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What to look out for when buying a property

Buying a home or apartment is not about small money. Often you have to invest a lifetime of savings or go into debt for the next 30 years with a mortgage.

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Chapters of the article

When you really like the apartment

So don’t be in a hurry to sign contracts that commit you to anything, and have your documents checked or prepared by a professional instead. It all starts with the reservation contract, which many people underestimate, yet it is one of the most important documents of the entire transfer.

In our practice, we have come across many cases of clients telling us the same story over and over again. They came to view an apartment that they really liked a lot. They let their emotions go and immediately said “I want that one”. But that’s not a good position to start a negotiation.

Even if buying a home is a matter of the heart for you, for a real estate agent it’s a deal like any other. They typically broker the sale or lease of dozens of properties, and the commission on each one is usually between three and five percent of the sale price. In the case of rentals, it is usually one month’s rent.

If a broker finds that you are interested in an apartment, this is usually immediately followed by information that there is a lot of interest, that there are three more serious buyers after you, or that if you really want the apartment, you need to sign a reservation contract as soon as possible. And now you’re in a stranglehold from which it’s not easy to escape.

Wait to sign the reservation contract

“It’s a standard contract, that’s what everyone signs here”, you’ll hear from estate agents. In practice, this contract is called variously – a reservation agreement, a blocking agreement or perhaps a blocking deposit agreement. Signing a reservation agreement right at the property inspection is one of the biggest mistakes a buyer can make. This is because with a reservation agreement, you are not only reserving a home, but more importantly, you are committing to buy such a property. While you can usually change your mind later, it won’t be for free. Reservation contracts contain substantial penalties for such cases.

A reservation contract signed on the spot is a common and humanly understandable mistake, because in practice it is often the case that whoever signs the contract first buys the property. However, don’t be hasty and sign anything on the spot, because you don’t know if you will change your mind after a sleepless night and a discussion with your partner. You may also discover defects during the next inspection that will deter you from buying. You also don’t know for sure if the bank will give you a mortgage or if you will eventually agree on the terms of the sale.

Tip: Nowadays, property prices are so high that most people are unable to buy a property using only their own savings. This is why more and more people are turning to mortgage financing. But how does the whole mortgage loan process work and do you even have a chance of getting a mortgage? These questions can be answered in our next article.

Real Estate Purchase or Sale

We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.

A story from practice

Freelance graphic designer Petr was about to buy a flat. He couldn’t put the whole purchase price together, so he had to finance part of the property with a mortgage. The reservation contract that the developer gave him to sign contained a contractual penalty of CZK 60,000 if he changed his mind about the purchase.

This is a classic situation. Even though Petr was determined to buy the apartment, the deal fell through in the end. Because of his irregular income, the bank refused to give him a mortgage in the amount he needed.

Fortunately, his lawyers added what is known as a “set of conditions precedent” to the reservation agreement. One gave him the option to cancel the contract if the bank did not approve his mortgage.

As a result, Peter didn’t have to pay a penny. This is a decent result compared to when he would have signed the reservation contract right at the inspection and ended up paying 60,000 for one signature.

The reservation contract, although it doesn’t seem like it to most people, is one of the most important legal documents and should be treated as such. It differs from a future contract in that it is a so-called unnamed contract, i.e. it has no statutory content.

We prepared this article for the Lidové noviny series “Law & Housing”. See also other articles from the series:

  1. What to watch out for when buying a property
  2. How to get a mortgage
  3. What to check before buying a property
  4. Who pays the property transfer tax and how?
  5. What should be included in the property purchase contract
  6. The most common mistakes when drafting a proposal to the Land Registry
  7. Buying a property from a developer
  8. Keeping the purchase price when buying a property
  9. The difference between a condominium and a freehold
  10. What is an annuity?
  11. How to properly gift a property
  12. What is the purpose of an easement or servitude?
  13. Making a will and settling an estate
  14. What is a collation
  15. What shouldn’t be missing in a lease agreement
  16. When rent increases can be made
  17. Termination of the lease
  18. Agreement to end the tenancy
  19. How to draw up a work contract with a tradesman
  20. Hidden defects and cancellation of a work contract
  21. When do you need planning permission to renovate a property?
  22. Home Rules
  23. What does serving on a condominium board entail?
  24. Why not underestimate the bylaws in a condominium
  25. Common areas in a block of flats
  26. What is involved in refurbishing a block of flats
  27. Can a condominium or housing association go into debt?
  28. How to renovate a house or cottage
  29. What to watch out for when dealing with a construction “company”?
  30. Building a house on a “green field”
  31. How to remove land from the agricultural fund

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Real Estate Purchase or Sale

We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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