What is the difference between an advance and a deposit. What to use if you are buying an apartment

Often in real estate transactions, the seller asks for a small advance or deposit - this is a way to “reserve” the apartment while you complete the main purchase and sale agreement, collect the remaining amount and prepare for the transaction. For example, when you buy a home with a mortgage.

If everything is done correctly, such an advance payment protects both parties - for example, it will compensate the seller for lost time if the buyer is unable to take out a loan.

There are three options for making an advance payment, each with its own nuances.

Prepaid expense

This is a form of prepayment, which is not enshrined in any way in the Civil Code. De facto, the advance protects only the seller - if he decides to refuse the transaction, he returns the money to the buyer without any fines or compensation. If the buyer cancels the agreement, the seller keeps the advance.

Despite the somewhat one-sided nature of the scheme, it is in advance that realtors most often offer prepayment on the secondary housing market.

Typically, the parties enter into a so-called advance agreement. There is no template established by law, so they write in free form. They indicate who gave the advance to whom, and by what date the transaction must be registered. They stipulate that the buyer does not demand money back if he decides not to purchase this property.

When you agree to an advance payment, be sure to add to the contract a statement that the money transferred will be counted as the first payment under the main purchase and sale agreement.

If you end up with an unscrupulous agency, you may encounter the following offer: the advance payment is processed as payment for the services of an intermediary agent in the transaction. This is contrary to the law and common sense - if you give an advance payment, then it should not be the agent’s payment, but part of the payment for the apartment. Money to an agent is a service, a separate contract.

If you want to protect yourself as a buyer, consider other forms of prepayment.

This is an example of an advance agreement. It is indicated that the advance is refundable in any case - even if the buyer decides to simply abandon the transaction

Deposit and advance - is there a difference?

A deposit is a portion of funds deposited into the account of a bank or other similar institution for the purpose of receiving a profit as interest for the use of these funds. Recently, the deposit has gained popularity, since this procedure allows you to use your free funds as passive income.

Despite the fact that there is some similarity between the concepts of “advance” and “deposit”, these concepts still have their own characteristics. The first term is used as a guarantor, while the deposit is a way to earn money.

Deposit

Earnest money is a statutory legal term. To simplify the complex formulation, this is the money that the buyer gives to the seller towards future payments under the contract. Thus, the parties confirm their intention to enter into the main purchase and sale agreement.

For the transfer of money to be considered a deposit, the agreement must be in writing. A document signed by both parties and made in free form is sufficient - it is not necessary to have the papers certified by a notary.

Termination of the deposit agreement is regulated by Art. No. 381 of the Civil Code of the Russian Federation:

The buyer decides to refuse the transaction - the seller keeps the money;
If the seller refuses, he will have to return the deposit in double amount.

If the seller does not want to voluntarily refund the deposit, the buyer can go to court. In claims, you can claim “compensation for damage,” that is, a double deposit, plus compensation for the use of other people’s money, plus moral damage. Or try to force the seller to conclude a purchase and sale agreement. The court's decision depends on many factors in a particular situation; it cannot be predicted.

In the deposit agreement, also write down all the conditions of the future transaction and indicate that the deposit is an advance payment. Although by law it cannot be otherwise, it is better to discuss this point in advance. So that it does not come as a surprise to one of the parties that the amount for the apartment is less than the amount of the deposit.

Example of a deposit agreement. Just in case, they indicated that the seller returns it in double amount if the purchase and sale agreement is not concluded due to his fault

Advances under the simplified tax system in 2021

On the simplified tax system, a single tax must be paid annually. At the same time, it is important to make advance payments every quarter during the year. The Federal Tax Service expects payments from organizations and individual entrepreneurs by the 25th of the month following the reporting period. In 2021 the deadlines are as follows:

Reporting period	2021
1st quarter	26 April
half year	26 July
9 months	the 25th of October

If the 25th falls on a weekend or non-working holiday, the due date is postponed to the next working day.

