The Arras Contract in Spain
The Arras Contract in Spain is a “pre-purchase” contract containing essential terms of a property purchase agreement. Usually, the real estate agent has an arras contract template.
However, these are usually drafted in favor of the seller. You can use them, but be sure to add clauses that protect yourself.
So, we prepared a detailed guide to be familiar with this deposit contract for investors seeking to buy property. Let’s read what is this arras contract in Spain and how does it work?
Buyer’s guide to the Arras Contract in Spain
When you decide to buy a flat in Barcelona, you will hear “Contrato de arras” in Spanish, which means earnest money contract. Earnest money is a deposit made to a seller representing a buyer’s good faith to buy a home. Therefore, we can also use a deposit contract for this agreement.
1) Deposit in “contrato de arras”
a) The Buyer pays a 10% deposit when they sign the arras contract in Spain. The amount is negotiable; 10% is the norm. If the Buyer fails to sign the deed for a reason attributable to the Buyer (found another property, etc.), they lose the 10%.
Mortgage Exception. If the Buyer’s mortgage application is denied, they can still get their arras money back. But this must be correctly specified in the arras contract. If it’s not clear, the agent/seller might be able to keep your money. See below.
b) If the Seller fails to sell the property for a reason attributable to the seller, they must pay back double the deposit or 20% of the purchase price.
2) Purpose of the deposit contract
To bind both parties to the deal, reserve the property in the Buyer’s name, and it forces the parties to write down the essential terms of the agreement before they proceed.
3) Before Signing
Due Diligence. The Buyer must thoroughly investigate the property before signing. Ask a lot of questions. The agent is under a very limited duty to disclose property defects. Some have a policy of ‘don’t ask, don’t tell’.
You can get some documents online, but the agent/seller has most of them. If they refuse to turn them over, they might have something to hide. Being consistent about investigating may protect you from unexpected disagreement in this deposit contract.
4) Terms of the Arras Contract in Spain
Below is a summary of some terms. You can propose any term you want to protect yourself:
a) Penalty Clause
Seller: ‘The Seller will return double the deposit to the Buyer if the Seller fails to sign the deed for a reason attributable to the Seller.’ Likewise: ‘The Buyer loses the deposit if the Buyer fails to sign the deed for a reason attributable to the Buyer.’
In case no one is at fault: ‘The Seller will return the deposit if the deed cannot be signed for any reason beyond both parties’ control.’ This was used when a party couldn’t sign due to COVID-19.
b) Property Repairs.
Find out if the building has any past repairs unpaid or future maintenance needed. If there are any signs of damage, get an architect’s inspection. Then write the damage details, and who pays to repair them, into the arras contract. Repairing buildings in Barcelona can be expensive.
c) Your Mortgage.
It’s best to have your mortgage approved before you sign. If not, write that you need a mortgage and quote the Catalan law that forces the seller to return the arras if your application is denied or you can’t get enough mortgage money to buy.
ProTip: Don’t hire the agent, or their mortgage broker in Barcelona, for a mortgage. Their involvement could make it hard for you to get your arras money back if you can’t get a mortgage. Keep your mortgage search totally private.
5) Who does the Buyer pay the Arras to?
a) Seller. This is best because you only have to chase one party for your 10% or 20% if the deal falls through. However, go with the agent if you have evidence that the seller can’t be trusted or doesn’t pay his bills.
b) Agent. Some agents want the arras money to get paid right away (the seller pays them a % of the purchase price). Request to see their authorization to receive money on behalf of the seller. Then identify in the arras who you are paying and that both parties have to return their share of the arras doubled if the seller doesn’t sell.
6) Deed-Signing Date
Finally, be sure to state a deadline to sign the deed. This forces the parties to resolve pending matters and will cause the seller to move out if he lives in the property.
Need a support for Arras Contact in Spain?
Buying property in Spain can be a contact sport. What’s important is not to sign or pay anything unless you are completely protected.
For questions, feel free to email firstname.lastname@example.org or call 664 665 365.