Finding just the right property can be a tedious project, so when a person does find that special place, it's important that a reservation or offer is made so that the property is not lost. Otherwise, another party might make an offer on the place and the opportunity might be lost forever.
The contract
In most other countries (i.e. United States), a reservation contract is termed a residential offer, or earnest money agreement. Basically, the reservation contract is similar: it reserves a right to purchase a piece of property.
Without a contract or agreement, another party could make an offer or reservation on the same property, and the owner could choose the highest bid or offer. That could spell disaster if a person puts up his house for sell, counting on the fact that he'll be moving into his new residence in a matter of a few months or so.
The reservation contract protects the buyer from having someone else bidding on the property. In other words, once a reservation contract is signed, the property is taken off the market. no one can make another on the house during the agreed upon contract time.
That agreed upon "hands-off period" is designed so that the buyer has adequate time to check the legal status of the property (i.e. existing liens), as well as condition of the property. It also gives the buyer time to confirm financial eligibility for a home mortgage.
The deposit
In most instances, a deposit is part of the reservation contract?s term. Without it, the seller would have no good reason to take the property of the market. Deposits vary, but it's usually a specifically agreed upon amount between the buyer and seller.
The deposit can be returned to the buyer under certain conditions (i.e. discovery of existing liens on the property, cracked foundation, roof in poor repair) if it´s specifically stipulated in the reservation contract that the property has to meet certain requirements.
For instance, the contract can note that purchase of the house is contingent upon the house inspection results; if the potential buyers are not satisfied with the report, either the price can be lowered or the buyers have the right to back out of the deal (with a full return of the deposit).
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