Whether you're buying or selling real estate, or you're agreeing to transport someone to the moon, a contract is a contract. Legally, all contracts have the same elements. They memorialize an agreement between two or more people who are in full possession of their faculties and who both understand all the facts. Beyond that, the devil is in the details. Most often, real estate contracts become void because of some fine point contained in their language that alters the viability of the deal.
Contingencies are provisions that a buyer, seller or both can build in to a real estate contract to render it void if necessary. If the seller doesn't do something, the buyer can walk, or vice versa. Some contingencies are standard, and others might be the work of an attorney or real estate agent who is well-versed in the art of negotiation. A common contingency is that the property must pass inspection by an expert. If it doesn't because the structure has some fundamental flaw, the contract is void, at least in its existing form. It can be amended to address the structural faults.
You can't transfer ownership of property without clear title, and title companies work hard to make sure no hidden liens exist long before you get to the closing table. If one appears at the last moment, however, your contract may be void. Clear title is usually a contingency provision in most real estate contracts, but even if it's not there, it should nullify the enforceability of the contract.
Few people are able to purchase real estate with cash, so a third party typically becomes involved in the transaction: the buyer's lender. Contracts usually include a contingency that if the buyer can't secure financing, the deal is void. However, last minute glitches can occur in this respect as well. The lender could go bankrupt. A buyer could suffer a catastrophic illness or accident that's going to affect his income for a long time to come. Lenders can usually pull the plug on a deal and void a contract by cancelling their commitment to the buyer.
Most states have laws regarding what information a seller must disclose to a buyer before a deal is struck and a contract is entered into. For example, under federal law, sellers must disclose whether a property is coated in lead-based paint. This rule applies to all homes built before 1978. If the seller doesn't provide this information, the contract is void. Disclosures usually relate to structural issues, but they can encompass more intangible problems as well. For example, California requires sellers to divulge whether anyone died in the property within the last three years. If a grisly murder occurred in the master bedroom, this might affect your decision to buy the home and sleep there, and you have a right to know. If the seller doesn't tell you – particularly if you ask outright about the home's past – your contract is void. This is often true even in states without specific legislation addressing this issue.
To err is human, and mistakes can affect real estate contracts. Under contract law, if only one party to a transaction makes a mistake, it might not void the contract. If both parties are in error regarding an important point, however, the contract could be void. For example, you and the seller probably both believe that, barring some disastrous event like fire, you'll be able to live peacefully in the property you're purchasing as long as you like. If your state has plans to lay down a freeway within ten yards of your bedroom window, and if neither you nor the seller is aware of this at the time you sign the contract, it would be void.
- Kristal Kraft: Real Estate Contingencies
- The New York Times: Your Home – Contracts are Hard to Break
- USLegal: Common Contract Questions and FAQ
- Realtor.com: Did the Seller Die in the House?
- LosAltosHomes.com: When I Sell My House, Do I Need to Disclose a Death by Suicide if the Suicide Occurred 10 Years Ago?
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.