There is formally no advance payment for the 4th quarter. It represents the final payment for the year. Organizations and individual entrepreneurs calculate tax according to the simplified tax system, taking into account all previously paid advance payments. Simplifiers at the object “Income minus expenses” calculate a single or minimum tax. You need to transfer taxes to the budget:

for 2021
IP	April 30, 2022
OOO	March 31, 2022

Don't ignore down payments. If an entrepreneur decides to calculate and transfer the tax only after the end of the calendar year, he will have to respond in rubles: for each day the advance payment is late, the Federal Tax Service charges penalties - use our free penalty calculator to calculate their amount. If a businessman fails to pay tax for the year, in addition to penalties, he faces a fine of 20% or 40% of the unpaid amount.

Security payment

This is another legal option for a monetary obligation with which the buyer can confirm his desire to purchase an apartment. Regulated by art. No. 381.1 Civil Code of the Russian Federation. A security deposit is similar to a deposit, but with nuances. For example, the deposit cannot be spent on the seller, but the security payment can be used for expenses related to the contract - for paperwork, real estate valuation, or for a notary. The security deposit is not initially included in the rent for the apartment, although such a condition can be prescribed.

If the buyer does not want to conclude the contract, the security will not be returned to him. When the seller refuses the transaction, then, unlike the deposit, he does not need to return the payment in double amount - the amount of the fine must be agreed upon.

The security payment by default is not an “advance payment” - the fact that it reduces the cost of the apartment must be stated in the contract.

This agreement indicated that the security deposit is considered part of the total payment for the apartment

How much money should be allocated for prepayment?

There is no amount that the law allows to take from the buyer in the form of an advance payment - everything is based on personal agreements. If we talk about ordinary transactions between individuals, the amount of the advance payment often depends on the region and class of real estate.

For example, for economy class in Saratov they ask for about 10-30 thousand rubles. A deposit for similar housing in Moscow will cost 50-100 thousand. If we talk about the capital's business class, the advance amount can reach 10-20% of the cost of the apartment.

The average prepayment in Moscow now is 1-2% of the cost of housing. It is better to agree on a smaller amount - the advance payment agreement is not registered anywhere, there is a risk that your money will be taken and disappeared.

Risks when transferring an advance payment - when to give money

You should transfer an advance payment for an apartment in any form only after you are convinced of the legal “purity” of the property and are sure that you are ready to buy this property. For example, you need a few days to apply for a mortgage and get approval from the bank - in such a situation it is normal to transfer money.

Transferring an advance payment is always a risk. There is a chance that the seller will be dishonest and try to deceive you:

Perhaps there are other owners who are against the deal. Take an extract from the Unified State Register of Real Estate to find out everyone who has the right to an apartment. If this is not done, after the prepayment, other owners may appear, they will not sign the purchase and sale agreement, and you will have to look for the seller and try to get your money back.
Or this is not the seller’s apartment at all. Fraudsters operate this way: they rent an expensive and beautiful apartment, and then put it up for sale at a reduced price. They motivate this by the fact that they are urgently moving and cannot delay the deal. The offer seems profitable, so the buyer takes his word for it and offers an advance himself. So that the sellers wait a couple of days until he collects the entire amount. After this, the scammers disappear.

If you decide to buy an apartment and are asked for an advance payment, then first check with the seller all the documents for it, make sure that there is permission from the guardianship authorities or spouses, if necessary.

Indirectly, the seller’s trustworthiness can be checked by checking whether he has debts - on the bailiffs’ website, free of charge. If the seller is in the database, it will be difficult to collect an advance payment from him in case of problems - you will simply add to the list of those to whom he owes money.

The seller has a debt of more than 140 thousand rubles. You need to be careful with prepayments

How to transfer a prepayment

It doesn’t matter in what form you and the seller agreed to transfer the money, as an advance, a deposit or a security deposit - in any case, an agreement is needed. Write down these points in it:

