Real Estate Purchase Contract
A real estate purchase contract is a legally binding agreement between a home buyer and a home seller and 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 contigencies listed on the contract where each party has the right to cancel the contract. A home seller or home buyer cannot just go on 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 and the seller can go after them for additional damages and not just the earnest money. The sellers can enforce the real estate contract and what is state in it for the buyer canceling a real estate purchase contract. On the flipside, the home buyer can also enforce the real estate contract for the seller canceling for no reason.
Home Buyers And Real Estate Purchase Contracts
If a home buyer is interested in purchasing a home, the home buyer, 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. Contigencies on real estate purchase contracts can be a certain amount of time the home buyer has to do a property inspection, a certain amount of time the home buyer to get a mortgage approval ( also called mortgage contingency period ), and other contingencies such as repairs to be done prior to closing. The home buyer will also need to give the seller an earnest money deposit which is credited towards the home buyer’s down payment and 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 alloted due to the contingency, the earnest money deposit is returned to the home buyer. If the home buyer cancels the real estate purchase contract on grounds and reasons not listed on the real estate purchase contract, then the home buyer is at risk of losing the earnest money deposit and the home seller can sue the home buyer for breach of contract.
Typical Contingencies On Real Estate Purchase Contracts
Typical contingencies on real estate purchase contracts include home inspection contingencies, mortgage contingencies, condominium and/or hoa documents review contigencies, and appraisal contingencies among others. 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 the home buyer is purchasing a condo, condos have tougher mortgage lending requirements and mortgage lenders either require a limited review or full review of condominium homeowners association’s financials and dcouments. If the condo limited or full review does not come in to the mortgage lender’s standards, a condo buyer can cancel the real estate purchase contract and their earnest money needs to be returned. The most important contingency is the mortgage contigency. A home buyer has a certain amount of time to get a mortgage loan approval. If the home buyer cannot get a full mortgage loan approval and have the mortgage contingency clause, the home buyer 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 out to the purchase price on the real estate contract, the home buyer can cancel the real estate purchase contract and their earnest money deposit needs to be returned to them. 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 mortgage lender can request an appraisal rebuttal if both parties feel strongly that the appraiser has incorrectly valued the property. Comparables needs to be provided by the seller’s realtor to substantiate the appraisal rebuttal.
No Contingency Real Estate Purchase Contracts
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 and waives all rights to home inspection, mortgage contigencies, appraisal contingencies, and other contingencies. This is highly not recommended. If you decide to cancel the real estate transaction and you have a no contingency real estate purchase contract, you are in jeapardy of losing your earnest money deposit as well as the sellers coming after you 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 he or she gets a higher priced offer without any contingencies, they canceling a real estate purchase contract will open up doors for the home buyer to sue them for breach of contract. A home seller can write a kick out clause on the real estate purchase contract which 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 but 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 extension of the closing date and in the majority of the cases, extensions get granted.