Real Estate Transactions and Contracts
Expert-defined terms from the Professional Certificate in Real Estate Law course at London School of Business and Administration. Free to read, free to share, paired with a globally recognised certification pathway.
Acceptance #
Acceptance is the unqualified assent of the party to whom a proposal is made, to the terms of the proposal. It is one of the essential elements of a valid contract, along with offer, consideration, and mutual consent. In real estate transactions, acceptance usually occurs when the buyer formally accepts the seller's offer to sell a property, subject to certain terms and conditions.
Acceleration Clause #
An acceleration clause is a provision in a mortgage or deed of trust that allows the lender to declare the entire outstanding balance due and payable if the borrower defaults on any of the loan's terms. For example, if a borrower misses a mortgage payment, the lender can invoke the acceleration clause and demand immediate payment of the entire outstanding balance.
Adverse Possession #
Adverse possession is a legal principle that allows a person to acquire ownership of someone else's property through open, notorious, continuous, and exclusive possession of the property for a statutory period. In real estate transactions, adverse possession can affect the title to the property and must be considered during the title search process.
Agent #
An agent is a person or entity authorized to act on behalf of another person or entity, known as the principal. In real estate transactions, agents are licensed professionals who represent buyers or sellers in the sale or purchase of property.
Agent Principal Relationship #
The agent-principal relationship is a legal relationship between an agent and a principal, where the agent is authorized to act on behalf of the principal in various matters. In real estate transactions, the agent-principal relationship is governed by fiduciary duties, including loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care.
Broker #
A broker is a licensed real estate professional who acts as an intermediary between buyers and sellers of real property. Brokers may represent buyers, sellers, or both, and are responsible for facilitating the transaction, including listing the property, showing the property, negotiating the terms of the sale, and preparing the necessary documents.
Clear Title #
Clear title refers to a title that is free from liens, encumbrances, or other defects that could affect the ownership of the property. In real estate transactions, a clear title is essential to ensure that the buyer receives full ownership of the property and that there are no outstanding claims or debts attached to the property.
Closing #
Closing is the final stage of a real estate transaction, where the parties sign all necessary documents, exchange funds, and transfer ownership of the property. The closing process is typically overseen by a title company or attorney, who ensures that all legal requirements are met and that the transaction is properly documented.
Cloud on Title #
A cloud on title refers to any claim, lien, or encumbrance that affects the ownership or marketability of a property. Clouds on title must be resolved before a property can be sold, as they can affect the buyer's ability to obtain clear title to the property.
Consideration #
Consideration refers to the value or benefit that is exchanged between the parties in a contract. In real estate transactions, consideration typically takes the form of money, but it can also include other valuable items or services. Consideration is one of the essential elements of a valid contract.
Contingency #
A contingency is a provision in a real estate contract that allows one or both parties to back out of the transaction if certain conditions are not met. Common contingencies in real estate contracts include financing contingencies, inspection contingencies, and appraisal contingencies.
Deed #
A deed is a legal document that transfers ownership of real property from one party to another. In real estate transactions, the seller typically executes a deed transferring ownership to the buyer, who then records the deed with the county recorder's office.
Deed of Trust #
A deed of trust is a legal document used in some states instead of a mortgage to secure a loan for the purchase of real property. In a deed of trust, the borrower transfers legal ownership of the property to a trustee, who holds the property as security for the lender.
Earnest Money Deposit #
An earnest money deposit is a deposit made by the buyer to demonstrate their serious intent to purchase a property. The earnest money deposit is typically held in escrow by a title company or attorney until the transaction is complete, at which point it is applied to the purchase price.
Easement #
An easement is a legal right to use someone else's property for a specific purpose. Easements are typically created by agreement between the parties or by operation of law. In real estate transactions, easements can affect the use and value of the property and must be considered during the title search process.
Encumbrance #
An encumbrance is a claim, lien, or other interest in real property that affects the owner's ability to transfer clear title to the property. Encumbrances can take many forms, including mortgages, easements, liens, and restrictions.
Equitable Title #
Equitable title refers to the legal right to obtain ownership of real property, as opposed to legal title, which is the actual ownership of the property. Equitable title is often held by the buyer during the escrow process, while legal title is held by the seller until the transaction is complete.
Escrow #
Escrow is a process in which a third party, such as a title company or attorney, holds funds or documents on behalf of the parties to a real estate transaction. Escrow is used to ensure that all necessary conditions are met before the transaction is completed and to protect the interests of both parties.
Fiduciary Duty #
A fiduciary duty is a legal duty to act in the best interests of another party. In real estate transactions, agents and brokers owe fiduciary duties to their clients, including duties of loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care.
Fixture #
A fixture is a personal property item that is permanently attached to real property, such as a built-in bookshelf or a light fixture. Fixtures are typically considered part of the real property and are transferred with the property when it is sold.
Foreclosure #
Foreclosure is the legal process by which a lender takes possession of a property after the borrower defaults on the loan. Foreclosure can occur through judicial or non-judicial means, depending on the state's laws.
Grantee #
A grantee is the person or entity to whom an interest in real property is transferred by a grantor. In a real estate transaction, the buyer is typically the grantee, and the seller is the grantor.
Grantor #
A grantor is the person or entity who transfers an interest in real property to another person or entity. In a real estate transaction, the seller is typically the grantor, and the buyer is the grantee.
Joint Tenancy #
Joint tenancy is a form of co-ownership in which two or more parties own an undivided interest in a property. Joint tenancy is characterized by the right of survivorship, which means that if one joint tenant dies, their interest in the property automatically passes to the remaining joint tenants.
Lease Option #
A lease option is a type of real estate transaction in which a buyer leases a property from a seller with the option to purchase the property at a later date. The buyer typically makes a non-refundable option payment to the seller for the right to purchase the property, and a portion of the rent paid by the buyer may be applied to the purchase price.
Legal Description #
A legal description is a detailed description of a property that is used to identify it for legal purposes. Legal descriptions typically include information about the property's boundaries, size, location, and any easements or encumbrances that affect the property.
Legal Title #
Legal title refers to the actual ownership of real property, as opposed to equitable title, which is the legal right to obtain ownership. Legal title is typically held by the seller until the transaction is complete, at which point it is transferred to the buyer.
Lien #
A lien is a legal claim on real property that secures a debt or other obligation. Liens can be voluntary, such as a mortgage, or involuntary, such as a tax lien or judgment lien. Liens must be satisfied before clear title can be transferred to a buyer.
Listing Agreement #
A listing agreement is a contract between a property owner and a real estate broker or agent,