Consideration
Definition and meaning of Consideration in real estate.
Consideration is something of value exchanged by the parties to a contract, serving as the essential element that makes the agreement legally binding.
In more detail
In real estate sales, the consideration is typically the buyer's promise to pay a specific purchase price and the seller's promise to transfer ownership of the property. Without consideration, a contract is merely a unilateral promise and is not enforceable in a court of law.
While money is the most common form, consideration can also consist of goods, services, personal property, or a promise to perform or refrain from doing an act. It must be present at the time the contract is formed, and the contract document usually states that consideration has been exchanged.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Required for | Creating a legally enforceable contract |
| Common forms | Money, services, property, mutual promises |
| Applies to | Purchase contracts, deeds, leases, and option agreements |
A buyer signs a contract promising to pay a specified purchase price to a seller in exchange for the deed to a home, establishing the necessary consideration to make the contract enforceable.
Frequently asked questions
Does consideration in a real estate contract have to be money?
No, consideration does not have to be cash, it can be anything of value, including other property, services, or even a mutual promise to perform an action.
Is earnest money considered the sole consideration in a home purchase?
No, earnest money is a deposit showing good faith, while the actual consideration is the mutual promise to buy and sell the property at the agreed price.
Related terms
Sources & references
See our sources and editorial standards.