What is Consideration for a Deed to Real Estate?
Consideration is a legal term used to describe the value that changes hands as part of an agreement between two or more parties. Consideration is the “what’s in it for me” element of the deal. It is what each party gives the other party as part of the bargain. Consideration could be the payment of money, the discharge of debt, the performance of services, or anything else of value.
Real estate may be transferred with or without consideration. If the real estate is being sold to a third party, the contract will require the buyer to pay a certain amount as consideration to the seller. The contract will also require the seller to sign and deliver a deed (usually a Warranty Deed or Special Warranty/Grant/Covenant Deed) as consideration to the buyer. The obligation of the buyer to pay the sale price and the obligation of the seller to sign and deliver the deed constitutes mutual consideration for the real estate contract.
Consideration could be anything of value, and the recitation of consideration in the deed may not correspond to the actual consideration paid for the property. There are common choices for reciting consideration in the real estate transfer context:
- Nominal Consideration – Most deeds recite nominal consideration (e.g., “the sum of $10.00”). This keeps the actual consideration private and is common practice in most states.
- Actual Consideration – Actual consideration is sometimes used if the parties want to publicly document the purchase price paid for the property. But because most states do not require that the actual consideration be listed, most deeds recite nominal consideration instead of actual consideration.
- Gift – If the property is a gift, there is no consideration. A Gift Deed may state that the property is being transferred “for love and affection” or something similar. In states with documentary transfer taxes based on the amount of consideration (including Florida and California), specifying that the property was a gift can save transfer taxes.
- Capital Contribution – If property is being transferred to a business, the consideration received in exchange for the interest is often capital in the company. For example, a transferor might receive 1,000 shares of stock in exchange for the real estate being transferred to the company.
Many real estate transfers—particularly those made for estate planning purposes—are made without consideration to the transferor. Common examples of “no consideration deeds” include:
- Transfers between spouses;
- Transfers to a revocable trust for estate planning purposes;
- Transfers from a deceased person’s estate;
- Transfers made to capitalize a business entity, such as a corporation or limited liability company;
- Transfers to family members; and
- Transfers made under a divorce decree or settlement agreement.
When no money is changing hands, the transferor will often use a Quitclaim Deed to transfer title to the real estate.
A deed is not a contract to sell real estate. Rather, it is the fulfillment of the transferor’s intent to transfer real estate. Because a deed is not a contract, many state laws do not require a deed to recite a specific amount of consideration. But to avoid title issues, it is still good practice for the deed to recite at least a nominal amount of consideration (usually $10.00), even if no money changes hands.
If money is changing hands—such as when real estate is being sold—deeds will usually list a nominal amount of consideration (e.g., $10.00) or list the actual purchase price of the property. And some states, including Alabama and Michigan, require that the consideration be clearly stated.