The home-purchase agreement: what to know before you sign

The home-purchase agreement is the most important legal document in a home purchase. It binds you to buy a home, typically for the largest sum of money you have ever spent in your life. And yet many Danes sign it without having read it carefully.

This guide runs through what the home-purchase agreement is, what it must contain, what you can negotiate, and when the right of withdrawal applies.

What is a home-purchase agreement?

The home-purchase agreement (also called the purchase agreement) is a binding agreement between buyer and seller on the transfer of real property. It governs:

• Price and payment terms: when and how the purchase price is paid
• Handover date: when you take over the property and the risk for it
• Conditions: for example approval of financing or change-of-ownership insurance
• Included movables: what is included in the sale (built-in white goods, awnings, etc.)
• Defects: the seller's duty of disclosure and any reservations

The agreement is as a rule drawn up by the estate agent and signed by both parties. It is important to understand, however, that the agent works for the seller, not for you as the buyer.

The right of withdrawal: 6 business days to change your mind

As a buyer you have a statutory right of withdrawal of 6 business days. This follows from the Act on Consumer Protection on the Acquisition of Real Property.

What does it cost to withdraw?

Withdrawal is not free. If you withdraw within the 6 business days, you must pay compensation to the seller of 1% of the purchase price. If you buy a home for DKK 3 million and withdraw, it costs you DKK 30,000. The compensation must be paid before the deadline expires.

What exactly is the deadline?

The deadline of 6 business days is counted from the day the agreement is entered into, that is, when both parties have signed. In calculating the 6 business days, Saturdays, Sundays, public holidays and Constitution Day (5 June) are not counted. Your written notice that you are withdrawing must have reached the seller (or the agent) before the deadline expires.

Does the right of withdrawal always apply?

The right of withdrawal applies to consumer purchases of a home, that is, when you buy a property that is mainly intended as a dwelling for you (houses, owner-occupied flats and holiday homes). It does not apply to the purchase of commercial property, and it cannot be waived in the agreement.

Practical tip: Use the 6 business days actively. Now is the time to have a building surveyor review the condition report and a lawyer review the agreement, not after you are bound.

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Conditional home purchases: what is a reservation?

Most home-purchase agreements contain conditions, so-called reservations. The most common is:

Financing reservation

You sign, but the agreement is conditional on your being able to raise the necessary financing. Typically worded as: "The transaction is conditional on the buyer's approval of financing no later than [date]."

If you cannot raise the financing, you can withdraw from the transaction without paying the compensation. But you must be able to actively document that you have tried to raise financing, banks must typically reject you in writing.

Important: A financing reservation does not protect you if the bank is in fact willing to lend you the money but you personally change your mind.

Advisory reservation

You can insert a reservation that the transaction is conditional on the approval of your lawyer or adviser within a specific deadline. This gives you time to have the agreement reviewed professionally, without risking the loss of your right of withdrawal.

An advisory reservation typically reads: "The transaction is conditional on the buyer's lawyer's approval no later than [date] at [time]."

Condition reservation

If the condition report is unsatisfactory, you can try to negotiate a reservation in here. It is, however, rare for the seller to accept broad reservations of this type, it is easier to demand a price reduction.

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What you should always check in the home-purchase agreement

1. The handover date

When do you take over the keys, and the risk? Make sure the handover date fits your current housing situation. The risk for the property (for example fire or flooding) passes to you from the handover date.

2. What is included in the sale?

The home-purchase agreement should have a list of what is included: white goods, lamps, the garden's plants, carport, etc. If something is not mentioned, you have no claim to it. Make sure everything you expect to take over is mentioned explicitly.

3. Outstanding debt and charges

Make sure the property is transferred free of debt, or at least that you know and have accepted the charges that are taken over. Your bank typically reviews the land register, but you should understand yourself what is registered on the property.

4. Deposit requirements

The purchase agreement states when and how much you must deposit. Typically a percentage of the purchase price (usually 5 to 10%) must be deposited within a few days of signing. The rest is deposited by the handover day at the latest.

