What is a binder in real estate transactions?

In real estate transactions, a binder refers to a preliminary agreement that is typically secured by a deposit. This document serves as a way for the buyer or tenant to indicate their serious intent to purchase or lease a property. By providing a binder, the buyer shows good faith, and it often helps to set the terms of the transaction while both parties work toward a more formal agreement. This initial step is crucial in real estate dealings as it can help to protect the interests of both the buyer and the seller during the negotiation process.

A binder is not meant to be a long-term leasing contract, a specific type of sales contract for commercial property, or merely a letter of intent. Instead, its purpose is to create an initial agreement that outlines the basic terms and conditions of the arrangement, ensuring that neither party can back out without facing consequences. The deposit associated with the binder usually indicates the buyer's commitment and helps to secure the property during negotiations.