Get Me Out of Here!: When Can You Get Out of a Home Sales Contract?

By
Real Estate Agent with RE/MAX Allegiance, Managing Broker/Branch Vice President

 Everyone wants to understand the process for buying a home and where all the pieces fit in the puzzle.

If that's your interest, here's a step-by-step flowchart for purchasing a home in Northern Virginia or D.C.

Most people want to make sure that the home purchase proceeds smoothly.  However there are times where you might wish to get out of a home purchase whether it is a case of buyer's remorse, you find something drastically wrong with the structure of the property, you change your mind, or the appraisal comes back very low.

 

 

Last year, one client continually asked me the question "When can I get out of the contract?"  His intention was not to get out of the contract -- he loved the house, got a decent price, and was looking forward to settlement.  Rather, he just wanted to know all the options and opportunities to get out if needed.  In all fairness, he's an engineer by training and likes things to be orderly, step by step, and wants a complete picture of the process and his options upfront.

Since that time, my clients are presented with these options upfront so they understand the different points where they can get out of the sales contract.

 Before discussing these potential "outs," you must understand when a contract is formed.

The law defines a contract as a binding legal agreement between two or more parties.  To be enforceable, contracts must be certain, definite, complete and contain essential terms.  In order to form a contract, there must be:

  • an offer

  • acceptance

  • consideration (an exchange of something in value; a promise to make a gift is not binding)

  • a legal object (you cannot have a legally binding contract paying someone to murder someone or to blackmail another)

  • competent parties  -- defined as the possession of mental capacity sufficient to transact business with intelligence and an intelligent understanding of what one is doing

In real estate, a written offer is submitted by a buyer on a home that is for sale.  So until that offer is accepted in writing by the seller, no contract exists.  Thus, you as a buyer are free to withdraw your offer anytime before the seller accepts it.  If you find another home that you like more after submitting your offer, you can withdraw that offer at anytime without penalty as long as the seller has not yet accepted the offer and formed a binding contract.

 

 

You must understand that acceptance means acceptance of all of the terms of your offer.  If the seller comes back to you with a counter-offer, that voids your initial offer and has the effect of being a new offer from the seller to you, which you can then either accept or reject.  There is NO CONTRACT yet.

 

 

Okay, the Seller Accepts Offer -- Now there is a Legally Binding Enforceable Contract

 

When Can You Get Out of the Contract?

  • HOME INSPECTION:  If you choose to have a home inspection (highly recommended), your purchase contract will specify a certain number of days for it to be completed.  At that point, you will submit an addendum to the seller asking for certain items to be fixed or for compensation to be provided.  This is an area of negotiation between you and the seller of the home.

    • If the seller does not cooperate to your satisfaction or if during the home inspection you find issues that you don't want to deal with, you can void the sales contract.
  • RADON INSPECTION:  This works the same way as a home inspection clause.  If the sellers fail to remedy problems, of if the radon inspection comes back with a high result, you have the option of voiding the sales contract.
  • APPRAISAL CONTINGENCY:  Mortgage lenders will only give financing on a home up to the appraisal amount.  If an appraisal on your purchase comes back lower than the agreed upon sales price, the seller has the option of lowering the sales price to the appraised value, or you and the seller can work out mutually acceptable terms.  If you and the seller fail to agree, the contract will become void.
  • CONDOMINIUM DOCUMENTS or PROPERTY OWNER'S ASSOCIATION DOCUMENTS:  In Virginia and D.C., all home sellers within a condominium or property owner's association development must provide disclosure packets from the appropriate association.  You have a 3 day right of rescission to cancel the contract upon receiving these documents.  No questions asked, your deposit is returned.

These are the primary points where you can cancel or void a sales contract without losing your earnest money deposit.  Otherwise, you must remember that a real estate sales contract is a legally binding contract that can be enforced in court.  

 CAVEAT:  Whether voiding a contract based on one of these provisions, or you decide to back out for any other reason, I highly suggest that you contact an experienced professional real estate attorney to advise you.

If you need a recommendation for a good real estate attorney, feel free to contact me and I'll be happy to provide you with some of the best. 

 

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Show All Comments
Rainer
80,766
Jason Romrell
Business Attorney and Success Advisor - Los Angeles, CA

Love the post.  Great information and a good summary of the legal rules involved.  The only thing I'd point is that sometimes offers can not be withdrawn before acceptance without penalty or obligation.  That's the one thing that stood out...otherwise looks excellent (and has a nice visual layout as well).

Your caveat is important and hopefully anyone who needs case-specific advice will hire a competent attorney, because there are always exceptions to the general rules that affect how to approach this type of scenario.

Great post!

October 05, 2007 03:58 PM #5
Rainer
47,484
Jolynne Photography, Creative Wedding Photography, Family Portraits, Bar Mitzvahs
Jolynne Photography - Hemet, CA
Bat Mitzvahs, Senior Pictures, Event Photography

I'm wondering if I just missed it or if things are different out here, but most RPAs have a loan contingency. Traidtionally, that's 17 days long in California...do you have this?

Speaking of California...where'd you get the IN-N-OUT pic? Making me hungry...

