Rules of Canceling a Real Estate Contract
There are rules that must be followed when dissolving a signed real estate contract. If proper channels are not used, the terminating party (buyer or seller) may be defending themselves in court.
In many states there is a three-day period called the “Attorney review period” after the contract has been signed during which either party may withdraw commitment to the contract. In states where this is not a law or if the three days is long gone, there are other options.
Standard legal contracts for the sale of real estate include a date by which time the buyer is required to have loan approval for the purchase price of the property. If the buyer cannot demonstrate his loan approval by the proper date, the seller can legally withdraw from the contract. If the buyer is the one wanting out, he must show that the loan was denied.
The contract will also have dates by which the home inspection and a real estate appraisal must be done.
After considering the inspection report, the buyer may legally withdraw from the contract without a reason if the condition reflected in the report is unacceptable, or if he does not want to negotiate with seller for repairs. If the seller is reconsidering the sale and wants to terminate the contract, he may refuse to do any repairs in the hope that the buyer will cancel the sale. If the appraisal values the property at a lower dollar amount than the sale price in the contract, the buyer has a legal right to consider terminating the sale.
Either party may build contingencies into the contract.
These are stipulations both buyer and seller agree to beforehand that if not satisfied are grounds for termination. For example, a seller might have his agent put in a contingency stating that the sale is dependent upon his finding another property to move to with a signed contract by a certain date. If that doesn’t happen, the contract can be terminated. The buyer may make the purchase contingent upon a favorable pest control report, a water report, a septic tank inspection, or new carpet installed by a certain date.
If there are no supporting contingencies and the buyer or seller wants to terminate the sale, the best avenue is negotiation. The buyer may agree to forfeit his earnest money to be released from the contract, and the seller as well may agree to pay the buyer a sum of money to dissolve the contract without buyer’s punitive legal action, that is, a breach of contract lawsuit.
Your real estate agent may or may not be representing your best interests… are they a “buyers agent”, or “seller’s agent” ~ make sure you understand the legal consequences of any contract you sign. If you’re not working with a “buyer’s agent” as a buyer, or a “sellers agent” as a seller, always have your contract reviewed by a real estate attorney.
Author Jeff Hammerberg is the Founding CEO of www.GayRealEstate.com ~ The Nation’s Largest Free Directory of Gay, Lesbian and Gay Friendly Realtors offering Free Buyers Representation, Free Sellers Competitive Market Analysis and Free Relocation Kits to Any City, USA.