Pre-Purchase Agreements: What to Look For Before You Sign

Pre-purchase or reservation agreements lock you into a deal before the full sale. You might sign one when you reserve a property off-plan, when you make an offer that's accepted subject to contract, or when you pay a deposit to take the property off the market. These agreements often set out the purchase price, the deposit, key deadlines, and what happens if you or the seller withdraw. If you don't read carefully, you might lose your deposit, miss a deadline that triggers a penalty, or be bound to buy when you thought you had an escape route. Here's what to check before you sign—so you know what you're committing to and what your options are if things change.

Deposit and payment

The deposit is usually the first big sum you pay. Understand what it is, when it's due, and under what conditions you get it back.

What you're paying

Is it a reservation fee (to hold the property), a deposit toward the purchase price, or both? Some agreements have a small reservation fee (e.g. a few thousand) that's separate from the main deposit. When is each amount due? Is any part refundable if the deal falls through? For example, if the seller pulls out, do you get the full deposit back? If you can't get finance, do you get it back? If the property doesn't meet conditions (e.g. failed building inspection), do you get it back? The agreement should spell out the conditions for refund. Avoid clauses that let the seller keep the full deposit for minor or unclear reasons—e.g. "if the buyer fails to complete for any reason" without defining what counts as a valid reason for you to walk away (e.g. finance, inspection).

What to look for

• Clear breakdown of amounts: Reservation fee, deposit, when each is due, and when (if ever) they're non-refundable.
• Conditions for refund: If the seller pulls out, if you can't get finance (and you've acted in good faith to try), if the property doesn't meet agreed conditions (e.g. subject to building inspection), do you get the full deposit back? What about your costs (e.g. survey, legal fees)?
• Where is the money held? Escrow or a neutral account (e.g. notary, lawyer) is safer than the seller or agent holding it directly. If the seller holds it and goes bankrupt or disputes the deal, you might have trouble getting it back. Check who holds it, when it's released (e.g. on completion, or to the seller if you're in breach), and whether it's in a separate account (required in some places).

Deadlines and conditions

Missing a deadline can cost you the deposit or leave you in breach—obligated to complete when you no longer want to or can't. Understand every key date and what happens if you miss it.

Key dates

When must the full contract be signed (exchange of contracts)? When must financing be secured? When is completion (keys and ownership transfer)? Missing a deadline can cost you the deposit or leave you in breach—so you're obligated to complete and could be sued for damages if you don't. Put every key date in your calendar. If you need an extension (e.g. your mortgage approval is delayed), ask for it in writing before the deadline. Some agreements allow one extension; others don't. Don't assume you can extend—get it in writing.

Conditions (subject to)

Common conditions: "subject to finance" (you can walk away if you can't get a mortgage), "subject to building inspection" (you can walk away if the inspection reveals major issues), "subject to sale of your current home" (you can walk away if you don't sell in time). If a condition isn't met, can you walk away and get the deposit back? The agreement should say. Avoid vague conditions like "subject to satisfactory finance" without a deadline or definition—when is "satisfactory"? How long do you have to try? Push for clear language: "subject to buyer obtaining mortgage offer of at least X by [date]." That way you know exactly what you need to do and by when.

What to look for

• A clear list of conditions and what happens if they're not met (refund, extension, or you're bound anyway). If the agreement says you're bound even if a condition isn't met (e.g. "buyer waives finance condition"), you've given up your escape route. Don't sign that unless you're sure you can complete without the condition.
• Deadlines for each condition: By when must you secure finance? By when must the inspection be done? By when must you sell your home? Without deadlines, the seller can pressure you to waive conditions early—or the condition can drag on forever.
• Avoid "subject to satisfactory finance" without a definition. Push for "subject to buyer obtaining mortgage offer of at least [amount] by [date], failing which buyer may withdraw and deposit shall be refunded."

Penalties and withdrawal

What happens if you withdraw? What happens if the seller withdraws? And what if something outside everyone's control stops the deal?

If you withdraw

Do you lose the full deposit? A percentage? Is there a cooling-off period during which you can withdraw with little or no penalty? In some places the law gives you a short cooling-off period (e.g. 14 days) for off-plan or distance purchases; the contract shouldn't try to remove it where that's not allowed. If you withdraw after the cooling-off period (or if there is none), what do you lose? Some agreements say you forfeit the full deposit; others say a percentage (e.g. 10%) or a fixed amount. Understand the cost of walking away before you sign. If the penalty is very high (e.g. full deposit), make sure you're confident you can complete—or that your conditions give you a clear way out if things go wrong.

If the seller withdraws

What do you get back? Just the deposit, or double deposit, or your costs (survey, legal) too? Look for symmetry: if you lose a lot by withdrawing, the seller should have meaningful penalties too. In some jurisdictions the buyer can claim double the deposit or specific performance (a court order forcing the seller to complete) if the seller wrongfully withdraws. The agreement might try to limit the seller's liability—e.g. "seller's only obligation is to return the deposit." If so, understand that you may have little recourse beyond getting your money back. In some places such limits are unenforceable; check your jurisdiction.

Force majeure

What if something outside everyone's control stops the deal—e.g. natural disaster, pandemic, change in law, or the property is destroyed? Who bears the risk? Is the deposit returned? Does the agreement address this? Many pre-purchase agreements don't mention force majeure; if so, general contract law may apply (e.g. frustration of contract). But it's better to have it in writing: if the deal can't complete due to force majeure, the deposit is returned and neither party has further obligation. Otherwise you might be left arguing about who bears the loss.

BeforeYouSign can highlight deadlines, deposit, and penalty clauses in your pre-purchase agreement so you know what you're committing to and what your options are if things change.