Key Terms In Real Estate Contracts, D - F

When an offer is formally made on a home, a prospective buyer will complete a long list of documentation and paperwork just to specify the terms of the offer. There are many obvious terms in a real estate contract such as the address and purchase price of the subject real property, here are some other key terms that may be found in a real estate purchase contract.

Here is part three of an extensive summary of some common, important terms in real estate contracts.

  • Debt-to-Equity Ratio
    This term may also be referred to as the loan-to-value ratio which is a rule used by banks requiring borrowers to invest a minimum amount of equity cash, typically of 10% to 25% of the purchase price, as a condition to obtaining a mortgage. A ratio of 1 means 100% leverage of a property, and higher than 1 means negative equity.
  • Debt-to-Income Ratio (Debt-Service Ratio or Bottom Ratio)
    The relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income expressed as a percentage.
  • Default
    An act performed by the buyer, seller, tenant or landlord that breaches the contract of sale or lease that may allow a damages’ claim.
  • Delivery and Acceptance
    Delivery and acceptance occur when a grantor transfers or gives title by deed to the grantee.
  • Description by Monument
    A legal description of multiple-acre tracts of land that may utilize permanent objects such as stone walls, large trees or boulders.
  • Description by Reference
    A description on a deed that refers to a plat of subdivision or to another legal document.
  • Disclosure Statement
    An accounting of all financial aspects of a mortgage loan required by lenders to borrowers of residential mortgage loans regulated by the Federal Reserve Board.
  • Discount Points (Points)
    A one-time payment by the borrower to the lender at closing to obtain a lower interest rate on the mortgage loan. As one point equals 1% of the loan amount, three points on a $100,000 mortgage would cost $3,000.
  • Down Payment
    The amount of money, typically 10% of the sales price, paid by a buyer usually paid at the signing of the real estate contract with a certified check.
  • Due Diligence
    The investigation and review of a property to determine the presence of any outstanding legal issues and pending liability.
  • Earnest Money Deposit (Binder or Good Faith Deposit)
    The deposit made by a buyer at the time of submitting an offer to demonstrate a true intent to purchase.
  • Easement
    A non-possessory right to use land.
  • Egress
    The exit from a building or parcel of land.
  • Encroachment
    The trespassing on the land of another by a structure or other object.
  • Encumbrance
    A claim, lien, charge or liability attached to and binding upon real property.
  • Escrow
    A state or point in time where consideration, benefits, legal rights, document, or a sum of money is held by one person in trust for another for the purpose of assuring performance pursuant to a contractual agreement. Often, the seller’s attorney is the escrow agent for the deposit money securing the sale until closing in a residential real estate transaction. This money is held in an escrow account.
  • Exclusive Right To Sell Agreement
    This agreement refers to the exclusive right to sell between a broker and a seller designating the broker as the seller’s sole representative for the purpose of selling property.
  • Fair Market Value
    The price of real property that is agreed upon between a buyer and seller in a competitive market.
  • Finance Charge
    The amount imposed on a borrower in a mortgage loan, consisting of origination fee, finders’ fees, interest, credit report fees, discount points, and service charges.
  • Fixture
    An item that is permanently attached to real property.
  • Floating Rate Mortgage (Adjustable Rate Mortgage)
    A type of loan where the interest rate is not fixed over the term of the loan but varies according to the change in a specified index.


To learn more about real estate transactions, contact the experienced Sacramento metropolitan area/Northern California attorneys at the Montefalcon Law Offices. Contact us online or schedule a free consultation at any of our three conveniently located offices. Telephone our downtown Sacramento office at (916) 444 0440, our south Sacramento office at (916) 399-9944, or our Concord office at (925) 222-5929.