What does a promissory note represent?

A promissory note is a financial instrument that embodies a borrower's written promise to repay a specified sum of money to a lender at a predetermined interest rate and within a defined timeframe. Essentially, it serves as a formal acknowledgment of a debt that outlines the terms of the loan, including the amount borrowed, interest rate, repayment schedule, and any conditions related to the loan repayment.

This document is crucial in real estate transactions, as it provides legal evidence of the borrower’s obligation and specifies the rights of the lender. The promissory note is a key component of the overall financing process, ensuring that both parties clearly understand their commitments regarding the repayment of funds used to purchase real estate.

In contrast, a security deposit, a detailed property appraisal, and a lease agreement represent different aspects of real estate transactions. A security deposit is a sum paid to a landlord by a tenant as a safety measure against damages, while an appraisal assesses a property's value. A lease agreement is a contract outlining the terms under which one party agrees to rent property from another. These documents serve different purposes and do not encapsulate the fundamental promise to repay a loan that a promissory note does.