When buying a property, one of the most important questions for both buyer and seller is when the purchase price must be paid. Many people believe that the full purchase price must be paid when the sale and purchase agreement is signed, but in practice a different payment schedule is used in a significant proportion of real estate transactions.
The timing and method of paying the purchase price can be freely determined by the parties in the sale and purchase agreement. The payment structure may depend, among other things, on whether the buyer is purchasing with a loan or from their own funds, and on when the seller needs the purchase price.
There Is No Mandatory Date for Paying the Purchase Price
The law does not prescribe that the purchase price may or must be paid solely on the day the contract is concluded.
The parties may agree, for example, on:
- payment in a single sum;
- payment in several instalments;
- financing with the help of a bank loan;
- a later payment deadline.
One of the most important parts of the sale and purchase agreement is precisely the detailed regulation of the payment of the purchase price.
Does Anything Have to Be Paid When the Contract Is Signed?
In most real estate transactions the buyer pays some amount to the seller when the contract is signed.
This is typically:
- earnest money;
- an advance on the purchase price;
- or the first instalment of the purchase price.
The most important role of earnest money is to confirm the parties’ contractual intention and to provide security that the transaction will go ahead.
The amount of the earnest money is not fixed by law, but in practice it is often around 10% of the purchase price.
When Must the Remaining Purchase Price Be Paid?
The date for paying the remaining purchase price can be freely determined by the parties.
Common arrangements:
In a single sum within a few days
In the case of a cash purchase, the full purchase price is sometimes paid within a few days of concluding the contract.
In several instalments
With higher-value properties, a payment schedule consisting of several instalments is common.
In such cases the contract precisely specifies:
- the amount of each instalment;
- the payment deadline;
- the method of payment.
Paying the purchase price in instalments is a fully accepted and common arrangement.
In the case of bank loan financing
If the buyer takes out a loan, part or all of the purchase price is disbursed by the bank.
In this case the contract usually provides separately for:
- the payment of the buyer’s own funds;
- the conditions for disbursing the loan;
- the deadline for the bank’s payment.
In such cases, paying the full purchase price often takes several weeks.
When Does Ownership Pass to the Buyer?
It is important to know that acquiring ownership and paying the purchase price do not necessarily happen at the same time.
In practice it is very common for the seller to retain ownership until the full purchase price has been paid, with the buyer’s ownership being registered only afterwards.
This arrangement can provide security for both parties:
- the seller can be confident of receiving the full purchase price;
- while the buyer can meet their payment obligation with appropriate land registry protection.
When Does the Handover of Possession Take Place?
Many people confuse the payment of the purchase price with the handover of possession.
The two do not necessarily coincide.
The parties may agree that:
- the handover of possession takes place after the full purchase price has been paid;
- the buyer may take possession earlier;
- the seller may remain in the property for a specified period.
The date of the handover of possession should in every case be clearly set out in the sale and purchase agreement.
What Happens If the Buyer Does Not Pay the Purchase Price?
If the buyer fails to meet the payment obligation undertaken in the contract, this can have serious consequences.
Depending on the provisions of the contract, the seller may be entitled to:
- keep the earnest money;
- rescind the contract;
- terminate the contract;
- enforce a claim for damages.
This is precisely why it is particularly important that the payment deadlines and conditions are clearly set out in the contract.
What Should the Buyer and the Seller Watch Out For?
When regulating the payment of the purchase price, it is advisable to clarify in advance:
- the amount of the earnest money;
- the payment deadlines;
- the conditions of the bank loan;
- the date of the handover of possession;
- the conditions for registering ownership;
- the consequences of a breach of contract.
A significant proportion of later disputes can be prevented by precise and detailed contractual provisions.
Summary
There is no single answer for every transaction to the question of when the purchase price must be paid. The parties are free to agree on the payment schedule, which may be in a single sum or in several instalments, from their own funds or with the help of a bank loan. The most important thing is that the conditions for paying the purchase price are set out clearly and in detail in the sale and purchase agreement.
A properly prepared contract provides security for both the buyer and the seller and contributes to the smooth completion of the real estate transaction.
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