5. The seller's duty of disclosure

The seller has a statutory duty of disclosure. The condition report and the electrical-installation report are central documents, make sure you have read them. If the seller has concealed known defects, you can claim damages, but it is hard to prove once you have signed an agreement with knowledge of the reports.

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The condition report and the change-of-ownership insurance

These two documents are closely tied to the home-purchase agreement:

The condition report

Drawn up by a building surveyor and documenting the property's visible defects at the time of sale. The report gives the seller the opportunity to limit their liability for hidden defects, but only if you as the buyer have been offered change-of-ownership insurance and the seller offers to pay half the premium.

The change-of-ownership insurance

Change-of-ownership insurance covers defects that do not appear in the condition report but that existed at the time of handover. The premium is typically shared equally between buyer and seller, the seller pays their half as a condition of the limitation of liability.

Advice: Always obtain a quote for change-of-ownership insurance and assess whether the cover is sufficient for the specific property. Age, condition and region affect the price.

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When do you need a property lawyer?

Most home purchases are carried out via an estate agent, but the agent represents the seller. A property lawyer represents you and reviews:

• The home-purchase agreement and any reservations
• The condition report and the electrical-installation report
• The land-register extract and ownership
• Easements and declarations on the property
• The change-of-ownership insurance quote

A lawyer for a home purchase typically costs DKK 5,000 to 15,000 depending on the complexity of the property. That is cheap compared with the mistakes that can be made by skipping it.

You should always consider a lawyer for:

• The purchase of older properties (many hidden-defect risks)
• The purchase of properties with unlawful building works
• Cooperative housing (a particularly complex company-law structure)
• Properties with many easements or registered rights
• Doubt about charges or outstanding debt

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The process from signing to registration

Phase 1: Signing and deposit (day 0 to 10)

You sign the agreement. Before the expiry of the withdrawal deadline (6 business days) you should have a lawyer review the agreement and activate any reservations. The deposit of the down payment is typically made within the deadline in the agreement.

Phase 2: Financing approval (week 2 to 4)

Your bank processes your loan application and issues a mortgage deed. The mortgage deed must be registered on the property, this is typically done by the bank or your lawyer.

Phase 3: Completion (week 4 to 8)

Completion is the practical conclusion of the transaction: the deed is drawn up, the remaining amount is deposited, and the final transfer is prepared.

Phase 4: Handover and registration

On the handover day you receive the keys. The deed is then registered digitally at the Land Registration Court, typically within a short time. Registration is the official proof that you are the owner.

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Frequently asked questions

Can I negotiate the price after the agreement has been signed?

As a rule, no. A signed agreement is binding. However, you can try to renegotiate if defects are discovered that the seller did not disclose, but that requires documentation.

What happens if the seller withdraws?

The seller has no statutory right of withdrawal. The seller is bound from signing. If the seller withdraws anyway, you can claim damages, including potentially specific performance (forcing the transaction through).

Can I buy a home without an estate agent?

Yes. It is entirely lawful to buy and sell real property directly without an agent. In that case it is even more important to have a lawyer draw up and review the home-purchase agreement correctly.

What is a deed?

The deed is the document that formally transfers ownership from seller to buyer. It is registered digitally at the Land Registration Court. The deed is not the same as the home-purchase agreement, the agreement is the precondition, the deed is the formal proof of the change of ownership.

When do I pay property-value tax?

Property-value tax is paid for the period you own the property, that is, proportionally from the handover date. The tax is collected via your preliminary income assessment and annual tax statement.

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Conclusion

The home-purchase agreement is your most important document as a home buyer. It binds you to a transaction worth millions, and it typically contains many details of great practical and legal significance. Use the right of withdrawal actively: have a building surveyor and a lawyer review everything before the 6 business days are up. And make sure all the reservations you need are correctly worded in the agreement before you sign.

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The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer for advice on your specific situation.