Real estate contracts are legal documents that bind all parties to the conditions in the real estate documents. There are contingencies in nearly all contracts that allow the parties to get out before the sale closes if certain conditions are met. See: My Offer Was Accepted: How Can I Back Out?
In order to be enforceable, a real estate contract must be in writing. It must identify the buyer and the seller, and it must include a description of the property. The contract must also identify the agreed-upon sales price, and it must be signed by all parties to the sale. If any of these elements are missing, you can get out of the contract.
Earnest money is the amount paid by the buyer during the initial offer to purchase the property. The money goes into a trust account and is applied to the purchase price at the closing. If the contract fails, the trust account administrator disburses the earnest money according to the specifications in the contract. Read: How to Get Out of a Real Estate Contract. Earnest money is an indicator of the buyer’s faithful intent to go through with the purchase. If you’re a buyer and you pull out of a contract without a good reason, you could lose your earnest money.
Safeguards that protect the parties are built into the contract. These generally include, but are not limited to, the buyer being unable to secure a loan, the seller not providing a clear title or the property’s appraised value falling short of the purchase price. See: Housing Deals That Fall Through.
Additional contract breakers include an inspection turning up termite infestation or mold, although some contracts address these issues and their remedies in the original document. You may get out of the contract if the seller fails to disclose a property or title defect or if the seller or an agent misrepresents the property. Contact an attorney if you feel that the seller is fraudulently representing the property.
Agreeing to Cancel the Contract
In general, the best course of action is to communicate and come to a mutual agreement to cancel the contract. If the buyer wants out, the seller can agree to cancel and return or split the earnest money. Often, the seller sees the futility of trying to force the buyer to purchase the property, because the buyer is likely to walk anyway, especially if the earnest money is a small amount.
In addition, most sellers don’t want hard feelings, and they would rather get their property back on the market as soon as possible. The exception is when the property is part of a commercial acquisition and the seller is reluctant to let the buyer out, especially if a large amount of earnest money is on the line.
Right of Rescission
If the buyer walks for a reason not covered in the contract, the seller is legally allowed to keep the earnest money. If the seller tries to get out of the contract, however, the buyer can file a lawsuit for specific performance, forcing the seller to go ahead with the sale. Buyers have three days after the closing to change their minds if the property is a residence. Called the “right of rescission,” this protects buyers; however, they still might forfeit their earnest money if the seller complied with all the other terms of the contract.