What is a "binder" in real estate transactions?

A "binder" in real estate transactions refers to a temporary agreement that outlines the terms prior to finalizing the sale. It serves as a preliminary arrangement between the buyer and the seller, indicating their intent to proceed with the transaction and laying out the essential terms such as the purchase price and any contingencies. The binder is typically used to hold the property while the buyer completes due diligence and secures financing.

This is crucial in the real estate process because it provides a level of security for both parties while the final contract is being drafted or the transaction is being finalized. It also helps to establish goodwill and demonstrates the commitment of the buyer to the sale process.

In contrast, the other options do not accurately capture the purpose of a binder. A legally binding contract to purchase property represents a more formal and final agreement than a binder. A document that includes the title insurance policy pertains specifically to the details of the title insurance coverage, which is a different aspect of the transaction. An agreement to lease property involves rental arrangements, which diverge from the purchase context that a binder addresses.