Real estate purchase contracts are designed to be binding documents. While sellers have relatively few options to get out of a transaction once they sign the contract, most contracts have multiple opportunities for buyers to back out of a deal. Whether you’re a seller or a buyer, it's important to read the contract carefully before you sign it. It's also a good idea to talk to a real estate attorney before trying to get out of your contract.
Most real estate purchase contracts contain an inspection contingency. The contingency allows the buyer to inspect the property and not purchase it if it doesn’t meet his expectations. Buyers who have not yet removed their inspection contingencies can usually cancel their transaction and receive their deposit money back by notifying the seller that the property didn’t meet their expectations.
Many contracts also contain a financing contingency that allows the buyer to cancel the transaction if he is unable to obtain a loan. While the contingency usually requires buyers to submit an application, buyers have ways to delay or prevent a loan approval. They can include being unable to deliver supporting documentation, having an appraisal come up short, or having the lender fail to meet its obligations.
After Contingency Removals
Once the buyer has removed her contingencies, the transaction should proceed to closing. However, many contracts have language that specifies that if the buyer fails to close the seller can keep their deposit as compensation. This language, sometimes called a liquidated damages clause, effectively allows buyers to buy the right to cancel by giving up their deposit. Canceling a transaction in this manner might be expensive, but it will be less expensive than going through with the contract and buying the property.
A Seller's Options
Most contracts are much tighter when it comes to the seller. Typically, sellers have only two ways out of a contract -- buyer error and choosing to intentionally break it. Some contracts require buyers to do certain things, such as submit a loan application, by a given time. Under these contracts, if the buyer makes an error and fails to fulfill his obligation, the seller can cancel the transaction without penalty. If using this technique isn't an option, a seller will have to simply refuse to sell the property. Since doing this is a breach of contract, the buyer can sue for damages and for a specific performance order to force the seller to sell. However, many buyers will not want to spend the time and money to go to court. As such, sellers can sometimes get out of contracts by paying the buyer to allow them to cancel.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.