In the 2026 calendar year, earnest money (foglaló) remains one of the legal institutions attracting the most interest among lay readers curious about the real estate sale and purchase agreement. Within this topic, the most frequently asked question is: earnest money or advance payment (előleg)? What is the difference, and when should you use which? We aim to answer every question.
Set the purchase price of the property
“Earnest money or advance payment?”: the wrong question
First of all, a clarification: the title of this article is meant to aid lay understanding, but in this form – earnest money or advance payment? – the question is misleading. Earnest money and advance payment are not alternatives to each other. The contracting parties, seller and buyer, do not decide whether to have one or the other. In reality, the “earnest money or advance payment?” match plays out as follows:
The parties agree on the purchase price, which the buyer usually pays in instalments. Every instalment of the purchase price to be paid – right up until the full purchase price is settled – is, in legal terms, a purchase price advance. In other words, advance payment, purchase price advance, purchase price instalment are fully interchangeable synonyms. In this respect, the advance payment has no special additional properties; the term essentially covers an ordinary, run-of-the-mill purchase price instalment.
This also explains why the distinction in the title, the question “earnest money or advance payment?”, is flawed. It is conceptually all but impossible to speak of a sale and purchase agreement without a purchase price, or if you prefer, a purchase price advance. Setting the amounts of the purchase price instalments, the purchase price advances, is a necessary element of a real estate sale and purchase agreement, so there can be no question of alternatives. The question can by no means be framed as “earnest money or advance payment”, since in a sale and purchase agreement there is always an advance payment. The real question is whether the parties stipulate earnest money in the sale and purchase agreement.
What is an advance payment, and how is it settled?
An advance payment, then, is every purchase price instalment handed over in the course of performing the real estate sale and purchase agreement. Amounts referred to as advance payments under the sale and purchase agreement must be returned to the buyer in any case if the agreement is terminated. The obligation to repay the advance payment applies regardless of the reason why the sale and purchase agreement was terminated (although setting off the other party’s proven claim for damages is not thereby excluded). This also means that the advance payment has no penalty function.
What is earnest money? – an advance payment with penalty consequences
Earnest money is (usually) a sum of money handed over at the conclusion of the contract. It serves to reinforce the commitment to perform the sale and purchase agreement. Earnest money is essentially liquidated damages. This means that, up to the amount of the earnest money, the party not at fault does not have to prove the extent of the loss caused by the failure of the contract. Merely on the grounds that the contract failed through the other party’s fault, that party may keep the earnest money received, or may claim back double the earnest money given.
While the advance payment has no penalty function, this is precisely the role earnest money is meant to fulfil.
The party not at fault does not have to prove whether the loss reaches the amount of the earnest money, or whether any loss occurred at all; as a general rule, the earnest money is due to them. However, the court may reduce excessive earnest money under the Civil Code (Act V of 2013).
Compared with the dreadfully dull advance payment, the life of earnest money is all adventure and action. However, as summarised above, it is not a case of the advance payment going out and earnest money coming in to replace it. Earnest money is not an additional amount on top of the purchase price. Earnest money is merely an extra label stuck onto a specific part of the purchase price, that is, essentially onto a purchase price advance. Whether the advance payment in a real estate sale and purchase agreement receives this special label is a matter the parties can decide freely, without any legal compulsion.
Earnest money is a purchase price advance endowed with special properties, a kind of superhero of legal doctrine. As long as the purchase price advance does not acquire the title of earnest money, then, as described in the previous section, if the contract fails it simply has to be repaid to the buyer, regardless of the reason for the failure. If, however, the parties have decided that a given purchase price advance also functions as earnest money, settlement takes place under the conditions presented in detail in our separate article, which we outline again briefly in the next section.
A videó szövege
A vevő egymillió forint foglalót ad át az eladónak. Aztán meghiúsul a szerződés.
Mi lesz a foglalóval? Egyetlen kérdés dönt: ki a felelős?
Ha a vevő nem fizeti meg a következő részletet, és az eladó eláll a szerződéstől, a vevő elveszíti a foglalót.
És ha a bank nem ad hitelt? Főszabály szerint ez a vevő felelőssége, így a foglaló elveszhet, hacsak a szerződés másként nem rendelkezik.
Ha viszont az eladó nem törölteti a terheket a tulajdoni lapról, a foglalót kétszeresen kell visszatérítenie.
Ha pedig egyik fél sem felelős, mondjuk egy földrengés miatt, a foglaló visszajár.
A foglaló sorsa tehát azon múlik, ki felelős a meghiúsulásért. Részletek: bacskougyved.hu
Settlement of earnest money if the contract fails
Under Act V of 2013 (Civil Code), Section 6:185:
- If performance of the contract fails for a reason for which neither party is responsible, or for which both parties are responsible, the earnest money must be returned.
