Home Purchaser’s Change of Mind: Can You Get Out of a Real Estate Contract?
Mon Jan 16, 2023 on Florida Real Estate
With the housing market cooling down due to rising interest rates and high home prices, many homebuyers are experiencing a change of heart and “buyer’s regret” after signing a real estate contract. The question is, how can a home purchaser legally and effectively back out of the real estate contract?
Navigating Real Estate Contingencies
As a homebuyer, you have certain periods of time, known as “being under contract,” in which you can cancel your contract after making an offer and the seller accepting it. However, there are conditions within the contract that must be met before it can move forward. One such condition is obtaining financing within a specified time frame for non-cash deals. Even if you have obtained preapproval for a loan before making an offer, actual financing may not go through. If this is the case and you are unable to obtain financing and lender approval, you can cancel the contract and have your escrow deposit returned to you by providing appropriate notice within the prescribed time periods outlined in the contract. Another condition to look out for is the inspection period, during which you can order professional inspections of the home. If the inspections are unsatisfactory, you can cancel the contract and get your full escrow deposit back.
Other contingencies that allow you to cancel a real estate contract without losing your escrow deposit include the inability of an appraisal, ordered by the lender as part of financing, to meet the purchase price, and any open permits or liens that have not been cleared by the seller. Additionally, if there are any issues with the title, the home purchaser may decide to terminate the contract.
What Happens After Contingency Periods End?
Once the homebuyer signs the contract and the contingency periods pass, it becomes more difficult to back out of a real estate contract. While real estate contracts have mediation provisions, a skilled real estate attorney can often negotiate with the seller or their counsel to reach a mutually agreeable resolution.
Depending on the reason for the buyer not proceeding with the contract, the seller may claim the earnest money deposit held in escrow once all parties, including the realtors, sign mutual releases. Additionally, the seller may have a listing agreement that allows their realtor to obtain back-up offers. If this is the case, the seller may quickly have another contract, which shortens the time the property is back in the market.
If the homebuyer changes their mind about proceeding to closing, they should understand that not only the seller, but also the realtors may claim the earnest money deposit, depending on the terms of the real estate contract. In practice, however, a seller’s agent or the listing agent usually executes the mutual release since that agent will obtain a commission when the property sells to another buyer.
The bottom line is, people are entitled to change their minds, but timing is key when it comes to canceling a real estate contract. If you want out before the contingency periods end, the downside is minimal (aside from inspection and appraisal costs). However, once the real estate contract becomes binding, the buyer may lose their earnest money deposit and face mediation or potential lawsuit. Ultimately, both the seller and the homebuyer can reach an agreement to avoid costly litigation.
From The Trenches,