Deposit / Down Payment
down payment · initial deposit · earnest money · first installment · reservation fee
Definition
A deposit or down payment is an upfront monetary sum paid by a buyer to secure a real estate purchase agreement. It demonstrates financial commitment to the transaction and is credited toward the total purchase price. In off-plan acquisitions, it represents the initial tranche of an installment plan, whereas in secondary sales, it serves as earnest money.
In detail
Understanding Deposit and Down Payment
In real estate transactions, a deposit (or down payment) serves as the preliminary equity contribution made by a purchaser to secure a property and bind the purchase agreement. While the terms are frequently used interchangeably, they perform distinct functions depending on whether the transaction occurs in the primary (developer off-plan) or secondary (resale) market.
Primary Market (Off-Plan / New Builds)
In primary market transactions, the initial down payment forms the first tranche of the total purchase price. Developers usually mandate an upfront percentage—typically between 10% and 30%—upon signing the preliminary purchase agreement. The remaining equity balance is then amortized across an internal, interest-free installment schedule until the building reaches completion or structural handover.
Secondary Market (Resale Transactions)
In resale transactions, an upfront payment generally takes the form of earnest money or a reservation deposit. This payment demonstrates buyer good faith, removing the property from the open market while legal due diligence and title verification are completed.
Legal Mechanics and Remedies
Under contract law frameworks, the treatment of default depends strictly on how the upfront payment is characterized in the agreement:
- Earnest Money (Deposit): Functions as a liquidated penalty for breach of contract. If the buyer defaults without a contractually permitted contingency, the seller retains the deposit. Conversely, if the seller defaults, statutory provisions often require the seller to refund the deposit in full plus an additional penalty (frequently double the deposit value).
- Advance Payment (Prepayment): Functions merely as partial performance of the monetary obligation. If the contract terminates without completion, an advance payment must be returned to the buyer, subject to independent damage claims.
Financing and Mortgage Loan-to-Value (LTV)
When acquiring real estate through bank financing, the down payment represents the unencumbered cash equity required by the lender. Financial institutions establish maximum Loan-to-Value (LTV) ratios; for instance, an 80% LTV cap mandates a minimum 20% cash down payment from the borrower before loan disbursement.
Georgian context
In the Georgian real estate market, down payments play a central role in both developer sales and secondary market transfers.
For primary market purchases (new construction), developers routinely offer internal interest-free installment plans. Advertised prices always include Georgia's mandatory 18% Value Added Tax (VAT), meaning the down payment and subsequent monthly installments incorporate this tax obligation natively without hidden additions at closing.
For secondary market acquisitions, deposit agreements (be) are governed by the Civil Code of Georgia. To ensure enforceability, the preliminary purchase agreement specifying the deposit amount must be registered with the National Agency of Public Registry (NAPR). Under Georgian civil law (Article 398), if the buyer backs out without legal justification, the seller retains the be; if the seller defaults, they are legally obligated to repay double the deposit amount. Foreign buyers seeking real estate investment residency must note that the minimum asset qualification threshold is $150,000 USD, where the full valuation (not merely the down payment) determines eligibility.
Real example
A foreign investor contracts to purchase a $100,000 USD off-plan apartment in Tbilisi. The developer's price natively includes 18% VAT ($15,254 USD equivalent). The buyer pays a 20% down payment ($20,000 USD) upon signing the preliminary sales contract registered at NAPR. The remaining $80,000 USD balance is structured as 24 equal monthly interest-free internal installments of $3,333.33 USD paid directly to the developer until project delivery.
Common mistakes
- ×Assuming down payments in Georgia are automatically held in independent third-party escrow accounts rather than paid directly to sellers or developers.
- ×Failing to distinguish legally between earnest money ('be') and an advance payment ('avansi') under the Georgian Civil Code.
- ×Expecting advertised developer prices to require an additional 18% VAT calculation on top of the initial down payment.
- ×Confusing the payment of an initial down payment with the legal transfer of full property ownership before final title registration at NAPR.
- ×Assuming an initial down payment under $150,000 USD qualifies the buyer immediately for Georgian short-term investment residency.
Frequently asked questions
What is the typical down payment required for buying property in Georgia?
For off-plan primary market properties in Georgia, developers typically require a down payment between 10% and 30% of the total purchase price. For secondary market transactions using bank mortgage financing, non-resident buyers generally need a 30% to 40% down payment depending on lender risk assessments.
Is the 18% Georgian VAT calculated on top of my down payment?
No. In Georgia, VAT on residential new-build property is 18%, but by law, it is always included in the developer's total advertised price per square meter. Your down payment covers a proportional percentage of that total VAT-inclusive price.
Are real estate deposits refundable in Georgia if the deal falls through?
If structured as formal earnest money ('be') under Georgian civil law and registered at NAPR, the deposit is forfeited if the buyer defaults without legal cause. If the seller defaults, they must legally return double the deposit. If structured merely as an advance prepayment ('avansi'), it must be returned, though damages may be claimed separately.
Does a down payment count toward the $150,000 residency permit threshold?
The $150,000 USD real estate threshold for Georgian investment residency depends on the official appraised market value of the property owned by the applicant. Paying a down payment alone does not grant residency until full legal title ownership of an eligible property evaluated at or above $150,000 USD is registered at NAPR.
Also available in: AR · DE · ES · FR · HE · IT · KA · NL · RU · TR · UK