What is a preliminary contract for the purchase of real estate and when is it used?

You've found the perfect apartment or house, the price suits you, negotiations with the seller are going well, and then you're surprised by the fact that you have to sign a preliminary agreement before the final purchase. Many are not aware of how important this document is and how it can help you during the sale.

When you decide to buy a property, the preliminary agreement is a document that will accompany you and ensure that the entire transaction goes in the direction you want. Although many are not familiar with it, the preliminary agreement actually has a key role in ensuring your rights and defining all the conditions that will be contained in the main contract. Although not always legally binding, the preliminary agreement provides security for both the buyer and the seller, because it defines the details of the sale and guarantees that both parties fulfill their obligations. Although it does not lead to the transfer of ownership of the property, it still obliges both parties to conclude the main contract in the future and thus ensures that neither party will unilaterally withdraw from the agreed terms.

When is a preliminary agreement used?

A preliminary agreement is used in several specific situations, and they are most often concluded when the buyer and seller agree on the price and other terms, but there is a need for additional time to fulfill all the conditions. Here are a few cases where a preliminary agreement is useful:


Waiting for a loan: If the buyer needs a housing loan to finance the purchase of the property, the preliminary agreement provides him with a certain period to collect the necessary funds or loan approval.


Final documents: If the seller still does not have all the necessary documents for the purchase / sale to be concluded (e.g. proof of ownership, tax documents, geodetic certificates), the preliminary agreement can serve as insurance that neither party will withdraw from the transaction.


Property reservation: When the buyer and seller want to "lock in" the deal before signing the main contract, the preliminary agreement gives them the certainty that it will be so. More about


The preliminary agreement must be in accordance with the applicable laws, and Obligations Act of the Republic of Croatia defines the key legal aspects of all contracts, including the preliminary agreement on the purchase of real estate. You can read more about it here.

What are the key provisions of the preliminary agreement?

When concluding a preliminary agreement, there are a few important things to pay attention to. Although the preliminary agreement is not too complicated, it is important that it covers all the essential details in order to be valid and binding for both parties. Here's what you need to watch out for:

• Information about the parties: In the preliminary agreement, you will need to state basic information about yourself and the seller – who you are, where you live, what your identification information is… nothing complicated, just the basics so that you both know who is who.

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• Property description: Here it must be clearly defined which property it is - which building, apartment, house, garage... In addition, all essential data such as location, size and all characteristics that are important for future ownership are stated.

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• Purchase price and payment terms: Define the price, the way it will be paid (whether it will be in full at once or in installments) and definitely the deadlines.

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• Deposit: Most preliminary agreements include a deposit, which is actually the amount the buyer pays in advance as confirmation of seriousness. As a rule, this is 10% of the property price. If the buyer withdraws in the meantime, the deposit remains with the seller; if the seller withdraws, then he must return double the amount of the deposit to the buyer.

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• Deadline for concluding the main contract: The preliminary agreement must clearly define when the main purchase agreement will be concluded. This is usually a few weeks or months, but you must always agree on a specific date.

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• Conditions for termination of the preliminary agreement: Although the preliminary agreement gives binding conditions, it is important that the conditions under which one or both parties can withdraw from the agreement are mentioned in it. This will usually mean the return of the deposit or some consequences that both parties will accept.

These are the basic things you need to cover in order for the preliminary agreement to ensure a smooth purchase process. Of course, it is best to always have the preliminary agreement reviewed by a lawyer to make sure that everything is in accordance with the law.

Advantages of a preliminary agreement

If you are still wondering if you should sign a preliminary agreement, here are a few reasons why a preliminary agreement is so important:

• Securing the agreed terms: The preliminary agreement clearly defines all the terms that will be agreed in the main purchase agreement. This means that there is no possibility of misunderstanding about the price, payment terms, payment deadline or other important details. Everything that has been agreed will be documented, which protects both parties and ensures that the transaction continues in accordance with the agreement.

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• Property reservation: One of the reasons why a preliminary agreement is used, especially in popular micro-locations, is that the buyer can secure the property and be sure that it will not be sold to another buyer until all the conditions are met. In situations where there are more interested parties for the same property, the preliminary agreement is a way for the buyer to "lock" the property and ensure that it will not be missed. This step gives the buyer a certain time guarantee that he has a priority in finalizing the contract.

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• Increased seriousness of negotiations: The preliminary agreement also adds seriousness to the entire process. When both parties sign a preliminary agreement, it means that they have committed to fulfilling the conditions and realizing the transaction. This reduces the possibility of someone withdrawing from the agreement at the last minute. Through the preliminary agreement, both parties also confirm their seriousness and sincerity in the intention to complete the purchase, which increases trust between them and reduces the risk of later misunderstandings.

All these advantages make the preliminary agreement an indispensable tool in the process of buying a property. In addition to protecting both parties, the preliminary agreement helps to more clearly define all aspects of the transaction, ensures that both parties fulfill their obligations and enables a safe transition to the finalization of the sales contract.

Differences between a preliminary agreement and the main agreement

One of the most important things you need to understand in the process of buying a property is the difference between a preliminary agreement and the main agreement. Although both documents serve as contracts between the buyer and the seller, they have different functions and legal force.

A preliminary agreement is a binding document, which means that both parties – the buyer and the seller – have an obligation to respect the agreed terms. However, the preliminary agreement does not lead to the transfer of ownership of the property. In other words, although you have agreed on the price, terms and all other important details, you and the seller have not yet concluded the sale itself, nor has there been a change of ownership.

The preliminary agreement simply serves as a legal guarantee that both parties will respect the terms they have agreed on and that later, when all the conditions are met (such as obtaining a loan or completing administrative procedures), they will conclude the main contract. The preliminary agreement, therefore, represents the first, but still important step in the whole process. It closes the deal, but does not lead to the actual transfer of assets.

On the other hand, the main contract for the purchase of real estate has full legal effect. This contract leads to the actual transfer of ownership of the property from the seller to the buyer. When you conclude the main contract, you become the official owner of the property and you can register it in the land registers, which completes the entire purchase process.

The main contract has greater legal force because, in addition to defining the terms of the transaction, it enables the ownership to be formally transferred to the buyer. Based on the main contract, you can enter your name in the land registers and obtain legal protection over the property. Only when the registration of ownership has been performed, you as the buyer become the real owner and can dispose of the property as you wish.

So, while the preliminary agreement ensures that neither party will withdraw from the agreement, only the main agreement has the power to change ownership and seal the entire purchase process. The preliminary agreement is like a property reservation, while the main agreement is the actual purchase.

Conclusion
The preliminary agreement on the purchase of real estate is an essential legal instrument that protects both parties and enables the safe realization of the planned transaction. Although not legally binding, a preliminary agreement is recommended in most sales procedures because it provides security and clear regulation of all transaction terms before the main sales contract is concluded. If you are planning to buy a property, be sure to consider using a preliminary agreement to ensure security and a clear procedure throughout the process. If you want to know more about the steps in the process of buying real estate, we advise you to look at our guide for real estate buyers.