Advance payment and deposit when buying a property – what you need to know

If you are planning to buy a flat, you will certainly have to give the seller a deposit ("zadatek") or an advance payment ("zaliczka"). It is worth knowing that these two concepts are not the same. Each works differently and protects the interests of the parties to the transaction in a different way. Which option is more favourable?

Advance payment ("zaliczka") when buying a flat – how does it work?

An advance payment ("zaliczka") is an upfront payment of part of the agreed price of the property. As a rule it is refundable. That means that if the buyer withdraws from the agreement, the seller should return the sum paid. It is worth knowing, however, that the concept of "zaliczka" is not defined in the Civil Code. For this reason its return is governed by the general rules on the performance of reciprocal contracts. In practice this means that recovering an advance payment is not always easy. What is more, it does not protect the buyer, because, unlike a deposit ("zadatek"), it does not act as a reservation. That means that if you are waiting for a loan decision, the person with whom you signed the preliminary agreement (umowa przedwstępna) may in the meantime sell the flat to another buyer.

The seller faces no consequences for withdrawing from the agreement. All they have to do is return the amount paid.

For this reason, making an advance payment may prove much less favourable than a deposit for someone looking for a flat for sale. It is particularly inadvisable when buying a flat with a mortgage. Formalities at the bank usually take a long time, and an advance payment is not a "reservation" of the property. The seller can therefore break the agreement at any moment, and the law in no way prevents this.

Deposit ("zadatek") for a flat – what does it involve?

A deposit ("zadatek"), on the other hand, is precisely regulated by law, which is why it is a much better safeguard for both parties to the agreement. It is credited towards the price of the property, but only if the transaction goes through.

• If the agreement is broken through the seller's fault, the buyer may demand twice the amount of the deposit.
• If, on the other hand, the buyer withdraws from the purchase, the seller has the right to keep the deposit paid.

A deposit is used more often than an advance payment because it "mobilises" both parties to honour the agreement. The buyer can be sure that the seller will not break the agreement, for example if they receive a better purchase offer. The seller, in turn, benefits because the buyer has no incentive to break the agreement – if they did, the deposit paid would be forfeited and the seller could keep it.

A deposit when buying with a mortgage

If you are looking for a property in Silesia and intend to finance it with a mortgage, it is worth agreeing the terms of the deposit carefully.

Under the law, a would-be purchaser who has paid a deposit and withdraws from the agreement because the bank has refused the loan loses the deposit. So how do you protect your interests?

The preliminary agreement should include a special clause under which the deposit will be refunded if the bank does not grant the loan. The condition for the refund, however, is that the party paying the deposit has made every effort to obtain the mortgage.

Deposit versus advance payment – what is the difference?

Both an advance payment and a deposit are meant to protect the interests of both parties. Each form of payment, however, works differently. It is worth knowing which of them will work better in a given situation.

Learn the most important differences between a deposit and an advance payment for a flat.

1. An advance payment is, as a rule, refundable in the amount paid, regardless of which party withdrew from the transaction. A deposit is forfeited if the buyer failed to keep to the agreement. If the seller broke it, they must return twice the amount of the deposit.

1. The amounts of an advance payment and a deposit are not regulated by law. A deposit is usually 10%, and if it is higher, it should not exceed 20% of the value of the property. In the case of an advance payment the amount can be anything and there is no accepted standard for it.

1. A deposit is regulated by law, and an advance payment is not. That means that recovering an advance payment may be harder if the agreement is broken.

It is worth knowing the differences between a deposit and an advance payment in order to make better-informed purchasing decisions. If in doubt, it is best to consult a mortgage or investment adviser.