What is Real Estate Transaction?

Legal Definition
A real estate transaction is the process whereby rights in a unit of property (or designated real estate) is transferred between two or more parties, e.g. in case of conveyance one party being the seller(s) and the other being the buyer(s). It can often be quite complicated due to the complexity of the property rights being transferred, the amount of money being exchanged, and government regulations. Conventions and requirements also vary considerably among different countries of the world and among smaller legal entities (jurisdictions).

In more abstract terms, a real estate transaction, like other financial transactions, causes transaction costs. To identify and possibly reduce these transaction costs, the Organization for Economic Co-operation and Development (OECD) addressed the issue through a study commissioned by the European Commission, and through a research action.

The mentioned research action ‘Modelling Real Property Transactions’ investigated methods to describe selected transactions in a formal way, to allow for comparisons across countries / jurisdictions. Descriptions were performed both using a more simple format, a Basic Use Case template, and more advanced applications of the Unified Modelling Language. Process models were compared through an ontology-based methodology, and national property transaction costs were estimated for Finland and Denmark, based on the directions of the United Nations System of National Accounts.

Real estate transactions: subdivision, conveyance, and mortgaging, as they are performed in the five Nordic countries are described in some detail. A translation into English is available for the Danish part.
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Legal Definition
Real estate transactions are governed by a wide body of federal statutes and a combination of state statutes and common law. The requirements established by state law often differ significantly from one state to the next.

Real estate brokers are employed as the agent of the seller in order to obtain a buyer for their property. See Agency. The contract between the broker and seller is called a listing agreement. The agreement may be an open agreement whereby the broker earns a commission only if he or she finds a buyer. A listing is exclusive if the broker is the only agent entitled to a commission for finding a buyer. Under an exclusive arrangement, a broker may be entitled to a payment even if the seller finds the buyer without the brokers aid. Real estate brokers and salesperson are licensed and regulated by local state laws. See, e.g., California Civil Code § 2079. Professional organizations may also provide further guidelines.

The Federal Fair Housing Act prohibits discrimination in real estate transactions on account of race, color, religion, sex,or national origin. See 42 U.S.C. §§ 3601-3631. Real estate brokers are specifically prohibited from discriminating by the act. See § 3606 of the act.

The agreement to sell between a buyer and seller of real estate is governed by the general principles of contract law. See Contracts. The Statute of Frauds requires that contracts for real property be in writing. See, e.g., California Civil Code § 1624.

It is commonly required in real estate contracts that the title to the property sold be marketable. This requires that the seller have proof of title to all the property he or she is selling and that third parties not have undisclosed interests in the title. See Real property.

A title insurance company or an attorney is often employed by the buyer to investigate whether the title is, indeed, marketable. Title insurance companies also insure the buyer against losses caused by the title being invalid.

In order to pass title, a deed with a proper description of the land must be executed and delivered. Some states require that the deed be officially recorded to establish ownership of the property and/or provide notice of its transfer to subsequent purchasers.

The most common method of financing real estate transactions is through a mortgage. See Mortgage.