Passport details of all participants in the transaction. If there are several sellers or buyers, or you plan to buy an apartment with a mortgage with the help of co-borrowers, add them to the agreement.
Full information about the property - address, cadastral number and price, technical parameters such as floor and footage. It is better to take information from the USRN extract.
The form of the contract is an advance, deposit or security payment. It is usually stated in the title, but there is no prohibition on making a preliminary agreement, in which a separate clause indicates the legal form of the prepayment.
The full price of the apartment is necessary so that the seller cannot change it after receiving the advance payment.
Prepayment amount. If the cost of the apartment is reduced by the amount of the prepayment, this should also be mentioned in the contract.
Conditions of retention and return. What happens if the buyer or seller changes their mind about the deal. What happens if the deal cannot be concluded due to some external circumstances, for example, refusal to approve a mortgage. Do I need to return the prepayment in case of force majeure?
Add the validity period of the contract - indicate the exact date by which you need to conclude the main purchase and sale agreement and register the transaction.

When transferring money, take a receipt from the seller - it must indicate the full names of both parties, their passport details, amount and basis, that is, under what agreement the payment is being made.

The receipt is written in free form

Legally, an advance is an advance payment

In the case of real estate - under a purchase and sale agreement. If there is no agreement, then essentially there cannot be an advance. However, realtors and buyers often in everyday life refer to the payment of money as an “advance” to symbolically confirm the intention. It has no force, and if the transaction does not take place, then the amount is simply returned to the buyer. To avoid confusion, in the article we will also use the word “advance”, but in quotation marks.

A deposit is a definite obligation

The concept of a deposit is clearly stated in the civil code. It is transferred to account for payments due under the purchase and sale agreement, as proof of the conclusion of the agreement and to ensure its execution. That is, in addition to the prepayment function, it also has the function of ensuring the terms of the contract.

There can be three situations with a deposit:

1. The transaction was canceled by both parties mutually or due to circumstances beyond anyone’s control - the deposit is returned

2. The transaction was canceled due to the fault of the buyer - the deposit is not returned

3. The transaction was canceled due to the fault of the seller - the deposit will be returned in double amount

What risks are there for the seller and the buyer when making an “advance”?

Lack of guarantees that the purchase and sale will take place can lead to quite significant financial losses. For example, the buyer has already spent money on completing the transaction, and the seller at the last moment refuses and returns the advance. In the case of a deposit, possible losses are compensated: to the seller - at the expense of the deposit left, to the buyer - by the same amount in addition.

Igor signed an “advance” agreement with the seller through realtors and transferred 100,000 rubles. Three days before the transaction, the seller stated that he wanted 300,000 rubles more for the apartment. Igor could have simply taken the “advance payment”, but he regretted the time and money already spent on registration, evaluation, and so on. As a result, the apartment was bought at an inflated price.

What was done wrong?

The “advance” agreement provides virtually no guarantees regarding the transaction. To fix the price, transaction date and other important conditions, you need to enter into a deposit agreement, a security deposit or a preliminary purchase and sale agreement.

I also heard about a security deposit. What's this?

This is a relatively new way of ensuring the fulfillment of obligations; it was included in the civil code in 2015. A security deposit is similar to a deposit, but it can include almost any conditions for return or retention.

Security deposits have been used not so long ago and are still rare. But in vain. This is a very convenient legal tool to protect the interests of both parties.

Wow, so many options. What should I choose?

If you are serious about making a deal and your goal is to establish liability, choose an earnest money deposit or a security deposit.

If the situation is not entirely certain and something may change, it is better not to contribute anything. But if you still decide to use an “advance”, keep in mind that it does not provide any guarantees.

How to get your money back if the seller changes his mind

When a deal falls through due to the buyer’s fault, the advance payment is not returned to him. If the seller refuses the deal, there are several options:

In case of an advance, he returns the entire amount;
Deposit - must transfer the amount in double amount;
Security deposit - you need to look at the terms of the contract. Most likely, he must return the entire amount plus the prescribed compensation, if such lines are in the contract.

If the seller refuses to return the advance payment, you need to go to court - to the world court if the amount of the claim is less than 50 thousand rubles, and to the district court at the plaintiff’s place of residence, if more.

You need to collect not only an advance payment, but also a penalty for illegal use of funds. The size is set by art. No. 395 of the Civil Code of the Russian Federation - you need to take the key rate of the Central Bank of the Russian Federation, divide it by the number of days, then multiply by the number of days of delay and by the amount of the prepayment.

