What is a deed?
Buying a house will probably be the single biggest purchase any of us make in our entire lives. It’ll also probably be the most complicated. There is a lot of paperwork that goes into a home purchase — contracts, disclosures and appraisal reports, to name just a few essential documents.
At the top of that heap sits the deed, the most important piece of paper in the entire homebuying journey. You may already be familiar with property deeds, but it’s useful to brush up on the finer points of these legal documents and what they might mean for you as a borrower and homeowner.
Deed definition: What exactly is a deed?
When real estate changes hands, such as through a home sale, there needs to be a way to validate and record the transfer of ownership. That’s where a property deed comes into play.
WHAT IS A PROPERTY DEED?
A property deed is a legal document that confirms the transfer of real estate from one party to another. In the case of a sale, deeds record the transfer of ownership from the seller to the buyer.
A property deed is a legal document that confirms the transfer of real estate from one party to another. In the case of a sale, deeds record the transfer of ownership from the seller to the buyer.
People often confuse deeds for titles, and vice versa. We’ll get into the specific differences between these real estate terms in just a bit, but for now, the most important distinction to remember is that a property deed is a physical document you can hold in your hands.
Grantor vs. grantee
Property deeds involve two primary parties: the grantor and the grantee. The grantor transfers property ownership to the grantee.
Another common misconception that people tend to have about deeds is that they are essentially contracts, but that’s not the case at all. The relationship between a grantor and grantee can depend on the specific context of the property deed transfer. When real estate is inherited, for instance, the grantor and grantee could be family members. You could even gift property to someone using a deed.
That being said, the vast majority of property transfers will revolve around home purchases since that’s the most common way for real estate to change hands. As such, in the most common scenario, the seller will act as the grantor while the buyer is the grantee.
How do deeds work?
At its core, a property deed functions as the proof of transfer whenever real estate changes ownership. If you possess the deed to a house, that means that in the eyes of the law, you own interest in the property. In essence, the deed shows that the seller — or original homeowner, depending on the specific circumstances — is ceding their ownership interest to you, the homebuyer.
That doesn’t necessarily mean that you own the home outright just because you have the deed. There could still be other parties that have ownership claims on the property as well. But any such claims will typically come to light during a title search.
When buying a house, you should receive the deed at the closing table once you and the seller satisfy the terms of the Sales Agreement and finalize the purchase. Don’t worry too much about preparing that paperwork — your lender should have you covered. The deed must be recorded with the county clerk’s office before ownership of the property can officially change hands.
What’s the difference between title and deed?
Like we said earlier, one of the most notable distinctions separating deed and title is that the former is a physical document while the latter is more of an abstract concept. The title represents any and all ownership claims that may affect the property in question. That may include the current owner, mortgage lenders, creditors, banks and other parties.
If you have the title on a piece of real estate, that means you own the property outright. There are no liens or other ownership claims on the land. But, again, the title is not a legal document itself. That’s the role of the deed, to verify and record the transfer of ownership in a physical document.
What information is required in a deed?
As with just about any legal document, there’s a certain uniformity to deeds. That’s to say every deed needs to contain specific information to be considered legally valid.
Required property deed information
- Must detail deed terms in writing
- Must explicitly indicate that they convey ownership interest from one party to another
- Must identify both the grantor and grantee in the transaction
- Must be signed by the grantor and accepted by the grantee
- Must be executed in the presence of the required number of witnesses (exact number may change from county to county)
- Must describe the property being transferred (lot number, street address, etc.)
5 types of deeds to know
You may encounter different types of deeds when you buy a house or acquire real estate. Various deeds serve specific functions, so it’s good to know how and when they’re used.
- Quitclaim deed: Quitclaim deeds remove one person’s ownership interest in a piece of property, making it a very expedient way to transfer property in select instances. As the name suggests, you quit your claim to ownership.
- General warranty deed: If the seller hands over a general warranty deed at closing, that document will confirm that there are no title defects on the property going back across its entire history. Pretty reassuring, right?
- Special warranty deed: Unlike a general warranty deed, special warranty deeds only cover a specific amount of time — in this case, however long the seller owned the property. Special warranty deeds provide no assurances or protections if there are title defects predating the seller’s time as homeowner.
- Sale deed: This type of deed is used whenever property changes ownership following a sale. Keep in mind that these various deed types are not always mutually exclusive. A deed can be both a sale deed and a general warranty deed, for instance.
- Conveyance deed: Most deeds will fall under the umbrella of conveyance deeds because their sole purpose is to record the transfer of property ownership. While sale deeds refer exclusively to real estate purchases, conveyance deeds could also include property that is gifted or inherited through an estate deed.
Look out for property deed issues
Ideally, transferring the deed over from the seller should be a quick and painless process — at least for you, the buyer. But that’s not always the case. Although real estate attorneys will review the property deed before the paperwork is finalized and recorded, you may still run into problems related to the deed.
Often, any issues that may arise are a result of the type of deed, rather than the document itself. For instance, a special warranty deed won’t be able to confirm that the title is free and clear of any clouds or defects. A quitclaim deed, meanwhile, could provide even less protection against title defects like unpaid property taxes or previously unknown liens.
That’s not to say you should go to the closing table worrying that some unforeseen problem with the deed will sink your home purchase. Not at all. Any clouds on the title should come up during a routine title search.
Even if something comes up, your title insurance will help cover the costs of addressing whatever defects you find. With the right team in your corner — real estate attorney, loan officer, title agent and real estate agent — you should have all of your bases covered.
In conclusion
Property deeds are legal documents used to convey the transfer of property from one owner to another. While the title refers to a more conceptual idea of ownership, the deed is a physical piece of paper you can hold in your hands.
Gaining possession of the deed is the final step in the homebuying process, officially recognizing you, the buyer, as the legal owner of your new house. Until that happens, the seller still owns the property.
So, when your closing date comes around, be sure to closely look over the deed — especially if you’re a first-time homebuyer. Even though there’s a lot of paperwork to sort through, you want to be absolutely certain this important document is completely accurate.