Before signing the final purchase deed, it's common to formalize an earnest-money deposit contract (contrato de arras), handing over a sum of money as a down payment commitment. The type of deposit agreed determines exactly what happens if either party decides not to go through with the deal.
What an earnest-money deposit contract is
It's a contract that precedes the final sale, through which the buyer hands the seller a sum of money as a deposit, with both parties committing to complete the sale within a set period — usually the time the buyer needs to secure mortgage financing.
Withdrawal deposits (arras penitenciales): the most common type
These allow either party to back out of the contract without needing to give a reason, with a predetermined financial consequence: if the buyer backs out, they lose the deposit; if the seller backs out, they must return double that amount to the buyer.
Confirmatory deposits (arras confirmatorias)
Unlike withdrawal deposits, these don't allow either party to freely back out of the contract: the sum handed over is simply treated as an advance on the total price, and if one party breaches the contract, the other can demand forced performance (compelling them to sell or buy) plus compensation for damages, not just keep the deposit or its double.
Penalty deposits (arras penales)
These combine elements of both: the sum handed over acts as a penalty clause in case of breach, but the injured party can additionally demand performance of the contract, rather than settling only for the loss or doubled return of the deposit.
Why it's essential to specify the type of deposit in the contract
If the contract doesn't clearly specify which type of deposit is being agreed, the default interpretation under prevailing case law tends to lean toward withdrawal deposits, but to avoid any ambiguity, the contract should expressly state the type of deposit and its specific consequences.
Why it's worth making the deposit conditional on obtaining financing
It's advisable to include a clause in the deposit contract making the deal conditional on the buyer actually obtaining the necessary mortgage financing, so as to avoid losing the entire deposit if the bank ultimately denies the mortgage for reasons beyond the buyer's control.
Simulate your mortgage before committing a deposit
Before signing any earnest-money deposit contract, it's worth having a realistic estimate of whether you'll be able to secure the necessary financing. Our mortgage calculator helps you estimate your payment and assess your repayment capacity before committing any money.