What is a reservation agreement when buying a home and what do I need to pay attention to?

The property reservation agreement in detail: legal aspects, risks and cancellation

To understand the mechanisms, we need to delve deep into the structure of this document. A property reservation agreement is more than a receipt; it is a psychological and financial hurdle.

The legal dilemma: formal requirements and validity

First things first: In Switzerland, a real estate purchase agreement must be publicly notarized (certified by a notary) to be valid (Art. 216 OR). Since a property reservation agreement is usually just a simple written contract between you and the real estate agent/seller, it does not meet this formal requirement.

• The consequence: The seller cannot legally force you to buy the house, even if you have signed the property reservation agreement . Conversely, you cannot force the seller to sell you the house, even if you have made a down payment.
• The function: So why a property reservation agreement ? It serves as proof of seriousness and regulates who bears the costs if negotiations break down. It's a "gentleman's agreement" with a price tag.

The down payment: amount and security

A key element in a property reservation agreement is the reservation payment. It serves as security.

• The amount: Typical amounts are between 10,000 and 30,000 Swiss francs, or about 1 to 2 percent of the purchase price. If a property reservation agreement demands significantly more (e.g., 10 percent), alarm bells should be ringing.
• The account: This is the most critical point. Never transfer the sum from the property reservation agreement to the seller's private account or the real estate agent's business account. If the agent goes bankrupt, your money is gone (bankruptcy estate).
• The solution: The property reservation agreement must stipulate a separate blocked account or escrow account at a bank, held in your name or at least segregated. The money is only released to the seller upon notarization of the purchase and credited towards the purchase price.

Cancellation and costs: What happens when the deal falls through?

What happens if you back out of the purchase despite having a reservation agreement ? For example, because the bank rejects the financing or you discover defects in the house?

This is where the property reservation agreement shows its teeth.

• Reimbursement of costs: The seller is allowed to deduct documented expenses (notary fees, drafting costs , advertising costs, remarketing) from your down payment. This is legal.
• The penalty clause: Many templates for real estate reservation agreements contain a clause stipulating that in the event of cancellation, the entire deposit remains with the seller as a "penalty." Since a real estate reservation agreement is invalid without a notary, this blanket penalty clause is often also void.
• In practice, real estate agents often refuse to release the money. You then have to sue to get it back. A fair property reservation contract lists exactly which costs will be charged in case of cancellation and does not stipulate a blanket confiscation of the deposit.

Include a financing reservation.

To protect yourself, you should insist that an exit clause is included in the property reservation agreement .

• The wording: "This property reservation agreement is only valid subject to the condition that the buyer receives a financing commitment from a bank."
• The effect: If you don't get a mortgage, you'll receive your deposit back in full from the property reservation agreement . If the real estate agent rejects this clause in the property reservation agreement , caution is advised.

Property reservation agreement for new construction vs. existing buildings

There are differences depending on the type of object.

• Existing properties : Here, the property reservation agreement is often drawn up by the real estate agent. It is usually short and serves for a quick agreement.
• New construction projects: For off-plan projects, the property reservation agreement is often part of a more complex preliminary contract. General contractors almost always insist on a property reservation agreement to ensure planning security. Down payments are often higher in these cases. Make sure the property reservation agreement clearly stipulates what happens if construction doesn't start (building permit denied).

Checklist before signing

Before you put pen to paper, check the property reservation agreement for these points:

• Are the purchase price and the property precisely described in the reservation agreement ?
• Is the money held in an escrow account?
• Is a financing reservation included in the property reservation agreement ?
• Are the costs for cancellation detailed and fairly regulated in the property reservation contract ?
• Is the property reservation agreement limited in time (e.g., until the scheduled notary appointment)?

Conclusion

The question "What is a reservation agreement?" can be answered as follows: It's a psychological anchor with financial risk. While a real estate reservation agreement is common in Switzerland, it's legally ineffective if it's not notarized. It doesn't force you to buy, but it can cost you money if you back out.

Consider the property reservation agreement a serious declaration of intent. Only sign it when you are certain and the bank has given the go-ahead. Always insist on an escrow account and a financing clause. A reputable seller will accept a fair property reservation agreement that protects both parties. Don't let yourself be pressured – not even if there are supposedly five other buyers waiting.

If you are unsure whether the clauses in your existing property reservation agreement are fair, or if you would like a neutral review of the cancellation conditions, Loft offers expert knowledge and checklists to protect your money.

Glossary

• Property reservation agreement: A written agreement between buyer and seller prior to the actual purchase to reserve the property against a deposit.
• Escrow account: A bank account held in the buyer's name or in trust. The money from the property reservation agreement is protected from the seller's access until the purchase is completed.
• Formal requirement (Art. 216 OR): The legal provision stipulates that real estate transactions must be publicly notarized (certified by a notary). A simple written reservation agreement for real estate does not fulfill this requirement.
• Penalty clause: A sum of money stipulated in the contract, which becomes due in the event of a breach of contract. In real estate reservation agreements without a notary, this is often not legally enforceable.
• Financing reservation: A clause in the property reservation agreement that allows the buyer to withdraw free of charge if no bank grants a mortgage.