Contracts, whether for purchases, leases, or deeds, often contain confusing language and many terms. They’re not just words; they have important financial and legal effects. Understanding these agreements is crucial to protect your interests. When it comes to real estate in Alabama, Boundary Title is an expert.
Real Estate Contract Terms To Know
To help you figure out the seemingly foreign language on your contract, we’ve compiled a list of the most important real estate contract terms to know. Seek professional advice, take your time, and let this guide help you make informed decisions in various contract situations.
25 Common Real Estate Contract Terms
Here are some terms you’re likely to see in a real estate contract:
Addendum
Also called a rider, an addendum is an adjustment made to the contract based on the request of either the buyer or the seller. It specifies the part that needs altering along with what the change is.
Association Fee
Also known as a Homeowners Association fee, this is an additional monthly expense set by some housing communities as a contribution to the maintenance of common amenities and facilities.
Chattels
This term refers to moveable items on the property that are freestanding and kept in place by their weight, not permanently fixed.
Closing Costs
Additional fees to the purchase price are needed to close the sale process, such as notary, title insurance, title search, and escrow fees.
Collateral
A valuable item (most likely the property in question) that’s held in the contract as a consequence to ensure complete payment of loan or mortgage.
Considerations
Any valuable items –typically money– that the involved parties exchange during their transaction.
Contingency
Real estate contracts feature multiple clauses and conditions that must be met for the sale to be closed. These are called contingencies, such as loan approval, house appraisal, and home inspection.
Cooling Off Period
A period of five business days, starting from the day you receive the contract. During the cooling off period, the buyer can terminate the contract for whatever reason but they have to pay a penalty to the seller.
Deed of Trust
This is a security tool that allows the lender and the borrower to give the property to a third-neutral party until the loan is paid off.
Deposit
The amount of money the buyer initially pays to the seller to lock down the property.
Due-On-Sale Clause
Also known as an acceleration clause, this is a condition that obligates the seller to repay the mortgage in full upon the next selling of the property. As a result, the lender is unaffected by below-market interest rates.
Equity
The portion of the property you entirely own. Until the mortgage is fully paid off, the lender has interest in the house/property.
Escrow
This is a neutral third party that holds money during transactions, typically the buyer’s deposit.
Fixtures
The opposite of chattels, fixtures are any item that’s permanently fixed to the property. They may be bolted, screwed, nailed, or glued.
Mortgage Note
A document containing all the terms of the loan that both parties sign at the closing time.
Price
This is the amount of money that one party needs to pay to the other to complete a real estate transaction.
Principal
The amount of the loan that’s borrowed, excluding any extra amount due to interest charges.
Recording Fees
This fee is paid to a government agency to cover the costs of recording/documenting the sale or purchase of any real estate property.
Seller Assist
The buyer can request for a seller assist clause to be added to the contract, asking the seller to cover a portion of the closing fees.
Settlement
This is the final part of the sale process, including giving the buyer the rest of the purchase price and transferring ownership (the title) to the buyer.
Signatures
A contract is never legally binding without the signatures of both parties. It’s added at the very end of the contract document.
Time of the Essence
This term refers to the obligation of a contract’s parties to fulfill any conditions relating to time and date.
Title
Also called a title deed, this is a document proving legal ownership of a property. It’s transferred from the seller to the buyer upon closing.
Title Search
This is a process involving an examination of public records and the recovery of documents concerning ownership history. The purpose is to determine current legal ownership to safeguard against third-party claims.
Unconditional Contract
When all the clauses that entitle the buyer to terminate the sale process are satisfied so the buyer has no legal stand to terminate, the contract is called an unconditional contract.
Your Partner In Real Estate
That was a list of 25 real estate contract terms you’re most likely to come across when dealing with a contract. If you need further help with real estate terminology, feel free to contact us! At Boundary Title, we’re always here to help!