Earnest money agreement in Spain: types, taxes and how to protect your deposit
Earnest money agreement
What is an earnest money agreement?
An earnest money agreement (arras) is a private contract where buyer and seller record the property reservation, a deposit is paid, and key terms of the upcoming purchase are set: price, timelines, documents and the financial consequences of default.
In practice it acts as a safe bridge to the public deed: it blocks the property to avoid third-party sales, aligns the calendar for valuation, financing and notary signing, and provides legal certainty to both parties. Solid wording—and prior real estate due diligence—often makes the difference between a smooth deal and a costly dispute.
For a complete overview of support when buying, see our legal assistance when buying.
Documentation & ID: NIE, NIF and TIE
NIE: foreigner ID number required to buy, sign at the notary and pay taxes in Spain. Full guide: how to get the NIE.
NIF: Spanish tax ID (for Spanish citizens and fiscal residents). TIE: residence card. These do not replace the contract terms but they affect procedures and timelines.
You’re one step from your new home. Don’t let paperwork slow you down.
With a well-drafted earnest money agreement, you protect your deposit, avoid surprises and arrive at the notary with peace of mind. We inform clearly and guide you at every step.
Free review How is it different from a simple “deposit” or “reservation”?
Formality: a reservation receipt can be vague; an earnest money agreement sets deadlines, obligations and default effects precisely.
Consequences: a generic deposit may lack clear penalties; arras state—on paper—what happens if someone withdraws or breaches.
Security: tailored wording prevents disputes, speeds procedures and reduces later costs.
Types of earnest money (arras) with practical examples
Penitential arras (Spanish Civil Code art. 1454)
Allow lawful withdrawal. If the buyer withdraws, the deposit is lost; if the seller withdraws, they must refund double. Example: buyer pays 10% and later backs out—loses the deposit. If the seller backs out for a higher offer—must pay double.
Confirmatory arras (default)
Act as part-payment confirming the sale. No right to withdraw: the non-breaching party may seek specific performance or damages if the other party breaches.
Penal arras (art. 1152)
Penalty clause quantifying sanctions for breach. Depending on wording, the non-breaching party may terminate keeping the penalty or demand performance plus the penalty.
Tip: if the type is not specified, courts often presume confirmatory arras. To keep a lawful exit door, expressly cite art. 1454 in your earnest money agreement.
Taxes & costs linked to arras
Purchase taxes: depending on the case, ITP or VAT + AJD. Check rates and how to budget total costs (including notary and registry) here: property purchase taxes and typical extra purchase costs.
Seller’s taxes: if the seller is a non-resident, completion may involve the 3% withholding (IRNR) and capital gains calculation. More details: taxes when selling property in Spain.
Municipal capital gains (IIVTNU): only accrues when the property is actually transferred (completion), not for a lawful withdrawal under arras. Guide: municipal capital gains tax.
Risks and common mistakes that raise costs
Ambiguity: not stating the type of arras exposes you to unwanted obligations or forced performance.
No financing clause: if the bank declines, the buyer may lose the full deposit—make it a condition tied to your mortgage in Spain approval.
Unrealistic timelines: promising completion “in 15 days” with a pending mortgage approval invites penalties and stress.
Consequences & tax: what happens to the deposit?
If the buyer withdraws under penitential arras: the deposit is forfeited. No transfer takes place, so purchase taxes are not triggered.
If the seller withdraws under penitential arras: must refund double the deposit. There is no transfer, so municipal capital gains tax (IIVTNU) is not due.
If they are confirmatory or penal: no “free withdrawal”; the non-breaching party may seek specific performance or damages. If the sale goes ahead, purchase taxes apply and the seller’s tax position (including potential 3% withholding for non-residents) will be as per: taxes when selling.
The 3 pillars of a strong earnest money agreement
Legal certainty: formalises the deal and reduces disputes.
Clear consequences: puts penalties and withdrawal/breach effects in writing.
Investment protection: a financing condition precedent so you don’t lose the deposit if the bank rejects the loan.
Pre-signing checklist
Updated land registry extract and verified title (Spain’s Land Registry).
IDs, NIE (learn more about the NIE in Spain) and, if needed, reviewed power of attorney.
Review applicable taxes (property purchase taxes).
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Informational content. It does not constitute legal advice. For a tailored earnest money agreement, please contact us.