Have you ever looked at a real estate contract and thought, what the heck does that mean? You’re in luck. Keep reading for an explainer on some of the most common real estate terms and phrases we get many questions about!

Deposit versus Down Payment:  In every real estate contract, there will be a section where it asks what amount the Buyer is putting down as a deposit. This is also referred to as an “Ernest Money Deposit” by many realtors. This amount is paid up front when the contract is signed, generally to the Seller’s agent or attorney, and essentially ensures the buyer has some skin in the game and cannot just walk away. This deposit can be forfeited if the buyer fails to close for circumstances within their control (i.e. they change their mind). The deposit is not the same as the down payment, however. A down payment is the amount you put down on the note through your lender (which generally ranges from 3-20% of the purchase price). This is paid at closing.  If you cannot close, you generally do not lose your down payment.

Seller’s Concessions versus Gift of Equity: Seller’s concessions are essentially a credit that the seller agrees to “give back” to the Buyer at closing to reduce the purchase price. Seller’s concessions are limited in amount and purpose. Generally, they cannot exceed 6% of the purchase price and can only be used to cover approved closing costs. In other words, they cannot be used to give the buyer extra cash in their pocket to buy furniture, make property improvements, or cover moving costs, among other things.  On the other hand, a gift of equity is a planned reduction in the purchase price to provide a discount to a Buyer. Unlike seller’s concessions which offer a credit at closing, the gift of equity is a discount off the top of the purchase price, and thus, is less restrictive. This arrangement can effectively give the buyer more money in their pocket for non-closing cost related expenses.

“Clear to Close”: A real estate closing involves two parts: title review and underwriting/loan approval. When both processes are complete, a closing can be scheduled. Often times, one part will be complete before the other, but this does not mean we can close. For example, if the underwriting approval through your lender is given first, often times lenders will advise their clients that the file is “clear to close.” However, if we have not received all title documentation for the transfer, we cannot schedule a closing.

Closing Date: Arguably, the most asked question in any real estate transaction is when can we close? When offers are submitted, a date is chosen by the realtor and buyer. Sometimes, in order to make an offer more attractive, buyers will select a date with a quick turnaround. However, the date in the contract is not binding. Rather, it is a target date for the parties to work toward. Closings rarely happen on the date selected in the contract, and at times, it can be weeks earlier or later depending on the lender and title review process. It’s a good idea not to book your movers until you receive the “clear to close” from your lender and attorney!

Abstract of Title: One of the first documents we ask for from the Seller of real estate is an abstract of title. This is frequently confused with the deed. An abstract of title is generally a thick stack of all (or many) of the deeds and other property records going back 60+ years. Prior practice was to return the abstract of title to the buyer after closing, however, in the last two decades, title companies began holding abstracts for clients. So, if you can’t find yours, don’t panic. We can check with the title companies, or, worst case, we can order a new abstract.

Have more real estate contract questions? Contact us. We may be able to help.