- If the buyer is responsible for the failure of performance, they forfeit the earnest money given
- If the seller is responsible for the failure of the contract, they must repay double the earnest money received.
What should go into the contract? Earnest money or advance payment?
It can be stated that stipulating earnest money, that is, handing over part of the advance payment as earnest money, can in theory serve the interests of both parties. If the contract fails, the injured party may claim the amount of the earnest money without having to prove their actual loss. A mutual theoretical advantage is that the other party is thus forced to take seriously the contractual promises reinforced by the earnest money.
That is the theory. From a practical point of view, however, the buyer’s position is considerably less favourable than the seller’s. If the buyer is the one being wronged, then – regardless of what they are legally entitled to – not only do they not have compensation equal to the earnest money in hand, but even the earnest money they paid is with the seller. In real life it is never the statute but the bargaining position that is decisive. And from this perspective the buyer is at a clear disadvantage. This is also borne out by practical experience: while a buyer who forfeits earnest money is a known life form in the universe, I personally have never seen up close a seller repaying double the earnest money in nearly 20 years.
Market customs tie the buyer’s hands: although there is no statutory requirement as to the amount of earnest money, in practice it is hard to avoid earnest money of around 10%. However, earnest money higher than the generally accepted 10% in a residential real estate sale and purchase agreement can – special situations aside – only be in the seller’s interest. If a larger amount is handed over when the contract is signed, it is advisable to hand it over expressly as an advance payment.
When do we pay the earnest money, and when the advance payment?
In practice, earnest money is usually the first purchase price instalment. All further instalments are governed by the rules on advance payments. It is important to emphasise that in a classic sale and purchase agreement, earnest money forms part of the purchase price; the amount counts towards the purchase price.
We often hear about earnest money contracts, earnest money papers, quickly putting earnest money on paper. The same exists in an advance payment version, handed over when signing a “preliminary contract”, a “declaration of intent to purchase” or other arbitrarily named documents. What they have in common is that in these cases the earnest money or advance payment is handed over without due legal care, before the final sale and purchase agreement is signed. For our part, we oppose this in every case.
When buying property, the only safe option is for money to be handed over exclusively upon signing a sale and purchase agreement countersigned by an attorney, regardless of whether the amount handed over is an advance payment or earnest money.
In a fast-moving property market this is not always possible if the property is in demand. However, we must always be aware that without a final contract and without professional legal advice and safeguards, losing the amount handed over in this way is a real risk. I emphasise once again: this does not depend on whether the amount handed over is an advance payment or earnest money. It makes no difference that the advance payment is legally returnable if the practical guarantees are missing, and actually enforcing the claim thus becomes impossible owing to the disproportionate costs and time involved.
Earnest money and advance payment illustrated with a concrete example
In our fictitious example, let us take a condominium flat with a purchase price of HUF 40 million. On signing the contract, the buyer hands the seller HUF 6 million, of which the parties treat 4 million as earnest money and 2 million as an advance payment. What happens to the amount handed over if the contract fails?
- If the contract fails through the buyer’s fault (for example, the buyer does not pay the purchase price instalment when due and the seller therefore withdraws from the contract), HUF 4 million stays with the seller, while HUF 2 million must be returned to the buyer.
- If the contract runs aground through the seller’s fault (for example, the seller does not have the encumbrances deleted from the title deed (property sheet)), the seller must repay the full HUF 6 million and in addition pay the buyer a further HUF 4 million.
- Although not very realistic, a situation may also arise in which neither party is responsible for the failure of the contract (for example, if the property is destroyed in an earthquake); in that case the buyer is entitled to the return of the full HUF 6 million, but neither party incurs any other payment obligation.
Advance payment and earnest money when taking out a loan
When taking out a loan, the buyer’s position is particularly vulnerable, since in practical terms whether they can pay the purchase price depends on a bank decision beyond their control. Not everyone is aware that if the buyer cannot pay the purchase price on time because they do not get a loan, this is, as a general rule, a circumstance arising on the buyer’s side and attributable to them, so the earnest money is typically not returned. If the contract contains no separate provision on this, the buyer will typically forfeit the earnest money – unless disbursement actually failed for reasons attributable to the seller (for example, due to the failed discharge of encumbrances).
Therefore, when using a bank loan, if the buyer’s bargaining position allows it, it is worth proposing to the seller that if the buyer does not get a loan, the earnest money should qualify as an advance payment and be returned to the buyer.
A good intermediate solution may be to persuade the seller that, if not the whole earnest money, then at least part of it should be refundable in such a case. This means that the refundable part of the earnest money behaves like a simple, ordinary advance payment.
