Canceling A Real Estate Purchase Contract And Transaction
This BLOG On Canceling A Real Estate Purchase Contract And Transaction Was UPDATED And PUBLISHED On March 17th, 2020
A real estate purchase contract is a legally binding agreement between a home buyer and a home seller:
- Before each party signs the real estate purchase contract, they should both review it carefully
- Canceling a real estate purchase contract can be done if there are contingency listed on the contract
- Contingency of each party has the right to cancel the contract
- A home seller or buyer can just go canceling a real estate purchase contract just because they change their minds
- The home buyer has the earnest money that they might lose for canceling a real estate purchase contract if there is no contingency
- Sellers can go after them for additional damages and not just the earnest money
- Sellers can enforce the real estate contract and what is the state in it for the buyer canceling a real estate purchase contract
- On the flipside, buyers can also enforce the real estate contract for the seller canceling for no reason
In this article, we will discuss and cover Canceling A Real Estate Purchase Contract And Transaction.
Home Buyers And Real Estate Purchase Contracts
Homebuyers interested in purchasing a home through a realtor places a written offer.
- The seller reviews the purchase offer and decides whether to accept the offer or counter offer
- Once a price has been negotiated, both the seller and buyer will agree on contingencies and a closing date
Contingencies on real estate purchase contracts can be any of the following:
- can be a certain amount of time the home buyer has to do a property inspection
- a certain amount of time to get a mortgage approval (also called mortgage contingency period )
Other contingencies such as repairs to be done prior to closing.
Earnest Money Deposit On Home Purchase
The home buyer will also need to give the seller an earnest money deposit:
- Earnest money deposit is credited towards the home buyer’s down payment
- Held by the seller’s realtor and/or attorney in an escrow account
- If the buyer cancels the real estate purchase contract within the time allotted due to the contingency, the earnest money deposit is returned to buyers
- If buyer cancels the real estate purchase contract on grounds and reasons not listed on the real estate purchase contract, then buyer is at risk of losing the earnest money deposit
The home seller can sue the home buyer for breach of contract.
Canceling A Real Estate Purchase Contract: Typical Contingencies
Typical contingencies on real estate purchase contracts includes the following:
- home inspection contingencies
- mortgage contingencies
- condominium and/or HOA documents review contingencies
- appraisal contingencies among others
Home Appraisal Contingency
The first thing a home buyer does is to order a home inspection, normally, prior to the appraisal.
- Most home sellers give a home buyer 10 days to have a home inspection done
- If a home inspection is not ordered and done within the 10 day period, then the home buyer waives the home inspection contingency
- If purchasing a condo, condos have tougher mortgage requirements
- Lenders either require a limited review or full review of condominium homeowners association’s financials and documents
- If the condo limited or full review does not come in to lender’s standards, the buyer can cancel the real estate purchase contract
- Their earnest money needs to be returned
Canceling A Real Estate Purchase Contract: Financing Contingency
The most important contingency is the mortgage contingency.
- A home buyer has a certain amount of time to get loan approval
- If the home buyer cannot get loan approval and have the mortgage contingency clause, buyers can cancel the real estate purchase contract and get their earnest money deposit back
- Appraisals is another issue
- If the subject property does not appraise buyers can cancel the real estate purchase contract and their earnest money deposit needs to be returned
- However, on cases of lower appraisals, both the buyers and sellers re-negotiate the purchase price to make the deal happen
- Other cases is the home buyer’s lender can request an appraisal rebuttal if both parties feel strongly that the appraiser has incorrectly valued the property
Comparable sales need to be provided by the seller’s realtor to substantiate the appraisal rebuttal.
Canceling A Real Estate Purchase Contract: No Contingency
On cases with multiple offers, many home buyers will sign a real estate purchase contract with no contingencies.
- This means that the home buyer is obligated to purchase the subject property as is
- Waives all rights to home inspection, mortgage contingency, appraisal contingencies, and other contingencies
- This is highly not recommended
- Buyers who decide to cancel the real estate transaction and have a no contingency on purchase contract, they are at risk of losing earnest money deposit
- Sellers can also can come after for breach of contract.
Home sellers have less of an option in canceling a real estate purchase contract.
- They need to think carefully before they obligate to sell their property at a certain price
- Once the seller signs the real estate contract and gets a higher-priced offer without any contingencies, they canceling a real estate purchase contract will open up doors to a lawsuit for breach of contract
- A home seller can write a kick out clause on the real estate purchase contract
- Kick out clause is a clause that will permit the seller to accept another purchase offer from another home buyer during a specific time period
- This will enable the home seller to cancel a real estate purchase contract
- This time period is a short one
- With the majority of the cases, both home buyers and home sellers as well as the realtors, mortgage bankers, title company, and all those involved in the real estate transaction work together in order to make the real estate transaction happen
Both home buyers and home sellers can ask for an extension of the closing date and in the majority of the cases, extensions get granted.