Essential Real Estate Terms You Should Know Before Signing

If you've ever tried to read a real estate contract, you might notice the pages doused with tons of terms you aren't too familiar with, which isn't the best feeling since you're set up to sign these legally binding pages.  If you feel as though you're trying to read a foreign language then it might be a good idea to do a bit of research to find out what these terms really mean.  We are here to help, and are sharing some of the most essential real estate terms you should know before signing a contract.  Keep reading to learn more, and click this link to read all 10 terms and their meanings.

Earnest money

Also known as "good-faith money," earnest money is a sum put up by the buyer and generally held in escrow or trust to show the buyer is serious about purchasing the home, says Marcia Goodman of HomesbyMarcia.com in Virginia.There is no defined amount, but earnest money generally runs about 1% to 2% of the purchase price. When the purchase is complete, that money is applied toward closing costs. If the contract doesn't go through, there are guidelines that vary by state that determine which party will be awarded the escrow deposit.

Effective date

The date that the last party signed or initialed any terms and/or changes in the sales contract. This is often the date that starts the clock on the contract's various deadlines (e.g., that a home inspection must happen within 10 days).

Due diligence

The contract's contingencies (see below) provide the buyer a period to conduct due diligence, which essentially means doing homework. If the buyer discovers negative information regarding the property during this time, he can cancel the escrow and receive a refund of his earnest money, says Bryan Zuetel, a real estate attorney and broker at Esquire Real Estate, in Orange County, CA.