Learning Center Article

Article: Key Terms to Know When Selling a Home

There are many important home selling terms to know when the time comes to put that sign in the yard. The real estate market can be tricky, and costly if you make a selling mistake. There is so much to know: legal/real estate terms, contracts, listing agreements, disclosure statements, title documents, etc. Be sure to get as much home selling advice as possible, as becoming an intelligent seller homebuyer can help you avoid making costly mistakes.

1031 Exchange

A 1031 Exchange is a tax aspect of the Internal Revenue Code to allow a real estate investor who meets all the requirements to sell their property and defer paying taxes on the gain. By completing an exchange, the owner can dispose of their investment property, use all of the equity to acquire replacement investment property, defer the capital gain tax that would ordinarily be paid, and leverage all of their equity into the replacement property.

Breach of Contract

A breach of contract occurs when a party is in violation of a direct obligation or failure to perform provisions in the contract agreement. In the world of real estate, a contract breach occurs most often in two ways:

one real estate selling tip A failure to perform in the property listing agreement between the broker and the seller.

one real estate selling tip A violation of terms in the sales contract between the buyer and the seller.

Contract Contingencies

Contract contingencies in real estate contracts are the specific clauses in the contract that must be fulfilled by either the buyer and seller, or provide a way to void the contract. For example, a current home sales contingency is often used when a buyer is making an offer on a home before selling the existing home. The buyer may need to sell the present home before being qualify and afford the purchase. Therefore, the offer is contingent upon the sale of the existing home. Key standard contingencies include home inspections, financing, and appraisal.

Due on Sale Clause

The alienation clause (Due-on-Sale Clause) is the specific verbiage in a mortgage or deed which asserts the lender's option to force that the balance of the secured debt becomes immediately due and payable if the property is sold by the borrower, thus preventing the homeowner/borrower from assigning the debt without the lender's approval. Comes from the term alienate, which means: to transfer or convey the title to a property from one party to another.


Exclusive-Right-to-Sell is a common type of real estate listing agreement. A specific broker is given the exclusive right and authorization to market the seller's property. A key to this agreement is that if the property is sold while the listing is in effect, the seller must pay the broker a commission regardless of who sells the property. Therefore, this type of listing agreement offers the best opportunity for brokers to earn a commission. Also known as an exclusive agency listing.

Earnest Money

Earnest Money (escrow deposit) is the specific monetary funds provided to bind an real estate sales agreement or some other transaction requiring a deposit. The deposit acts as evidence of good faith in purchasing real estate. The amount of earnest money varies based on the type of property being purchased and local market conditions, but is truly one mort part of the sales contract that must be agreed to by both parties. The seller or broker places the money in an escrow or trust account until closing, when it becomes part of the funds applied to the purchase price. Earnest money is forfeited by the buyer if they fail to carry out the terms of the contract agreement. In the event the property does not close, the sales agreement spells out the conditions under which buyer would forfeit the earnest money.

Lead Paint Disclosure

In March of 1996, the Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD) published a final rule, Lead; Requirements for Disclosure of Known Lead-Based Paint and/or Lead-Based Paint Hazards in Housing, (61 FR9064-9088). This final rule requires persons selling or leasing most residential housing built before 1978 to provide purchasers and renters with a federally approved lead hazard information pamphlet and to disclose known lead-based paint and/or lead-based paint hazards.


Proration is the process to allocate between two or more parties, the proportionate share of each. For example, the prorated adjustments of interest, taxes, and insurance, etc. on a pro rata basis as of a certain date between the buyer and seller.

Sellers Disclosure

In the purchase and sale of an existing home, the sellers must complete a seller's disclosure statement regarding the home. Disclosures cover a variety of topics, including the condition of title, the availability services, flood issues, easements, zoning, and details regarding the history and the condition of the house. Unless the buyer waives review of this statement, the seller must deliver a completed statement to the buyer for review prior to or within a certain time after the purchase and sale agreement has been signed by both parties. The buyer then may elect to terminate the transaction by giving timely and appropriate notice to the seller. If the buyer does not object, then the disclosures are deemed to be acceptable to the buyer.

Most state laws mandate that disclosures be on special forms the seller must sign and date. Also note, that if there is a real estate broker or agent involved in the transaction, and if they have personal knowledge of any latent defects, the agent is legally obligated to disclose those defects to the potential purchaser, regardless of whether the seller discloses or disclaims.

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Does the world of real estate terms, contracts, and mortgages seem like a big puzzle to you? It really can be quite intimidating. See our Real Estate Learning Center, where we provide comprehensive learning guides for everything about home buying and selling! From real estate investment, appraisal, insurance, and selecting the right real estate agent and listing broker. Make intelligent decisions on residential home mortgage, refinance, equity loan, home improvement, and house selling.

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