What is the typical amount for earnest money (tetsukekin)? Under what circumstances can it be forfeited or doubled?

Hello! When it comes to the deposit (手付金, tesukekin) for buying property in Japan, it's definitely one of the biggest concerns. It involves a significant amount of money and comes with quite a few rules. Don't worry, I'll break it down for you step by step, keeping it conversational like we're just chatting.

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How much is the deposit (手付金)? When is it forfeited or when can you get double the amount back?

The money you pay when signing a property purchase contract in Japan is called 手付金 (てつけきん, tesukekin). It's not just a simple "down payment"; it's more like an "escape clause" or "contract cancellation option." Both the buyer and seller can use this payment to unilaterally cancel the contract within a certain period.

1. How much is the deposit (手付金)?

There's no legally mandated fixed amount, but there's an unwritten market standard:

• It's typically 5% to 10% of the total property price.

For example, for a property priced at ¥50 million, the deposit would usually be between ¥2.5 million and ¥5 million.

This percentage is negotiated between the buyer and seller. If the amount is too low, the cost of breaching the contract is small, making the agreement unstable. If it's too high, it puts excessive financial pressure on the buyer. Therefore, 5%-10% is a widely accepted range that provides reasonable security without being overly burdensome.

Tip: If the seller is a real estate company (professionals), Japanese law limits the deposit they can collect to no more than 20% of the total property price. This protects individual buyers like us.

2. When is the deposit forfeited? (Buyer cancels)

This is known as 手付放棄 (てつけほうき, tesukehōki).

Simply put, this happens when the buyer unilaterally decides to back out and doesn't want to buy anymore.

Scenario: You sign the contract and pay a ¥3 million deposit. A few days later, you find a property you like better, your family suddenly objects, or you simply change your mind.

What happens? As long as it's within the period specified in the contract and before the seller "commences performance" (履行着手, rikō chakushu), you can cancel the contract by forfeiting the entire deposit you paid. This means the ¥3 million goes to the seller, you don't get it back, but the contract is terminated, and you don't have to pay the remaining purchase price.

Key Point: What does "commencement of performance" (履行着手) mean? This is a legal term. You can think of it simply as "the seller has taken irreversible, substantial action specifically for your transaction." For example, the seller has started the property title transfer registration process or has made modifications to the property based on your request. Once the seller "commences performance," you can no longer cancel the contract by forfeiting the deposit; you might face greater liability for breach of contract.

3. When can you demand double the deposit back? (Seller cancels)

This is the famous 手付倍返し (てつけばいかえし, tesukebaikaeshi).

Simply put, this applies when the seller unilaterally decides to back out and doesn't want to sell anymore.

Scenario: You sign the contract with the seller and pay a ¥3 million deposit. Shortly after, another buyer offers a higher price, and the seller gets tempted and decides not to sell to you.

What happens? Similarly, as long as it's within the period specified in the contract and before you (the buyer) "commence performance" (履行着手), the seller can cancel the contract by returning your original deposit and paying you an additional amount equal to the deposit.

This means the seller must pay you a total of ¥3 million (your deposit returned) + ¥3 million (compensation) = ¥6 million. This is the "double return."

Here, "commencement of performance" (履行着手) mainly refers to actions by the buyer. For instance, if you have already paid an interim payment (if stipulated in the contract), the seller can no longer cancel using this method.

4. Important Note! The Crucial "Escape Clause" – The Mortgage Contingency Clause

The "forfeiture" and "double return" scenarios above are based on cancellations due to "personal reasons." However, there's one very special and critical situation, which is our biggest safeguard when buying property: the 住宅ローン特約 (じゅうたくろーんとくやく, jūtaku rōn tokuyaku), or the Mortgage Contingency Clause.

This clause means: If you are unable to purchase the property because your bank loan application is rejected, the contract automatically becomes void, and the seller must unconditionally refund the full deposit to you.

• In this case, the deposit is NOT forfeited!
• The seller does NOT need to pay double; the deposit is simply refunded in full.

This is vital protection for buyers who need financing. Therefore, when signing the contract, you must double-check with your real estate agent to ensure this "Mortgage Contingency Clause" is clearly written into the contract!

Summary

Hope this explanation helps! While Japanese property transactions are meticulous, understanding these key rules will help you protect your rights effectively. Best of luck with your property purchase!