October 05, 2007 10:06 PM #6
Rainmaker
908,726
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate
Brian - The things we take for granted in a real estate transaction can be like a foreign language to the consumer. Most buyers and sellers are not familiar with the intricacies of the laws like we are. This is a great educational post for consumers to recognize the complexities of the real estate transaction and the legal ramifications.
October 06, 2007 11:16 AM #7
Rainer
274,098
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island
BRIAN:  One question I have that I haven't been sure about is when can the seller keep the earnest money if a buyer fails to close, but has not met any of the requirements that you stated?  Very informative post as usual, Brian.
October 07, 2007 02:35 AM #8
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
SALLY:  Thanks for your complimentary comments.
October 07, 2007 07:07 AM #9
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
KRIS:  I appreciate your great comments and compliments.  Thanks.
October 07, 2007 07:07 AM #10
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
KIM:  Thanks for stopping by.
October 07, 2007 07:08 AM #11
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate

JOHN:  Thanks for commenting.  I do think that it is very important that the client understand the process completely and that they are aware of all of the potential "outs" and their rights under the contract.  I review the blank contract with my clients at our first meeting because I don't want them seeing it for the first time when its time to put the ink to paper.


October 07, 2007 07:10 AM #12
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate

JASON:  Thanks for commenting.  I appreciate your compliments about the post.  I'm not clear on your point about penalties and obligations for withdrawing an offer before acceptance.  Could you elaborate on that?  If there is no legally binding contract, how can an offerer by subjected to binding penalties?

Of course, like we both advocate, hiring an attorney when trying to break a contract is the best advice.


October 07, 2007 07:13 AM #13
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate

JOEY:  Yes, Joey, that's another contingency that can be in the contract, the loan contingency.  I didn't write about that in this post, because more often than not contracts are submitted without a loan contingency with the approval letter right upfront.  Our contract recently changed to have two options with checkboxes -- yes loan contingency and no loan contingency.  Before this, agents would just fill in 0 days on the loan contingency, but this did not mean the same thing as no loan contingency.  17 days is quite a long contingency -- we don't have anything like that standard here.  Usually 5-7 days, if any.

I've never been to IN-N-OUT Burger, but see them everywhere when I've been to California.

October 07, 2007 07:16 AM #14
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate

BILL:  The real estate transaction is most definitely like a foreign language to consumers.  I feel that it is important for us to decipher the code and the lingo for them.  Thanks for your comments and compliments.

 

October 07, 2007 07:18 AM #15
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate

ADAM:  Thanks for your comment.  Typically if a buyer breaches a contract and doesn't exit because of one of the legitimate "outs", a seller is entitled to keep the earnest money deposit.  In reality, sellers don't keep earnest money deposits that often since it can end up tying up the sale while releases from both sides are obtained and if all parties don't agree in writing to the release of the earnest money deposit, it could go to court.  Often times, it is just easier to move on and begin marketing the home again.  Back in the hot seller's market, this was almost a non-issue, because with an appreciating market, a buyer would breach and the seller would turn around and sell at a higher price a few weeks later.  Now it is becoming more of an issue.

October 07, 2007 07:22 AM #16
Anonymous
Anonymous
Rich
What are a seller's options, if any, for keeping earnest money, suing, going to small claims court, etc, if a buyer verbally told the seller and listing agent that he's 'changed his mind' approx 5 days after signing a contract for a house in Virginia but now intends to use the house inspection contingency to get out of the sale?
October 15, 2007 09:47 PM #17
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
RICH:  That's a good question.  This falls under the category of Anticipatory Breach -- the renouncing of a contract by a party may constitute an anticipatory breach which will excuse performance by the other party.  This occurs when a party refuses to perform the contract before the time of performance which is called for in the contract.  Such refusal must be absolute and leave no doubt.  A mere declaration of intention not to perform which is retracted immediately and did not cause the other party to change his position, will not suffice as an anticipatory breach.  If you have further questions, feel free to contact me directly.
October 16, 2007 07:27 PM #18
Rainer
26,942
Dale Campbell
Virginia Real Estate - Mechanicsville, VA
Brian - Awesome post, as usual, and great reminders.  I really can appreciate going over all the legalities up front before writing the offer to begin with.  Extremely smart.
October 20, 2007 11:49 AM #19
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
DALE:  Thanks for your comments and compliments.  I'm sure that you are taking these steps already.
October 20, 2007 03:16 PM #20
Rainmaker
364,194
Ted Baker
Carmody and Associates LLC - Winter Haven, FL
MidFloridaMediation.com

Brian - I like it !

Contingencies always leave the seller a bit uncertain as to the quality of their contract.  Frequently an offer at a lower price with no contingencies may be preferable to a higher offer with the uncertainty of open contingencies.

If I am representing a buyer, the appraisal contingency provides necessary protection that the appraisal by the lender's approved appraiser will equal or exceed the purchase price of the contract. Certain sellers (short sales, developers and others) require an approval letter accompany an offer to eliminate the contingency for financing (short sale lender may even require an approval letter from the bank that holds the mortgage).  The inspection contingency may be the biggest problem.  The best you can do is to narrow the time frame for the inspection to a reasonable time and work through any problems that arise.  

By the way - your in and out graphic is perfect for the topic. 

 

October 20, 2007 08:37 PM #21
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
TED:  I appreciate your comments and compliments on the post.  You are right on about contingencies and always tell my clients that while price is tantamount in most offer considerations, the other terms can play a major role as well.  I have helped clients "win" contracts against competing offers even when our price was lower than the others.  
October 21, 2007 07:06 AM #22
Rainmaker
477,913
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Michigan
Great post. Very informative. Always put in contingencies. You never know at times. Buyer's change their minds so easily because there is so much for sale out there.
October 21, 2007 10:07 AM #23
Rainmaker
630,852
Brian Block
RE/MAX Allegiance, Managing Broker/Branch Vice President - McLean, VA
Northern Virginia & D.C. Real Estate
ROBERT:  Thanks for your comments and compliments.  As I mentioned in the post, this was inspired by my dealings with a client last year.
October 21, 2007 04:02 PM #24
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Rainmaker
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