A deposit paid with a declaration of intent to purchase – is it an advance payment or earnest money?
If the property is marketed by an estate agent, the buyer is usually compelled to sign a declaration of intent to purchase. In this case, almost every time, a certain amount must also be handed over to the estate agent to demonstrate the seriousness of the intent to buy. This amount is often called a forfeit deposit (bánatpénz) or an offer security.
It is important to understand that what is requested in such cases is never an advance payment. The most important consequence of this is that if the buyer is at fault, the amount will certainly not be repaid. Sometimes it is simply earnest money, and the parties must settle according to its rules. However, one often encounters a legal hybrid that is neither an advance payment nor earnest money. That is, if the buyer is at fault, they lose the amount as if it were earnest money, but if the seller is at fault, it is simply returned, as in the case of an advance payment.
Beyond this, the anomalies surrounding the declaration of intent to purchase must not be overlooked either. Unfortunately, it is often of no significance whether the amount handed over is an advance payment or earnest money, since the seller or the estate agent will not return the money anyway, regardless of whether it would be due.
In any event, if there is no other option and the amount absolutely must be handed over when signing the declaration of intent to purchase, the following are worth bearing in mind:
- The buyer should hand over the amount as an advance payment, not as earnest money.
- The amount handed over should be as small as possible.
Scheduling the purchase price advance in the buyer’s interest
While the purchase price is a divisible performance, payable in the amounts of the purchase price advances stipulated in the contract, the property by its very nature cannot really be handed over in pieces. Likewise, ownership of the property is indivisible.
In view of this, it would be fair for the buyer to take possession and acquire ownership at the same time as paying the full purchase price in a single lump sum. Accordingly, we always advise our clients that the largest possible portion of the purchase price be paid in a single lump sum, simultaneously with the handover of the property. Advance payments should be kept to as small an amount as possible.
Pitfalls of paying a purchase price advance
Paying an advance of any amount is a risk on the buyer’s side. Typically, the seller does not keep the advance received safe until the transaction is completed. In residential contracts, the advance usually ends up financing the seller’s next home purchase, or perhaps settling their utility debts. In the case of an encumbered property, the advance must in any event be transferred to the bank to discharge the encumbrances. It is easy to see that if, in this situation, the contract fails before the property is handed over, the buyer finds themselves in a very unpleasant position. Doubly so:
- on the one hand, in this situation the buyer has neither the money nor the property;
- on the other hand, in a typical residential contract the seller has no reserves from which to repay the amount owed to the buyer. If the seller has paid the amount received as an advance under another contract, or used it to repay their loan, it is not realistic to reclaim the advance from either source.
For our part, rather than smoothing over problems after the fact, we see prevention and forward-looking risk management as the only effective way of handling risks. That is why we always push for the vast majority of the purchase price to be paid at the same time as the handover of the keys, without any significant advance payment.
In which situations is paying an advance unavoidable?
There are many situations in which this route, which we consider ideal, is not feasible. In most cases, for various reasons, the buyer has to hand over a smaller or larger advance payment to the seller before the keys to the property are handed over. The most typical of these situations are the following:
- If the property is encumbered, the buyer has no choice but to pay the amount needed to discharge the encumbrances in advance, preferably directly to the holder of the encumbrance. Otherwise, the buyer would pay the last instalment of the purchase price for an encumbered property.
- Sellers often ask for a larger portion of the purchase price to be paid in advance on the grounds that the amount is needed to pay the purchase price, advance payment or earnest money for the property the seller is buying.
- If the buyer takes out a residential bank loan, paying an advance usually becomes unavoidable. A precondition for disbursement of a residential loan is that the buyer pays the part of the purchase price exceeding the loan amount, i.e. their own contribution, before the loan is disbursed.
Buyers who want to earn a black belt in the art of structuring the purchase price schedule correctly can find even more in-depth content on the subject by clicking here.
Handing over a 10% advance as earnest money
Although ownership and possession of the property cannot be transferred in instalments, the lack of partial performance by the seller is offset if the parties submit the sale and purchase agreement to the land registry office. As a result, the buyer’s right linked to retention of title is registered on the title deed (property sheet). Under the new Land Registry Act in force from 15 January 2025, the former practice of holding the application pending has been replaced by the registration of the buyer’s right linked to retention of title, and modern contracts make use of this solution.
The registration of the buyer’s right linked to retention of title, in a nutshell, means the following:
- The parties submit the sale and purchase agreement to the land registry office and ask it to register the buyer’s right linked to retention of title until the full purchase price has been paid.
- In this way, although ownership remains with the seller, the seller cannot dispose of the property while this registration remains in place.
