Ever attempted to comprehend a real estate contract by yourself? You might have realized that this paperwork is packed with lots of terms you might not be familiar with. It can be overwhelming, especially because you are supposed to sign this legally binding document.

As your Title company, Foremost will take care of explaining in simple details any document that you need. Consider this your cheat sheet: Here are 10 essential terms you will find in any real estate contract.

Earnest money

Earnest money is a sum put up by the buyer, held by an escrow company, to show the buyer’s commitment to purchase the property. There is not a defined amount but generally runs about 1% to 2% of the purchase price. When the final transaction is completed, that money is applied towards the closing cost.  

Effective Date

The date when the rights and agreements become operational. This is often the date that determines the start of the contract’s various deadlines.


These are requirements that must be met before the real estate deal closes. These requirements are set, specify and agreed upon by both the buyer and the seller.

Due Diligence

After the contingencies are set, the contract provides the buyer with a period of time to gather information about the property he/she is interested in. If something negative is discovered during this period of time the buyer has the right to receive a refund of his earnest money.


All sellers are required to fill out a property disclosure form for the buyer to learn everything the seller knows about the property since they’ve owned it.


A house appraisal is an estimate of a property’s value. When needing a mortgage to finance the purchase of the new property, the mortgage lender will request an appraisal of the property before lending the loan.


After his offer is accepted, the buyer can do any inspection of the property within a time frame that’s mutually agreed upon the seller. After the inspection is placed, the buyer can: Accept the property as it is, release the contract or ask the seller to repair the issues discovered during the inspection. If the latest is rejected, the buyer has the right to terminate the contract and retain his earnest money.

Title Search

A title search, also known as a survey, confirms that the property is owned fair and square by the seller, who is legally able to transfer those rights to the buyer. For your own peace of mind, you can always acquire a Title insurance to protect yourself from any dispute related to the ownership of the property you are looking forward to buy.

Kick-out Clause

If the buyer needs to sell another property in order to finance the new one, the seller may decide to include a “Kick-out” clause. This clause allows the seller to continue showing the house and accept other offers. If the original buyer can’t sell the property within a certain period, the seller can kick out the buyer and go with a new offer.


Closing is the final step in your real estate transaction. At the closing, the buyer provides the funds to purchase the property with the involvement of lawyers, realtors, buyers, and sellers at the closing table.

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