When a seller is reviewing and signing their deed at closing, I am often asked some variation of the following questions:
“What is this $10.00 in the deed?”
“Do I have to pay $10.00 extra?”
“Am I buying a house for $10.00?”
The answer to the questions is no and I usually proceed to explain consideration and that the $10.00 is nominal consideration, which is the customary amount to include in a deed. Clients will usually nod their heads as their eyes glaze over. Consideration can be a difficult concept to understand. Law schools spend a lot of time teaching law students about the concept, so I do not expect non-lawyers to understand it right away.
Definition of Consideration – Consideration is the price one party pays for the promise of another party. Each of the parties gives something and gets something. Consideration is also referred to as a “bargain for exchange.”
Examples of Consideration – Money, property, the discharge of debt, performance of service, a promise, an action, or refraining from doing an action.
Example in a real estate transaction – Seller sold his house to Buyer who paid Seller $100,000 for the property. Buyer’s consideration is Buyer’s obligation to pay $100,000 to Seller and Seller’s consideration is Seller’s obligation to sign and deliver the deed to buyer. Each party will be giving something and getting something.
Consideration in a deed takes two forms:
- Nominal consideration – This is the $10.00 that appears on most deeds. The $10.00 number is the default consideration amount identified in the deed. Nominal consideration is commonly used because it keeps the actual consideration (the purchase price) private.
- Actual consideration – This would be the actual amount of consideration (the purchase price) paid by the buyer. Actual consideration is sometimes used if the parties want the actual purchase price to be public.