- Thus, among other things, the seller can neither sell nor encumber the property.
Precise information on the above can be found in our particularly gripping article on holding the registration of ownership pending and on retention of title.
A welcome consequence of the solution based on registering the buyer’s right is that the seller, too, provides real security for their own performance. In view of this, we ourselves support the buyer – in addition to paying the vast majority of the purchase price at the handover of the keys – handing over a 10% purchase price advance to the seller as earnest money.
Előleg és a KULCSÁTADÁS összefüggései
Az előleg teljesítése szempontjából a vevő számára kulcsmomentum a lakás kulcsátadásának időpontja. Ha a vevő az ügylet lezárása előtt jelentősebb összegű előleget is teljesít az eladó részére, nem szabad megfeledkeznie arról, hogy az ügylet legfontosabb biztosítéka a vevő szempontjából, ha minél jelentősebb összeg marad fenn a vételárból az ingatlan átadásának időpontjára.
Ha a vevő ezt a pozícióját feladja, semmilyen hathatós eszköz nem marad a kezében, hogy az eladót az ingatlan átadására késztesse. Számos olyan helyzet adódhat, amikor ezen alkupozíció erejének komoly gyakorlati jelentősége van. Ilyenek például a következő tipikus helyzetek:
- Ha az eladó nem talál időben megfelelő lakást, ahova tovább költözhetne;
- Nem épül meg határidőre a ház, amire az eladásból származó pénzt fordítja és ahova az eladó költözni szeretne;
- Egészségügyi, munkahelyi probléma, egyéb váratlan körülmény akadályozza az eladó határidőben kiköltözését.
Ebben a tekintetben kétféle rendkívül rossz döntéssel szoktunk találkozni:
- Ha a birtokbaadásra már csak a vételár csekélyebb hányada marad a vevő kezében, úgy borítékolható, hogy az eladó szorult helyzetében a kényelmesebb megoldást választja. Ahelyett, hogy albérletbe átköltözne, előre láthatólag maradni fog. A vételár túlnyomó részét már úgyis megkapta, emiatt már nem kell aggodalmaskodnia.
- Hasonlóan szerencsétlen megoldás, ha a szerződés valamilyen rosszul értelmezett nagyvonalú gesztusként arra hatalmazza fel az eladót, hogy az ingatlant csak a vételár kiegyenlítését követő további 3 nap elteltével kelljen átadnia. A megoldás biztos kényelmes az eladónak, de ezzel a vevő egyben nullára írja a saját mozgásterét arra az esetre, ha a 3 napból 1 hét lesz, majd 1 hónap, esetleg 1 év, hiszen pénzügyileg így már nem tudja motiválni az eladót.
Tehát a vevő gondos eljárása esetén a szerződés az alábbi minimum feltételek figyelembe vételével készül:
- A vevőnek ragaszkodnia kell ahhoz, hogy utolsó vételárrészletként, ha nem is a vételár 90%a, de legalább 50%-a maradjon fenn;
- A birtokátruházás pedig feltétlenül egy időben történjen az utolsó részlet megfizetésével.
Advance payments from the seller’s perspective
Naturally, the seller’s priorities regarding the advance payment are quite different. It is in the seller’s interest to receive as large a portion of the purchase price as possible, as early as possible, during the term of the contract. Here are two practical examples where the seller’s clear financial interest becomes evident:
- With the advance received in hand, the seller has more room for manoeuvre when contracting for their next home purchase. The advance received can be used to pay earnest money, and of course the seller can also use the amount to pay further purchase price advance instalments while still living in the flat being sold.
- The seller can invest the advance received sooner, so the return on the amount will accrue to the seller. A simple calculation shows that these are not token amounts. For example, the return on a HUF 25 million advance at a 5% deposit interest rate is more than HUF 100,000 per month. In a contract with a 5-month timeline, it makes a huge difference whether the seller receives a HUF 25 million advance instalment 5 months earlier or later.
Let us not forget that in both examples the flat remains in the seller’s possession throughout, until the full purchase price is paid. Thus the benefits of the property also accrue to the seller, not the buyer. For example, if the flat is let for HUF 200,000 a month, then – based on a 5-month cycle – the rental income totalling HUF 1 million will also go to the seller.
We have also devoted an entire separate article to unpacking the details of the highly intricate seller considerations arising during payment of the purchase price, which you can read by clicking here.
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About the author
attorney at law | real estate law specialist
I have been practising as an attorney for more than 20 years, specialising in real estate law. I provide legal support to private individuals and businesses in property purchases and sales, gift contracts, condominium matters and other real estate issues.
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Legal notice: The information in this article is general guidance and does not constitute specific legal advice. For individual matters, please contact us.
