If you have ever purchased or sold real estate, you have seen the document that actually changed ownership. That document is called a deed. Upon signing by the seller, it gets recorded at the courthouse.
Almost every deed includes a sentence in the first paragraph that reads substantially as follows, “For one dollar and other good and valuable consideration.” Sometimes, the number is $10, and sometimes, the sequence of the words is slightly different. However, such a statement (we can call that statement the “one-dollar phrase”) appears in almost every real estate deed, whether the real estate was a gift or whether it was sold for $1 million.
Why the one-dollar phrase is included in deeds requires understanding of contracts, recitals and consideration.
Almost every legal document, including deeds and contracts, include recitals. Recitals are statements of facts that explain the context of the legal document. For example, if I have a contract to sell my business, the contract may include a recital that explains that I own the business and I am over age 18 such I am legally old enough to sign the documents to sell the business.
Recitals can also explain to someone analyzing the document even at a quick glance that the basic requirements for the document are satisfied. For instance, the legal requirements for mechanics’ liens are very strict. Because of those strict requirements, many mechanics’ liens can be reviewed in seconds to determine that the basic prerequisites are either satisfied or not satisfied.
Real estate transactions are essentially contracts. A requirement (in most cases) for contracts to be enforceable is that each party (participant) to a binding contract must give up something or provide something to be conveyed in exchange for something else. That something that each party/participant to a contract must give up in order to get something else is called “consideration.” The consideration need not be equal or close to equal financially, but consideration must almost always be provided by each party/participant to a contract.
In deeds, which are contracts that embody a real estate transfer, it is clear that the seller is giving up something: the property, which is consideration. However, the buyer has to give up something, too.
The one-dollar phrase is the recital in the deed that confirms for every reader of the deed that the buyer gave the seller consideration, which is the at-least nominal consideration of one dollar, which is all that the law requires.
There is a separate document that must accompany every deed that is recorded at the courthouse. That separate document includes the actual purchase price, which is the price for which the conveyance tax (a percentage of the purchase price) is paid. In other words, the one-dollar phrase is not an attempt to defraud the government of taxes or undertake some other nefarious reason.
Similarly, even for gifts of real estate, the one-dollar phrase is usually included in the deed to recite some objective consideration, even though the real “consideration” might be love, affection and admiration.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.