What is a Binder in Real Estate?

A reliable real estate agent will help you understand what you need to know to stay protected but learning some terms for yourself will help you make smart and informed decisions.

When buying a house, a binder refers to formal and informal agreements leading up to the closing of the property. Because they’re used in many contexts, binders can be confusing. Most often a binder in real estate refers to the real estate binder, also known as an escrow or mortgage binder.

A real estate binder refers to an informal agreement between buyer and seller to indicate strong interest in a property transaction. The mortgage binder often involves putting a down payment known as earnest money, though a down payment is not required on all real estate binders.

Despite its name a real estate binder is not legally binding. The binder keeps interest in a transaction and encourages open communication between buyer and seller but it’s an informal agreement and is eventually replaced by the formal (and legally binding) agreement of sale.

How mortgage binders work in your area don’t depend on local laws and ordinances but rather customs determined by real estate markets. For example, a hot market like the Denver, Colorado area will usually come with many types of binder requirements while a home sale in rural Iowa won’t be packed with as much “legalese.”

What binders are required depends on the full sales agreement and individual requests. Binders are normally only applicable when parties agree to them to continue forward to the sale.

Again, mortgage binders are not legally binding but rather acts of good faith to continue forward to the sale. Whether they’re required depends on the individual buyer and seller. Similarly, title insurance binders are often required by real estate agents to complete a transaction but are not legally or financially required.

The only big difference is property insurance binders. Unless you’re doing a handshake deal with a close friend or family member, property insurance binders are almost always required by the mortgage company approving the loan.

If you handed over earnest money as part of your real estate binder and successfully close on the home, can you get your money back?

In most cases, yes – Any earnest money or real estate binder payment will be put towards the home purchase after closing. If the seller feels the buyer hasn’t acted in good faith or has renegotiated rates there’s a chance they could fight to keep the binder or only re-pay partial amounts, though this is rare. If the buyer backs out of the transaction after paying a mortgage binder or earnest money, they are unlikely to recoup that money.

If you’re using a real estate or escrow binder as part of a sale or purchase, it’s importance to know the distinction between binders and the contract for sale.

A real estate binder is non-binding, carries no legal implications, and the home purchase can move forward without one. The Contract for Sale is a legally binding document to tie two parties to the purchase and sale of the home. Without a Contract for Sale – there would be no sale.

Note: A Contract for Sale often borrows terms and conditions from any signed binders so be sure to read both thoroughly if applicable.

We admit that the terminology behind real estate contracts can almost seem intentionally confusing, but The Storck Team wants to help with understanding binders and all other real estate related questions. Call a member of The Storck team to talk binders, buying or selling questions, and get the answers you need to make the right home sale or purchase today.