Real Estate Contract Terms

Contracts, particularly contracts for the purchase or sale of real property, are rife with legal terms and phrases that are foreign to many non-lawyers.  Nevertheless, it is important for buyers and sellers in real estate transactions to be aware of the meaning of such terms and phrases in order to be fully informed of the effect of contractual language.

Caveat Emptor

Latin for "let the buyer beware."  The term is used to indicate that the ultimate responsibility for learning about any conditions on a parcel of real property that may have an effect on the property value lies with the buyer of the property.  The phrase is still included in many real estate documents, but in recent times the law has become lest harsh toward purchasers of real estate and has begun to require sellers of real property to make certain disclosures regarding property conditions to the buyer.

Cloud on Title

Conditions revealed by a title search that may have a negative effect on the title to a parcel of real property.  Conditions that cause a cloud on title to a property may include defects or potential defects that arise from a claim, lien, easement, or court order.

Contingency

A specified condition that must be met before a contract becomes legally binding.  In the real estate context, a common contingency is that a contract obligating a buyer to purchase a parcel of real property is not binding upon the buyer until the property passes a satisfactory home inspection by a professional inspector.

Earnest Money

A deposit payment made by a prospective buyer of real property that shows to the seller a good-faith intention to complete the transaction.  Earnest money is usually some percentage of the asking price for a property, and in the event that the potential buyer does not follow through with the transaction, the payment is retained by the seller.

Encumbrance

Anything that has a limiting affect on a complete title to real property.  Examples of encumbrances on a property include easements, encroachments, leases, liens, mortgages, or restrictions.

MLS

 The Multiple Listing Service, an organization that collects, compiles, organizes, and disseminates information regarding homes listed for sale by member real estate brokers.

Right of First Refusal

The right of a potential buyer of real property to meet the terms of a third party´s higher offer.  The right of first refusal ensures that a potential buyer has the opportunity to purchase a property that is superior to all other potential purchasers, so long as he or she is willing to pay the highest offered price.

Right of Ingress or Egress

 The right of a lessee of a parcel of real estate to enter (ingress) or leave (egress) the property.  The right of ingress or egress is a type of easement which allows the person who is the beneficiary of the easement to use another´s property for the limited purpose of having access into and out of another property.

Time is of the Essence

A phrase included in a contract that specifies that timely performance is a condition to the contract.  Generally, time for performance of obligations under a contract is completion within a "reasonable" time.  However, the inclusion of a "time is of the essence" clause indicates that timing is critical and that if the specified time limitation is not met by a party to the contract, that party can be considered to be in breach of contract.

Title Insurance
An agreement to indemnify a party against any losses arising from a defect in the title to real property transferred in the course of a real estate transaction.  Title insurance is usually issued to a buyer of real property by the title company that conducted the title search; if the search should have turned up some defect in the title but did not do so by oversight or mistake on the part of the title company, the company is obliged to compensate the buyer for any damages suffered by him or her as a result.

Transfer Tax
A tax imposed on the transfer of property, including real property, especially if the transfer is by means of a will, inheritance, or gift.

Note:Contact an attorney on all legal questions or legal issues. A real estate agent is not qualified to give legal advice or tax advice and is not licensed to give legal advice or tax advice.