Property reservation agreement: what to check before handing over money

What a reservation agreement is and why you should not sign it in a hurry

When you are about to hand over money to “hold” a property, the most important thing is not to be left with only the commercial idea that the property is being taken off the market. A reservation agreement can be used to record an intention to buy while the transaction is being checked, but its real effect depends on what has been written down: which specific property is reserved, for how long, what happens if either party pulls out, and in which circumstances the amount paid is returned or lost.

Here it is worth distinguishing it from other documents that are often easily confused. Reserving is not the same as signing earnest money or already closing a private sale and purchase agreement. The general framework for the sale and purchase of homes in the Community of Madrid notes that, before buying, it is common to use different contracts “that secure the purchase while the mortgage loan is being arranged”, such as an option to buy, earnest money or deposit, and the private sale and purchase agreement. It also states that the contract must clearly set out the parties’ details, the property details, the price, the payment method and the mortgage loan conditions, if it has already been formalised. You can see it in the regional guide to buying and selling homes: Compraventa de viviendas.

What you should check before handing over money

Before paying a reservation fee, review these points in order:

1. **Exact identification of the property.** You must know precisely which property is being reserved, with its Land Registry details and description. If a parking space, storage room, terrace or furniture are included, that must be clear too.

2. **Who is collecting the reservation fee.** Check that the person or company receiving the money is entitled to do so. If the seller is not the true owner or is acting through a representative, this must be proven.

3. **Final price or method of fixing it.** Although the reservation does not always set the final price, you should know whether the amount paid is deducted from the total price or whether it is treated differently.

4. **Validity period.** It is essential that the document states how long the reservation lasts and what happens when the period expires.

5. **Pending documentation.** If the reservation is signed before the legal, financial or community situation of the property has been checked, record which documents must be provided later and what happens if they do not appear or are not correct.

6. **Financing conditions.** If you need a mortgage, the reservation should state what happens if the bank does not grant financing, or grants it on terms different from those envisaged.

7. **Grounds for refund.** It must be clear in which cases the money is refunded, in which cases it is retained in full or in part, and whether any expenses are to be deducted.

Returning the money: what must be settled in writing

The key point of the reservation is not just whether money is handed over, but whether you know exactly when you get it back. Without clear wording, it is easy to end up arguing whether the amount was a mere holding deposit, consideration for taking the property off the market, or a payment on account of the price.

As a practical guide, the document should answer these questions:

1. **Is it returned if the property does not pass the documentary review?**

2. **Is it returned if an encumbrance, community debt or material discrepancy appears?**

3. **Is it returned if financing is refused within the agreed period?**

4. **Is it returned if the seller changes their mind or sells to a third party?**

5. **What part, if any, may be withheld as compensation?**

At this point it is useful to review the situation of the residents’ association. The Horizontal Property Act establishes that the transferor must declare whether they are up to date with payment of general expenses and provide certification of the state of debts; without that certificate, execution of the public deed cannot be authorised, unless the buyer expressly waives it. In addition, the purchaser is liable with the property itself for certain amounts owed to the residents’ association under the legal terms. This matters even before signing the sale and purchase agreement, because a serious reservation should foresee what happens if an unexpected debt appears. The basis is in article 9 of the Horizontal Property Act: BOE-A-1960-10906.

**Common mistake:** handing over the reservation fee without fixing what happens to the money if the loan is not approved. If you depend on a mortgage, it is not enough to say “if I do not get financing, they will return it”; the period, the documentation proving the refusal, and whether the refusal must be total or only in relation to specific minimum conditions must be set out.

How to include financing without overcommitting

Financing is usually the most delicate point. The Madrid guide notes that before completion “it is very likely that it will be necessary to enter into a contract that secures the purchase while the mortgage loan is being arranged”. That means the reservation can be a useful stage, but only if it protects your exit when the mortgage does not come through.

You should review the following:

1. **Minimum financing amount.** If you need a specific percentage of the price, put it in writing.

2. **Deadline for a bank response.** Do not hand over a reservation fee with no end date while you wait for the mortgage.

3. **Evidence of the application process.** Ask for the documents you must provide and the way the application is to be evidenced.

4. **Alternative if the valuation comes in low.** If the transaction depends on a valuation that reduces the amount that can be financed, you should know whether that triggers a refund.

5. **Compatibility with other encumbrances.** If the property has an existing mortgage, check how it will be cancelled or how the signing will be coordinated.

Do not rely on vague wording such as “the transaction is subject to financing” if it does not later specify exactly what that means. An ambiguous clause may leave you with no room to recover the money if the bank introduces different conditions from those expected.

Practical steps before signing and paying the reservation fee

1. **Ask for the document in advance.** Do not sign it during the viewing or under commercial pressure.

2. **Check the basic legal situation.** Land Registry information and the community situation are essential.

3. **Make sure the reservation describes the full transaction.** Property, annexes, price, deadline and refund.

4. **Put financing in writing.** If there is no mortgage, there will be no problem; if you need one, it must be предусмотрено.

5. **Demand a receipt or proof of payment.** Every transfer of money must be documented.

6. **Do not mix up reservation, earnest money and sale and purchase without understanding the effects.** Each document can have different consequences.

**Useful tip:** if the transaction raises doubts, treat the reservation as a review stage, not as an irrevocable commitment. The more detailed the document is, the less dependent you will be on later interpretations.

When it is advisable to stop and ask for an individual review

There are situations in which a general review is not enough: inheritances, several owners, an outstanding mortgage, a residents’ association with significant special levies, discrepancies between the Land Registry description and the real property, or financing subject to conditions. In those cases, the reservation document must be adapted to the specific transaction. This guide offers general guidance; it does not replace an individual analysis of the contract and the property documentation.

If you would like to assess a transaction before handing over money or need help reviewing the refund and financing conditions, you can use the indicative online valuation from UBICASA or contact the team from /contacto. The online valuation is indicative, includes a range and PDF report, and can be completed with an optional visit if you request it.