person who contributed it. A receipt for the deposit is issued (a sample is presented above).

This is why realtors often get confused in the definition of these concepts. It is important to simply remember and know that when in a contract or agreement the deposited amount of money is designated as a deposit that must be transferred by the buyer to the seller, if the deal fails, this will most likely lead to negative consequences, within the framework of which the rules and regulations may be applied rules on deposits prescribed by law.

What is the difference - a deposit or an advance? We have answered this question.

Deposit or advance payment when purchasing an apartment

For real estate purchase transactions, an advance payment is required. It can be issued as an advance or deposit.

If it is written in the form of an advance, the amount is refundable.

If a deposit agreement has been drawn up, then if the obligations are not fulfilled, the amount of money is counted as a fine and is not returned.

When completing the transaction, the deposit is counted towards payment of the cost of the apartment, regardless of how it is indicated in the contract.

For a buyer who is determined to buy a home, the best option is a deposit.

Sellers like advance payment

In practice, real estate sellers try to avoid receiving advance payment under the terms of the deposit; they prefer to take an advance payment. But advance agreements provide for penalties for buyers. That is, in the case when they refuse to purchase real estate without any reason. In such a situation, the advance will not be returned, because it will be withheld as a fine.

Receiving an advance instead of a deposit simplifies the formation of alternative transactions, since in such cases one seller depends on the other, and therefore must take monetary responsibility for its failure, which in the case of a deposit will be unreasonable. This is why they prefer to use an advance payment when building a transaction strategy.

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