Sense and purpose of a preliminary purchase agreement
The preliminary contract can play an important role in the purchase of a property. By concluding a pre-sale contract, you as a buyer signal serious interest to a seller, but have not yet concluded a final purchase contract. This is useful if, for example, financing is not yet available. There are a number of legal aspects to consider when drawing up a preliminary contract of sale for real estate. The preliminary contract is ultimately a declaration of intent to purchase. It becomes legally binding when it is notarized. Under certain conditions, it is possible for both parties to withdraw from the preliminary sales contract. However, this may involve a fee. In this case, it is helpful to stipulate the relevant conditions precisely in the contract and, if in doubt, to seek advice from a notary.
Definition of the preliminary purchase agreement
By concluding a preliminary contract for the purchase of a property, both parties involved commit themselves to the subsequent conclusion of the actual purchase contract. The document serves as a mutually binding safeguard for both parties and obliges the parties to conclude the purchase contract. In addition to the purchase, the preliminary purchase agreement for the purchase of a house or condominium also sets out other mandatory actions in writing. This can also include an omission, for example, in which the seller promises not to sell the property to any other party. The preliminary purchase agreement for condominiums or houses must contain a few minimum details. These include details of both parties to the contract, the exact description of the property and any properties sold, the purchase price, payment terms, deadlines until the contract is concluded, conditions for withdrawal and a compensation clause.
Legal information on the preliminary contract
In order to be legally binding and legally effective, the preliminary purchase agreement must be presented to and notarized by a notary. Both the purchase contract and the preliminary contract for the purchase of a house are subject to the provisions of Section 331b (1) of the German Civil Code (BGB), which stipulate that a contract for the transfer of ownership of a property must be notarized. If the preliminary contract is not notarized, it is therefore invalid and loses its binding effect as a declaration of intent to purchase. However, the preliminary contract for the sale of real estate does not amount to an obligation, because if one party does not fulfill a stipulated condition of the preliminary contract, the other party can withdraw from the preliminary contract. In addition, the contract loses its legal validity in certain cases. This is the case, for example, if the obligations are unreasonable for the buyer, if the buyer is unable to pay, if the buyer is unable to obtain financing for the property purchase, if the buyer dies or if one of the parties suffers a serious accident. Significant damage to or destruction of the property also renders the preliminary contract for the purchase of a house legally invalid.
Advantages and disadvantages of preliminary contracts when buying real estate
The preliminary contract for the purchase of a plot of land or apartment creates several advantages for both parties. The seller receives an assurance that the buyer is seriously interested, so that he can save himself the trouble of searching for potential buyers. The buyer, on the other hand, is assured of receiving the property at a later date on the agreed terms and does not have to worry about another buyer acquiring the desired property or the purchase price being subsequently increased. However, the conclusion of the preliminary contract adds further costs to the actual expenses, as notary fees have to be estimated for the notarization. Who pays these costs is not regulated, but they are often 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 has not yet been arranged – or if there is some uncertainty regarding the seller’s binding commitment.
Costs for preliminary purchase agreements
The cost of concluding a preliminary contract depends on the value of the property; notary fees are based on the provisions of the German Court and Notary Fees Act. This stipulates double the fee for the notarization of contracts, but at least EUR 120 plus 19 percent VAT. The higher the market value of a property, the higher the costs charged by the notary for notarizing the preliminary contract. For a sales price of 300,000 euros, for example, the notary fees are around 600 euros. In addition, there are any expenses for disbursements, such as postage or other additional costs. It is also possible to agree a preliminary contract with a down payment.
As a preliminary contract must be notarized by a notary, fees are incurred for this. They are based on the market value of the property for sale; regulations on this can be found in the Court and Notary Fees Act.
The preliminary purchase agreement for real estate becomes legally binding through notarization. It must therefore be in writing. An informal preliminary contract for the purchase of a house, on the other hand, is not legally binding and effective.
A preliminary agreement is not valid if it is not notarized by a notary. If it is signed informally, it is merely a reservation agreement. It is not legally binding and therefore does not give the buyer or seller any certainty with regard to the upcoming transaction.
Notary fees are based on the Notary Fees Act and the value of the property. For a property worth 250,000 euros, preliminary contract costs of 400 to 500 euros must be estimated. There may be additional expenses for disbursements, although these are usually rather low.
Withdrawal from a preliminary contract and its conditions should be regulated in detail in the contract – otherwise you risk high compensation costs. You should therefore have the notary explain all potential scenarios to you in advance. For example, a withdrawal from the preliminary purchase agreement when buying a house is legally valid if the buyer does not obtain financing. It should also be noted that the purchase will not go ahead if the property is damaged or destroyed. Further conditions for withdrawal can be agreed and stipulated in the contract by both parties. Furthermore, the contract loses its legal validity if the basis of the contract no longer applies. This is the case, for example, if the buyer is unable to pay or if the obligations arising from the contract are unreasonable.
