Can One Get Out of a Real Estate Contract if All Contingencies Are Met?

Can One Get Out of a Real Estate Contract if All Contingencies Are Met?
••• Photodisc/Photodisc/Getty Images

A real estate contract sets out the manner in which a seller will sell and a buyer will buy property. It is a legally binding agreement. Once it is done, it cannot be undone, save in very specific circumstances. Typically, the law provides only two ways to get out of a real estate contract. One is due to the other party's breach. The other is a contract clause that allows either or both parties to walk away from the deal if certain preconditions, or contingencies, are not met.


Contingencies are common in real estate contracts. Typically, a homebuyer does not get final approval on a home loan until the purchase contract is in place, so a contingency is used to make the transaction conditional upon the buyer securing the loan. Another common contingency relates to the property appraising at or above the purchase price. Contingencies such as these are easy to deal with as they are absolute; either the buyer secures his home loan or he does not; either the property appraises at the required value, or it does not. Problems arise when the contingency lacks precision. For example, a contingency which requires the buyer to obtain a "satisfactory" home inspection report could leave the parties in an uncertain position. Is a major defect, such as a faulty furnace or a damaged roof, unsatisfactory? What about a couple of missing tiles, or a cracked window pane?


In reality, contingencies tend to be drafted in clearer terms that the above example. If for example, the inspection report has to be satisfactory to the buyer in "his sole (or absolute) discretion," then he can walk away if the inspection highlights any defect, however small. The first step for a buyer (or seller) wishing to pull out of the deal, is to carefully inspect the purchase contract and its addenda to ascertain whether the contingency has indeed been met, or whether it is drafted in a way that gives room for renegotiation. In general terms, as long as a buyer acts in good faith in declaring a contingency has not been satisfactorily met, he will be able to walk away from the deal. If a seller wants to get out of the deal, he should look very carefully at whether the buyer has performed the contingencies according to the timetable set out in the contract. If "time is of the essence" under the contract, these time limits are strict. A real estate attorney can interpret the detail.


The parties are free to voluntarily sign a cancellation agreement. Even if all contingencies are met, you are free to negotiate out of the contract, or to renegotiate its terms. However, the other party is under no obligation to negotiate with you. If all contingencies are met, the contract is unconditional and subject to specific performance, which means that the buyer can force the seller to transfer title to him, or vice versa. The party who is not in default can typically seek restitution by way of damages. As a minimum a buyer's deposit monies will be at risk, if he refuses to close the deal.

Breach of contract

A seller is only likely to be in breach of the general conditions of a contract, that is, those unrelated to contingencies, if the buyer can prove that he has committed fraud, misrepresented the property in some way or concealed material problems. A claim for breach requires a lawsuit supported by factual evidence, and it can be costly. A claim for breach of contract might be unavailable to a buyer who has agreed to take the property "as-is," a common provision of foreclosure sales by a bank.