Cancellation of Contract
Answer: Real estate is based on written documents that dictate the elements of the sale. When a buyer and a seller agree on the contract terms, then those terms spell out what happens when and an expected close date for the sale. In a sale situation the buyer has the option of cancelling the sale based on many possible reasons, such as failure to get a loan approved or conditions discovered about the home that cause the buyer to be concerned about the home. Typically the buyer has seventeen days to do their due diligence on the property, to conduct a property inspection, a termite inspection, get loan approval, have the appraisal done and insure that they are able to purchase the home. The seller does not have the option of cancelling the contract unless the buyer is unwilling to perform on the transaction and demonstrates that they are not likely to complete the purchase. No terms of the original contract can be changed without the consent of both parties. Should the seller have an event happen that would affect the closing of the transaction, then the seller would put their request in writing to the buyer for their approval. As an example, the seller may have accepted a job transfer to another part of the country and as a result put their home on the market. A buyer was found and the contracts signed by both parties for a 30-day close. However, the seller then finds out that the transfer is not going to happen and they want to stay in their home and not sell. This would be communicated to the buyer and it would depend on the buyer's response to agree to cancel the transaction and look for another home or to indicate that they do not want to cancel but continue the transaction and purchase the property. The seller cannot unilaterally cancel the sale. While this seems unfair for the seller, it is what was agreed to by both parties and the buyer would be in control. Naturally this does not come up often and when it does in most cases the buyer agrees to cancel the transaction it does present a dilemma to the seller. It is important to keep both the buyer and the seller on good terms throughout the transaction to insure a smooth completion and a satisfactory result to both parties. That is the normal and healthy result of most real estate transactions.
Answer: I don’t know if you are the buyer or the seller in your question so I will answer the question from both points of view. It is more typical for the buyer to cancel and it can be for many reasons. The buyer has 17 days to do their due diligence in the transaction. They apply for their loan. They inspect the property. An appraisal is ordered by the lending institution to determine value. Often the issue is the loan and the buyer finds out they can’t get the loan they want or there are difficulties with credit. So the buyer cancels the contract for the property. Or, the appraisal comes in lower than the selling price and the buyer does not want to bring in more money and the seller is not willing to lower the price, so the buyer cancels. A property inspection is done and repairs are requested by the buyer and the seller is not willing to do those items the buyer is requesting and the buyer feels strongly that they should be done, and the buyer decides to cancel. As long as the buyer has not removed their contingencies in writing, the seller will return the deposit money through the escrow company and both parties sign a cancellation form. If all the contingencies have NOT been removed, even if it is past the 17 days, the seller is still obligated to return the buyer’s deposit. If all contingencies have been removed and the buyer cancels, then the seller may have the right to retain the deposit money in escrow. Until both parties have signed the cancellation form, a second escrow cannot be opened on the property. Occasionally you will see the statement in the MLS “Contingent on the cancelation of existing escrow.” That means you can put an offer in and get it accepted but you can’t open an escrow until the previous party agrees to cancel the first escrow. Usually the delay is related to who is to receive the deposit money that is in the first escrow. What if the seller wants to cancel the escrow? The seller has less reason to cancel. If the buyer does not get money into escrow, that was agreed to in the contract, then the seller can cancel. If the 17 days are past and the buyer will not sign off on the contingency removal, then the seller can give the buyer a Notice to Perform. If the buyer refuses to sign this form the seller may go ahead and cancel the contract due to lack of performance but must return the deposit money to the buyer. Cancellations are hard on both the buyer and the seller as both have put great effort into the transaction and usually the issues can be resolved. The seller may feel offended by the repair request that they buyer is asking for instead of putting themselves in the buyer’s shoes and understanding they want the home to be a certain way when they move in. The seller needs to step back and respond rationally and not emotionally and keep the transaction on track to close. Sometimes the buyer is struggling with getting the loan and has to jump through unexpected hoops to get the loan approved and it takes an additional week so the seller needs to understand from their agent if this is acceptable or just a delay and it will end up closing. This is a point at which the agents earn their keep and can help their clients understand the situation and lead them through to a successful conclusion.
Question: I am in escrow on the sale of my home. Things have changed and I no longer want to sell my home. Can I stop the sale?
Answer: Once the seller signs the Residential Purchase Agreement Contract and the terms are agreed to by both parties, the seller is obligated to sell. If your contract has terms such as, “contingent on seller finding a new home,” or any terms that give the seller a condition that would need to be met, then you may find the buyer willing to cancel the escrow if the contingency is not being met or is taking an inordinate amount of time. If the buyer fails to perform on their end of the transaction, then you can cancel the escrow/contract using the appropriate real estate forms. However, if the buyer is a qualified buyer and desires to purchase your home and there are no extenuating circumstances, then you would be obligated to complete the sale. Those are all items to discuss with your agent and/or a real estate attorney to determine what, if any, possibilities you have on this transaction. Of course, many readers are thinking, “Why not just ask the buyer if they can cancel the transaction?” Certainly there are circumstances that could tug at the buyer’s heart and they would be willing to stop the transaction and let the seller out of the contract willingly. That would be the best of all worlds for you. You did not give any indication of the cause of your desire to stop the sale of your home so I don’t know what other areas of recourse may be available, again, talk to your agent for direction and advise. It is not common, but it does happen, that the seller gets “seller’s remorse” and changes their mind about selling. Hopefully that happens before they put the home on the market and certainly before they enter into a contract to sell. The real estate agent always looks for the seller’s motivation to sell to determine the seriousness of the seller’s intentions. For the agent, they are looking at upfront costs to prepare the home for sale such as staging, photography, brochures, putting the for sale sign in the yard, advertising and marketing. The agent wants to know that the home will be sold. If the seller does not have a plan when their property sells, that could be an indication that they are not as serious about selling. When they tell you they desire to downsize and move into another home in the XYZ development in Anyplace, USA, then you have determined they are motivated and know why they are selling and will follow through with the sale.