Letter of credit when buying a property


Buying property is categorized as high-risk transactions, so the seller may be required to do business only with a letter of credit. This is understandable since calculations with such a system are the most reliable option for both sides.

Therefore, it is necessary not only to look at what it is in detail but also how it works in reality.

Real estate transactions


When we consider this type of interaction, in the simplest form, the buyer buys the object, pays the money for it, and the seller sells it at the price at which the agreement was made and receives the money. It’s all pretty simple, but there are certain nuances.

It is important to understand that the purchase transaction will be kept recognized only in case of successful registration of the purchase contract in the corresponding registration structures.

Such a situation is quite real when the contract is signed and even referred by the buyer to the registration authorities, but the seller then decided not to sell his property. He goes to Rosreestr to get a letter of intent to sell real estate.

There is a problem in such cases, especially if at that point the money has already been transferred to the seller. They have to go to court for their return, which is a fairly long and costly affair.

It is a situation in which you cannot pay immediately but also do not give the money as the seller has no guarantee that the buyer will give the money after registration. In this case, there is a great risk for both parties, both without Money to stay as well without an apartment.

General properties


A letter of credit is one of the modern forms of cashless payment in the interaction of seller and buyer. In fact, it is the guarantee of the security and legality of all transactions. For individuals, a letter of credit when buying real estate has an undeniable advantage like all cashless transactions: there is no need to have a large amount of money on hand and it is not just about transportation.

When a letter of credit is issued, the buyer authorizes the bank to transfer a certain amount of money to the seller’s account after it has fulfilled and confirmed certain contractual obligations.

Practical use


When we talk about applying for a letter of credit under property buying, then there are certain characteristics. In this case, the billing scheme looks somewhat.

A contract is concluded between the buyer and the seller, in which such a form is used for the mutual processing of the transaction. The letter of credit agreement contains all information about how payment terms and methods are used to notify the parties, as well as information about the participants in the transaction.

The buyer must contact the bank that serves to issue a letter of credit there. A special account is also opened at the seller’s service bank. The buyer’s bank transfers their money from their customer’s account.

It turns out that the credit on the seller’s letter of credit is usually available before the transaction begins. This is the essence of security for both parties.

How do I get the money?

Cash payment for the seller is only possible once the purchase and sale transaction has been completed and all the documents required for confirmation have been received by the bank. If there are no doubts as to their legality, correctness, and reliability, the seller’s bank will post the credit from the letter of credit to the customer’s account.

Document confirmation required

One type of transaction, such as buying a property, involves providing the purchase contract for a house or apartment that has passed the state registration process.

Some banks request extracts from the unified state rights register, which confirm the buyer’s ownership of the property purchased. If seller and buyer accounts are found at the same bank, the scheme becomes much easier.

Advantages of a letter of credit

If you use a letter of credit when buying real estate, there are a number of benefits to both parties to the transaction. For the seller, this is a guarantee that he will receive all of the money from the buyer.

The money is in the buyer’s letter of credit at the time of the transaction, so they can be sure that they are safe. The bank guarantees payment if the seller submits all necessary documents and complies with the conditions of the letter of credit.

Buyers can rely on a full guarantee. Transaction: If for any reason the transaction does not take place, the refund will be made in full. If the seller does not meet at least one condition of the letter of credit, the payment will not be made by the bank.

If you buy a property with a letter of credit, you cannot make an advance payment or pay the transaction in installments.

Cashless communication is safe and convenient.

Cashless communication is safe and convenient.

Compliance is closely monitored by third parties, i.e. bankers. If you use a letter of credit when buying real estate, it is not just the parties to the transaction who are interested in the accuracy and legality of the registration. In this case, credit institutions are also liable according to the statutory provisions.

In this case, it is guaranteed that the executing bank does not accept any forged or incomplete transaction documents for payment. If a loan person acts as a guarantor for a transaction, ie if a letter of credit is used when buying property, this is always a sign of reliability.

Disadvantages of a letter of credit

Disadvantages of a letter of credit

Despite the fact that this form of settlement has a number of positive aspects, there are certain disadvantages. The workflow is quite complicated because careful monitoring is required at every stage of the transaction. The creation and execution of a letter of credit contract are usually associated with the payment of a commission. Usually, the amount depends on the amount of the transaction.

Why not used it

Few people use it when buying real estate letters of credit. Good Finance has been offering its customers such a secure service for a long time. This type of billing is often compared to bank cells, but much less often.

The methods are similar, but there are big differences. The use of the cell requires the presence of money in the physical manifestation, and in the second case it is a cashless payment, and this is the letter of credit. Good Finance offers both options, but customers usually stop at the first one.

There are many reasons for this. A customer secretly deposits money into a bank cell, ie he does not disclose the contents to the bank. In this case, the seller cannot be sure of the honesty of the buyer.

In this case, the bank is not responsible even if a purchase contract has already been concluded. The letter of credit protects both parties in this case since the credit institution is responsible for any violations during the execution of the transaction.


Application for the purchase of real estate letter of credit calculation forms is recognized by experts as a good option. Banks are interested in the success of the transaction and will monitor it carefully at every stage.

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