Bank guarantee

In this article, we will take a closer look at what a bank guarantee is, how a bank guarantee works, and what a bank guarantee costs.

When buying real estate where a lot of money is involved, the seller, cf. the terms of the purchase agreement, will typically demand that security be provided for payment of the purchase price. The security can be in the form of an irrevocable bank guarantee, where the buyer’s bank assumes the risk of the buyer’s possible non-payment, or in the form of a cash deposit of the remaining purchase price in an escrow account at the seller’s bank.

When the buyer’s bank has issued an irrevocable bank guarantee to the seller’s bank, the seller has security for the payment, regardless of what happens to the buyer – for example, if the buyer dies or goes bankrupt. On the takeover date, as stated in the purchase agreement, the bank guarantee will be replaced by a cash deposit in the seller’s bank. In this case, the money is transferred to the seller’s bank, but the seller does not yet have access to the money. There must first be a registered final deed without prejudicial legal notices (when the buyer is registered as the rightful owner and the seller’s loan has been repaid). If there is a registered deed with a note about a tax lien, this note is not prejudicial. In the purchase agreement drawn up by the real estate agent, the purchase price of the home will be divided into a deposit, which is the real estate agent’s fee + a maximum of DKK 10,000 and a bank guarantee for the remaining purchase price. By depositing the purchase price in cash at the seller’s bank, you thus ensure that the seller does not get access to the money until the buyer has legally taken over the home. The bank guarantee is typically provided 10 working days after both parties have signed the purchase agreement. However, this can be waived by agreement. If the guarantee is not provided in a timely manner according to the deadline set in the purchase agreement, the seller is entitled to cancel the deal upon demand.

If you want to know what a standard guarantee in connection with a home purchase looks like, you can click here.

Under the individual terms of the purchase agreement, it may be agreed that the purchase price can be released when the deed is registered, and there is only a note about the seller’s loan. In this case, release of the purchase price will be conditional on the depositary (seller’s bank) having given an unconditional written guarantee that all legal notices will be deleted. In this case, the seller will be able to get the purchase price released sooner, but at the earliest on the takeover day.

The acknowledgment can be worded as follows: “It is agreed that the purchase price – regardless of the clause in the purchase agreement. 13 stated – can be released in its entirety when the deed is registered and there is only a note about the seller’s loan. It is, however, a condition for release that the depositary has given unconditional written assurance that all legal notices will be deleted”.

The price of a bank guarantee depends, among other things, on which bank you use as a buyer, your customer relationship and the length of the period during which the bank guarantee must be available. However, the bank typically calculates the price by taking a percentage of the amount for which a bank guarantee must be provided – e.g. between 0.55-1.8% per quarter. As a buyer, you can usually use this as a negotiation parameter with the bank.

When you have to be approved by the bank for the purchase of a home, the bank guarantee will be a natural part of the approval. You must therefore contact your bank, who will then make a credit assessment of you and your finances. Here, the bank will, among other things, look at your salary income, available amount, debt factor, etc. If the bank can approve you for the purchase of a home, you can continue with your house hunt.

If you would like to know more about how a typical real estate deal in Denmark proceeds, you can read more here.