Down payment – A key element of security for buyers and sellers

You’ve found a property that perfectly suits your needs, made the decision, everything has aligned—and now comes one of the key steps: the down payment for purchasing the property. You may or may not have accounted for this expense, which is a common practice in the real estate market.

In the rest of this article, we’ll explain what a down payment is, how it is regulated by law, what its purpose is, and what consequences may arise if it is not respected.

What is a down payment?

A down payment is a sum of money that the buyer gives to the seller as a sign of serious intent to purchase the property. Its purpose is to provide mutual assurance that the transaction will be completed under the agreed terms. The legal basis for the down payment is found in the Law on Obligations, and it can also be governed by a preliminary contract.

Amount of the down payment

In practice, the down payment typically amounts to up to 10% of the agreed sale price of the property. However, this percentage can be negotiated between the buyer and seller—commonly 5% or 15%—as it is not specifically regulated by law.

In cases where the down payment exceeds 10%, the buyer may have a legal basis to initiate a pre-registration of ownership in the land registry. This means the buyer can request that their future ownership rights be recorded, providing a degree of legal protection that the property will indeed be transferred to them once contractual conditions are fulfilled.

For the seller, this can be risky, as it effectively “binds” them to the buyer—even if the final sale does not occur. Therefore, agencies usually recommend sticking to the standard 10%, which demonstrates the buyer’s seriousness while avoiding potential complications. It is also crucial that the amount is clearly stated and confirmed in writing—most often through a preliminary agreement or a specific down payment contract.

How is the down payment regulated?

The down payment is typically made when signing a preliminary agreement for the sale. This agreement outlines the basic terms of the future final contract (price, deadlines, payment methods, property description), and the down payment is specified within it as a security measure.

If the final contract is later concluded, the down payment is deducted from the total price or subtracted from the final payment.

Legal consequences of withdrawal

The down payment is legally binding for both parties, and the law clearly defines the consequences of failing to uphold it:

If the buyer withdraws from the purchase without a justified reason, the seller has the right to keep the down payment.

If the seller withdraws from the sale, they are obligated to return double the amount of the down payment to the buyer.

If the contract is terminated due to force majeure or by mutual agreement, the down payment is typically returned to the buyer in full.

The down payment is not just a symbolic gesture of intent, but a legal instrument with tangible consequences. When properly agreed upon and implemented, it protects both the buyer and the seller, contributing to the stability and transparency of the real estate transaction process.

However, due to its dual role and potential for misuse, it is extremely important that the down payment is clearly, thoroughly, and professionally regulated. Only with full legal knowledge and the support of professionals can legal complications be avoided and a successful transaction ensured.

You can read the Law on Obligations here:

https://mp.ks.gov.ba/sites/mp.ks.gov.ba/files/2024-09/zakon_o_obligacionim_odnosima.pdf 

Ena-Lemana S. 

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