10 Real Estate Legal Terms You Should Know Now

In the home selling and buying processes, legal terms abound. At least a basic understanding of certain contractual obligations would be helpful in the home purchase adventure. Ten of the more common, more significant real estate legal terms you should know are explained below.


Amortization is a financing term that describes the process of combining both interest and principal in payments, instead of just paying off interest in the beginning. By paying toward the principal owed for the mortgage, you can build more equity in the home earlier.


The closing refers to the finalization of the sale of the property. In this meeting, the buyer and seller sign the final documents. At this time, the buyer makes the down payment and pays closing costs, which typically total about two to five percent of the total purchase price, excluding the down payment. Closing costs include title insurance, taxes, and loan processing costs, for example.


In real estate, a contingency refers to a condition in the purchase agreement that must be met before the transaction moves forward. The final sale of a property typically is contingent upon meeting certain criteria. Common contingencies included in the contract include clauses related to inspections, appraisal, title, and mortgage approval. These contingency clauses allow buyers to back out of a sale if something goes wrong.

Deed of Trust

A deed of trust is a real estate transaction that involves three parties: a lender, a borrower, and a trustee. Typically, these parties are a bank, the home buyer, and a title company. In exchange for money borrowed, the home buyer gives the bank a promissory note to make monthly payments. If the borrower defaults, then the title company can take full control of the property on behalf of the bank.


A default is a failure to comply with conditions of an agreement, such as not making required payments on a timely basis. Defaulting on a loan results in penalties as outlined in the agreement.

Earnest Money Deposit

A buyer provides an earnest money deposit when making an offer to purchase a property. This shows the seller that the buyer is sincere in the offer. The earned money deposit typically is applied toward the down payment once the sale proceeds.


Escrow is an account that is held for a particular purpose, as defined in the escrow agreement for the account. The account is held by a lender or an escrow agent, who releases funds from the escrow account when the agreed upon conditions are triggered. For example, earnest money deposits and down payments are held in escrow.


The legal principle of estoppel prevents someone from later making a claim or denying a fact that contradicts something already established or agreed to. In real estate, an estoppel certificate contains a statement by one party to the other. The statement provides information that the other party is entitled to rely upon as fact. Sale of occupied property usually requires a tenant estoppel certificate regarding the tenant’s lease.

Purchase Agreement

A real estate purchase agreement is a sales contract that documents the purchase / sale of real estate or residential property. A purchase agreement does not transfer title of the property; the contract details the rights and obligations of the parties before title is legally transferred.


A property title is the rights of ownership as recognized and protected by law. In the process of purchasing a home, a title officer or attorney reviews all recorded documents that relate to a specific parcel of land to assess the current condition of title. For example, a title search might reveal tax liens against the property. Once the title search clears the title, the mortgage lender and home buyer obtain title insurance, which protects them against problems later found with the title.


If your documentation contains phrases or real estate legal terms you should know that you aren’t familiar with, then before signing make sure your real estate agent, banker, or attorney explain their meaning to you. Selling or buying a house is a commitment you want to fully understand. Working with a trusted real estate agent helps. LemonBrew specializes in using technology to match home buyers and sellers with experienced, skilled real estate agents. Visit LemonBrew to learn more about how to find the best real estate agent for you.