How Buyers of New-Build Property Are Protected: Escrow Account, Escrow Deposit and Bank Guarantee

A buyer of a new-build property is protected when paying a developer mainly because the money does not go directly into the seller's hands. It is held in a special account or by a third party and released only once the agreed conditions have been met. The most common arrangement is an escrow account, a deposit with a lawyer or notary, or a bank guarantee for the return of the deposit. The exact form of protection differs from project to project, so always check it in the contract and have it reviewed by a professional.

Why buyer protection matters for new builds

When buying a resale property, you usually pay for a flat that already exists and that you can view. With a new build, you are often paying for something that is still under construction or even exists only on paper. Several years may pass between signing the contract and handover of the flat. During that time the developer's situation may change, construction may be delayed, or the financing of the project may change.

Protective mechanisms therefore address one basic question: what happens to your money if the building is not completed or the flat cannot be transferred into your ownership. As a general rule, the earlier you pay and the more you pay, the more important it is to know exactly where the money is held.

Escrow account

An escrow account is a separate bank account into which the buyer pays money, but which the developer cannot use freely. The bank releases the funds only once the conditions set out in the contract have been met, typically after the application for registration of the ownership title has been filed with the land registry, or after the registration has been completed.

What to look out for:

• Who is a party to the account – whether it is an account held by a bank under a three-party agreement, or an account managed by another entity.
• Under what conditions the money is released – the conditions must be described precisely and clearly, not just in general terms.
• What happens to the money if you withdraw from the contract – to whom it is returned and within what period.
• Fees – who pays for running the account and how much it costs. Ask for the amount of the fees in writing.

Deposit with a lawyer or notary

With a deposit arrangement, you hand the money to a trusted third party, most often a lawyer or notary. They hold it in a special account and pay it to the seller only once the conditions agreed by both parties in a so-called escrow agreement have been met.

Compared with an escrow account, a deposit is often more flexible, because the conditions can be tailored to the specific case. It is also important to know that:

• the deposit should be arranged before any amount is paid,
• the conditions for payout must be clear to both parties and must not be changed unilaterally by one of them,
• the lawyer or notary should have liability insurance – check this,
• it is advisable for the buyer to have their own legal representative, and not only the one recommended by the developer.

Bank guarantee for the return of the deposit

A bank guarantee works differently from a deposit. Here the money may be paid to the developer, but the bank guarantees that if the developer fails to meet its obligation (for example, does not transfer the flat), it will pay the amount paid back to the buyer.

Before signing, check:

• Who is the beneficiary of the guarantee – it should be you as the buyer.
• How long the guarantee is valid – its validity should cover the whole period until ownership is transferred, if possible with a margin.
• Under what conditions the guarantee can be claimed and what documents the bank requires.
• Up to what amount the guarantee covers the payments made – whether it covers all instalments or only part of them.

Ask for the original or a certified copy of the guarantee document immediately after paying the deposit, and keep it safe.

Comparison of the different methods

Method	Where the money is held	What to look out for
Escrow account	In an account at a bank; the developer cannot use it freely	Conditions for release and fees
Deposit	With a lawyer or notary	Wording of the escrow agreement, liability insurance
Bank guarantee	With the developer; the bank guarantees repayment	Validity of the guarantee and extent of cover

None of these methods is automatically better than the others. It depends on the type of project, the stage of construction and how the contract is written. Sometimes the methods are combined.

What to check before signing the contract

1. Read the whole contract for a future contract and find out how the protection of payments is described in it.
2. Check the extract from the land registry – whether the land is subject to a lien or other encumbrance that could complicate the transfer.
3. Find out how the project is financed and whether the developer has a loan from a bank that holds a lien over the land.
4. Check the developer – you can find their previous projects and track record, for example, in the overview of developers.
5. Ask about the payment schedule and what part of the price is due at which stage of construction.
6. Have the contract reviewed by a lawyer and discuss the financing with a mortgage specialist.

Links to your mortgage and budget

If you are financing the flat with a mortgage, the bank often pays out the loan in several steps according to the progress of construction, and itself checks the conditions for drawdown. Discuss the method of payment protection with both the bank and the developer at the same time, so that the arrangements fit together. You can get a rough idea of the monthly instalment and your own funds in our calculator, but a mortgage specialist will give you the exact terms.

When choosing a project, you can use the project catalogue and narrow down the offer by location. Further background on the purchase process is summarised in the buying guide. If you are unsure what to do, you can send a housing inquiry form.

Frequently asked questions

Is an escrow account always mandatory?

In general terms, it depends on the specific type of contract and project. Do not rely on protection existing automatically. Always ask the developer how your payments are secured, and have it confirmed in the contract.

Can I pay a deposit before signing the contract?

It is recommended not to do so. Make the payment only after signing the contract, and to the account or person expressly named in the contract. It is also advisable to have a lawyer review any reservation fee, including the conditions for its return.

Who can help me check the contract?

It is best to give the contract to a lawyer who specialises in property. The financial side, especially the drawdown of the mortgage, will be discussed by a mortgage specialist. An assessment by an independent professional pays off before signing, not after.