Example

You are owed 50 thousand rubles. The rate of the Central Bank of the Russian Federation on the day of calculation is 4.25% in August 2021. The seller does not return the money for 60 days.

The penalty will be = 4.25% / 366 x 50,000 x 60 = 384 rubles.

The problem is that even a successful trial may not help you get your money back. For example, you won and were even awarded compensation. But the seller still refuses to return your money, so you have to collect it with the help of bailiffs. If the debtor has an official job, part of the money will be transferred to you from it.

You will repay the advance payment in a large amount at once, and you will receive the debt back in installments, perhaps even over several years.

Therefore, if it is possible to conduct a transaction without prepayment, it is better to refuse any form of it. Or at least specifically state the seller’s responsibility in the preliminary contract and make sure that he has a reason to repay you the debt - for example, he has a decent official job.

Deposit and preliminary agreement

Federal Law of March 8, 2015 No. 42-FZ in Art. 380 of the Civil Code of the Russian Federation introduced paragraph 4.

The range of obligations the fulfillment of which can be secured by a deposit has expanded. Now the deposit can be used to ensure the fulfillment of the obligation to conclude the main contract on the terms provided for in the preliminary contract.

By preliminary agreement, in accordance with paragraph 1 of Art. 429 of the Civil Code of the Russian Federation, the parties undertake to conclude a main agreement in the future on the terms provided for in the preliminary agreement.

Previously, the issue of the possibility of making a deposit under a preliminary agreement was not regulated by civil law and was resolved at the level of arbitration practice. There was no consensus.

Most often the opinion was something like this.

“From the content of this norm [p. 1 tbsp. 380 of the Civil Code of the Russian Federation - A.S.] it follows that a deposit can ensure the fulfillment by the parties of a monetary obligation under an agreement concluded between them, the debtor under which is or will be the party that transferred the deposit. In this regard, the courts came to the correct conclusion that the preliminary agreement, as a transaction that does not contain payment functions at its core, cannot be secured by a deposit.”
Resolution of the Federal Antimonopoly Service of the Moscow District dated December 19, 2012 in case No. A40-139849/10-60-903

In short, only a monetary obligation can be secured by an earnest money deposit. A preliminary agreement is not one of these, since it imposes the only obligation to conclude a main agreement in the future and is free of charge.

Before the merger of the highest courts, the Supreme Arbitration Court of the Russian Federation took the position that the deposit cannot be used as a security measure under a preliminary agreement, since the latter does not contain any monetary obligations between the parties (Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated January 19, 2010 No. 13331/09).

The Supreme Court of the Russian Federation came to a different conclusion - the Civil Code of the Russian Federation does not prohibit the provision of a deposit for the execution of a preliminary agreement and the application, if a party evades the conclusion of the main agreement, of the consequences provided for in paragraph 2 of Art. 381 of the Civil Code of the Russian Federation - loss of the deposit or its payment in double amount (Decision of the Supreme Court of the Russian Federation dated November 13, 2012 No. 11-КГ12-20).

Now this discrepancy has been eliminated, clause 4 of Art. 380 of the Civil Code of the Russian Federation directly established the possibility of securing with a deposit the obligation to conclude the main contract on the terms of the preliminary contract.

There are different judicial practices on certain issues regarding the application of both a deposit and an advance payment. This also applies to penalties, pledges, and sureties. If you noticed, there were few references to practice. This doesn't mean it doesn't exist.

I have an idea to talk about judicial practice on methods of ensuring the fulfillment of obligations in a different format.

