⚖️ What Is Equitable Conversion in Real Estate?

Equitable conversion is a legal doctrine stating that once a real estate purchase agreement is signed, the buyer becomes the property’s equitable owner, while the seller retains legal title until closing. In other words, the law treats the buyer as if they already own the real estate, even though the deed has not yet been transferred.

How Equitable Conversion Works

Under equitable conversion, the moment both parties enter a binding purchase contract, their ownership interests “swap” roles:

  • The buyer gains equitable title — the right to obtain full legal ownership at closing.
  • The seller keeps bare legal title — merely holding the property until the deed transfers.
  • Risk of loss often shifts to the buyer — depending on state law and contract language.
  • The seller’s interest becomes personal property — representing the right to receive the purchase price.

This doctrine ensures that courts treat the buyer’s interest in real property as real estate, even before the transaction formally closes.

Why Equitable Conversion Matters

Equitable conversion affects several key areas of real estate law:

  • Risk of loss — If the property is damaged before closing, the buyer may be responsible unless state statutes override the doctrine.
  • Inheritance and death — If a seller dies during escrow, the property passes as personal property; if a buyer dies, their equitable interest passes as real property.
  • Specific performance — Courts can force a sale because the buyer’s equitable title is recognized.
  • Insurance responsibilities — Determines whose insurance policy covers pre-closing events.

Practical Advantages:

  • Creates clear expectations about buyer vs. seller responsibilities before closing.
  • Clarifies probate and inheritance outcomes if a party dies mid-transaction.
  • Helps courts resolve disputes regarding contract enforcement.

Example of Equitable Conversion

A buyer signs a contract to purchase a home for $500,000. Before closing, a storm damages the roof.

  • Under equitable conversion, the buyer may bear the risk of loss.
  • The seller still holds legal title but is not responsible for repairs (unless state law says otherwise).
  • The buyer must still proceed to closing or negotiate repairs through insurance or contract provisions.

This example shows how equitable conversion can materially affect obligations before the sale is finalized.

Why Equitable Conversion Matters for FSBO Sellers

FSBO sellers routinely enter contracts without an agent, so understanding equitable conversion helps manage expectations and avoid legal disputes.

  • Clarifies what happens if property damage occurs during escrow.
  • Helps sellers communicate responsibilities and timelines to buyers.
  • Supports proper handling of insurance coverage during the executory period.
  • Improves contract preparation for FSBO transactions.

Sellers using Flat Fee MLS through Brokerless gain broader exposure to committed buyers with clear contractual protections.

Frequently Asked Questions

Does equitable conversion apply in every state?
No. Some states modify or reject the doctrine through statutes, especially regarding risk of loss.

Who is responsible for property damage before closing?
Often the buyer—but this depends on state law and contract language.

Does equitable conversion mean the buyer already owns the home?
Not legally, but the buyer holds equitable ownership rights until the deed transfers.

Does the seller lose all rights after signing?
No. The seller still holds legal title and must complete obligations until closing.

How does death affect equitable conversion?
If the buyer dies, their equitable interest is treated as real property; if the seller dies, their interest becomes personal property.

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