The complexities of real estate transactions can hardly be understated. Even those who have bought or sold a home in the past may feel overwhelmed when confronted with another real estate deal. Despite the complexities, however, it can be important to understand some of the basics. This can be especially true considering that these are usually larger-scale financial transactions. Buying a home may be the biggest purchase you make in your life! To help untangle some of the web of real estate transaction ins and outs, we will be discussing binders today.
What Is a Binder in Real Estate?
There are several types of binders that can be involved in a real estate transaction. Generally speaking, a binder refers to either a formal or informal agreement made in the run up to closing on a piece of real estate. Binders can be confusing because they are used in such a variety of circumstances. Which ones are used during a real estate transaction will largely depend on individual requests as well as the full sales agreement. Here, we will review some of the more prominent and commonly used binder types.
When you hear the phrase “real estate binder” what is most often being referred to is an escrow binder. The escrow, or mortgage binder, most commonly involves the buyer making a down payment, referred to as “earnest money,” on the property prior to closing. It is really a way to see if the buyer is serious about purchasing the property. The earnest money will almost always go towards the cost of purchasing the piece of property. This may not be the case, however, should the seller believe that the buyer has failed to act in good faith. Should this be the situation, the seller could attempt to keep the earnest money. This is the exception to the rule, however. In the event that the buyer chooses to back out of the deal, the seller will likely get to keep the money and the buyer will take the loss.
A property insurance binder is another type of binder usually put in place to help ensure that the home that is the subject of the real estate transaction remains protected by adequate insurance coverage. A property insurance binder involves the purchasing of temporary insurance coverage that is meant to provide protection to both the buyer and the seller during the course of the real estate transaction. Insurance in a title binder is generally purchased because there is a gap in homeowners insurance coverage due to the buyer and seller’s home insurance coverage failing to overlap. Without purchasing transitional insurance coverage, the home would be vulnerable during this period of time.
A title insurance binder, on the other hand, relates to the buyer and seller agreeing to have a title insurance company sift through title and property records to help ensure that the home’s title is free from defects and other problems. This type of binder is usually requested by the buyer as it is in the buyer’s best interest to take steps to ensure they are going to receive a clear title on the home.
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