How Much Earnest Money is Required for Buying a Luxury House in Lagos?

Planning to buy a luxury property in Lagos? Discover how much earnest money you’ll need to make a confident and compelling offer.

By LiveAlgarve on 17th March 2025 - 3-4 m. reading time 

Buying a luxury home in Lagos is an exciting venture, but it comes with its own set of financial considerations. One of the key steps in the purchasing process is paying earnest money - a deposit that shows your commitment to the transaction. But how much earnest money is required to purchase a luxury property in Lagos? Let’s break it down.

What is Earnest Money (Sinal)?

Earnest money, also known as a "good faith deposit" or "sinal" is a sum paid by the buyer to the seller to demonstrate serious intent to purchase the property. This deposit is usually paid directly to the seller at the time of signing the "Contrato-Promessa de Compra e Venda" (Promissory Contract of Purchase and Sale). Unlike practices in some other countries, the earnest money in Portugal is not held in escrow but is paid directly to the seller.

For luxury properties, earnest money (sinal)  is especially important because it reassures the seller that the buyer is financially capable and committed to the high-value transaction.

As defined by the Portuguese Civil Code, these earnest money payments are governed by specific rules, including the implications of breach, which ensure both buyers and sellers have a clear understanding of their commitments. You can access the relevant legal framework through the official government portal Portuguese Civil Code - Official Portal.

How Much Earnest Money is Required for a Luxury Home in Lagos?

It's important to note that the amount of earnest money required can vary depending on the property’s value, the seller’s preferences and market conditions. However, here are some general guidelines:

Percentage of the Purchase Price

The earnest money deposit (EMD) for a luxury home in Lagos, Algarve typically ranges between 10% to 20% of the property’s purchase price. For example, if you're buying a luxury home worth €1 million, you may be required to pay between €100,000 and €200,000 as earnest money.

In Portugal, especially for more traditional or luxury transactions, the usual range for an earnest deposit is 10% of the agreed sale price. For new builds or off-plan properties, this deposit can increase, ranging from 20% to 30%.

Market Competition

In highly competitive markets, sellers may request a higher earnest money deposit to ensure the buyer’s commitment. If multiple buyers are interested in the same property, offering a larger deposit can make your offer stand out.

Negotiation

The amount of earnest money is often negotiable. If you’re working with a skilled real estate agent, they can help you negotiate a reasonable deposit that aligns with your financial capabilities.

Note: It's always advisable to consult with a local real estate agent in Lagos for more precise, up-to-date information that’s tailored to your specific transaction and the current market conditions.

Why is Earnest Money Important?

Shows Commitment

Paying earnest money demonstrates to the seller that you’re serious about purchasing the property, which can give you an edge in competitive markets.

Protects the Seller

If the buyer backs out of the deal without a valid reason (as outlined in the contract), the seller may keep the earnest money as compensation for the time the property was off the market.

Builds Trust

In high-value transactions like luxury real estate, earnest money helps establish trust between the buyer and seller, paving the way for a smoother negotiation process.

Tips for Paying Earnest Money

Understand the Contract

Before paying earnest money, ensure you fully understand the terms of the sale agreement. Pay attention to conditions that allow you to reclaim your deposit, such as failed inspections or financing issues.

Work with a Reputable Agent

A knowledgeable real estate agent can guide you through the process, helping you determine an appropriate earnest money amount and ensuring your interests are protected.

Be Prepared Financially

Since earnest money is often a significant sum, ensure you have the funds readily available.This demonstrates your financial readiness to both the seller and your lender.

To Sum It Up

Earnest money is a crucial part of buying a luxury house in Lagos, serving as a sign of good faith and commitment. While the amount can vary, it typically ranges from 10% to 20% of the property’s purchase price, depending on factors like market competition and negotiation.

If you’re considering purchasing a luxury home in Lagos, understanding earnest money requirements and working with trusted real estate professionals can help you a smooth and well-guided process.