How to Get Out of a Real Estate Contract

Visualize this scenario: After previewing several houses with your real estate agent, you’ve finally found the perfect house. A real estate  contract  has been drawn up and signed by you (the buyer) and the seller. But alas! You encountered a problem – your mortgage application was disapproved. Can you still get out of the real estate  contract ? Worry not. Generally, real estate  contracts  contain contingency provisions which state under what situations the buyer/seller can terminate the  contract .

A real estate  contract  is a legally binding  contract  for the purchase/sale of real estate between two parties. It varies depending on the type of property being purchased or sold, its location and on whether the  contract  is a reprinted form furnished by a realtor or one prepared by a lawyer. While the form may be different, essential information include the names of the parties, legal description of the property, purchase price, down payment, terms of payment if not cash and the closing date. In addition, both parties may insert contingency clauses. A contingency is simply a way in which a buyer/seller can back out of a  contract  within a set period of time if certain conditions specified are not addressed or met satisfactorily.

Most real estate  contracts  contain financing/mortgage contingency which stipulates that the purchase is conditional on the buyer’s ability to obtain a mortgage commitment within a prescribed timeframe. Inability to do so gives both parties the legal right to terminate the  contract . In this case, the buyer’s deposit is also refunded.

An inspection contingency allows the buyer to conduct thorough inspection of the property. If the seller is unwilling or unable to repair defects or not agreeable to reduce the asking price to help compensate for the cost of the repairs; then both parties can opt to cancel the  contract  all within the time guidelines set forth in the  contract .

A  contract  can also be contingent on the sale of another property. If the property is not disposed within a specified period of time, the buyer can be relieved of the  contract .

A real estate  contract  usually provides a title and survey review period for the buyer. The buyer gives notice in writing of any fault or flaw noted in the title documents. If the defects cannot be remedied, the buyer has the right to cancel the  contract . In the same way, the buyer can also conduct a property survey. If there are structural problems or if there are encroachments on the property, the buyer may also choose to rescind the  contract .

Some states require sellers to disclose in writing to buyers any known defects of the property. Any late disclosure gives the buyer the option to terminate the  contract  within a prescribed period after receipt of the disclosure.

The above mentioned are some of the standard contingencies written into almost all real estate  contracts . However, both parties can also add other escape clauses such as a  contract  contingent on septic tank inspection, home appraisal or the approval of other family members if the property is part of an estate sale.

In a nutshell, buyers and sellers do not enter into real estate  contracts  with the intention of getting out of them. However, sometimes things do not proceed as expected. Both parties can then turn to the terms and conditions stipulated in the  contract  to terminate the deal. A word of caution: If a contingency date lapses, either party loses the benefit and protection of the contingency.