How to transfer a prepayment

It doesn’t matter in what form you and the seller agreed to transfer the money, as an advance, a deposit or a security deposit - in any case, an agreement is needed. Write down these points in it:

Passport details of all participants in the transaction. If there are several sellers or buyers, or you plan to buy an apartment with a mortgage with the help of co-borrowers, add them to the agreement.
Full information about the property - address, cadastral number and price, technical parameters such as floor and footage. It is better to take information from the USRN extract.
The form of the contract is an advance, deposit or security payment. It is usually stated in the title, but there is no prohibition on making a preliminary agreement, in which a separate clause indicates the legal form of the prepayment.
The full price of the apartment is necessary so that the seller cannot change it after receiving the advance payment.
Prepayment amount. If the cost of the apartment is reduced by the amount of the prepayment, this should also be mentioned in the contract.
Conditions of retention and return. What happens if the buyer or seller changes their mind about the deal. What happens if the deal cannot be concluded due to some external circumstances, for example, refusal to approve a mortgage. Do I need to return the prepayment in case of force majeure?
Add the validity period of the contract - indicate the exact date by which you need to conclude the main purchase and sale agreement and register the transaction.

The receipt is written in free form

How to get your money back if the seller changes his mind

When a deal falls through due to the buyer’s fault, the advance payment is not returned to him. If the seller refuses the deal, there are several options:

In case of an advance, he returns the entire amount;
Deposit - must transfer the amount in double amount;
Security deposit - you need to look at the terms of the contract. Most likely, he must return the entire amount plus the prescribed compensation, if such lines are in the contract.

Example:

You are owed 50 thousand rubles. The rate of the Central Bank of the Russian Federation on the day of calculation is 4.25% in August 2021. The seller does not return the money for 60 days.

The penalty will be = 4.25% / 366 x 50,000 x 60 = 384 rubles.

You will repay the advance payment in a large amount at once, and you will receive the debt back in installments, perhaps even over several years.

Briefly - what is the difference between the forms of prepayment, which is more profitable?

For the buyer, the most profitable option is a deposit agreement - if the seller does not want to conclude a deal, he will return the deposit and the same amount of money as compensation.
The most unprofitable option is an advance, because it is part of the money in advance, without any obligations and compensation prescribed by law. If the transaction is canceled due to the fault of the seller, he should simply return your money. And do not agree to issue an advance as payment for services to an intermediary.
A security deposit is usually used in transactions on the primary market - developers will not take risks and take a deposit because they do not want the potential risk of returning it in double amount. Plus, this is illegal; they cannot take an advance payment before registering the transaction with the MFC. The security will help them to be convinced of the seriousness of your intentions - in exchange for this they will book an apartment for you.
An advance is often used in transactions with a real estate agency - the same money is their commission. If the buyer refuses the deal, realtors take the advance for themselves and look for another applicant for the apartment.
An advance should also be considered in complex transactions, when there is a long chain of sellers and buyers. Here, concluding a deposit agreement is dangerous, because everything can be canceled because of one participant, and all sellers will pay double compensation.

Briefly - what is the difference between the forms of prepayment, which is more profitable?

For the buyer, the most profitable option is a deposit agreement - if the seller does not want to conclude a deal, he will return the deposit and the same amount of money as compensation.
The most unprofitable option is an advance, because it is part of the money in advance, without any obligations and compensation prescribed by law. If the transaction is canceled due to the fault of the seller, he should simply return your money. And do not agree to issue an advance as payment for services to an intermediary.
A security deposit is usually used in transactions on the primary market - developers will not take risks and take a deposit because they do not want the potential risk of returning it in double amount. Plus, this is illegal; they cannot take an advance payment before registering the transaction with the MFC. The security will help them to be convinced of the seriousness of your intentions - in exchange for this they will book an apartment for you.
An advance is often used in transactions with a real estate agency - the same money is their commission. If the buyer refuses the deal, realtors take the advance for themselves and look for another applicant for the apartment.
An advance should also be considered in complex transactions, when there is a long chain of sellers and buyers. Here, concluding a deposit agreement is dangerous, because everything can be canceled because of one participant, and all sellers will pay double compensation.

What is the difference?

Advance payment and advance payment - what is the difference? Making an advance guarantees that the client has serious plans to purchase goods or any real estate. Prepayment is similar in its purpose and also stabilizes the relationship between the parties to the transaction.

Both advance and prepayment are made before the start of the transaction and can be returned in full upon cancellation. Despite the fact that the term “advance payment” is much more often used in the legal field when drawing up contracts and various documentation than “prepayment”, these two concepts can be considered identical and identical.