Things come up in life. Plans change, new opportunities and unforeseen challenges present — it’s pretty much par for the course. But what do those changes mean in terms of purchasing real estate?
A home sale can fall through for a variety of reasons. I’m going to assume that from a buyer’s perspective, you entered into the contract or made an offer fully intending to purchase the home in good faith and then circumstances changed. Hey, it happens.
The bottom line is that you can back out of a real estate contract at any time — but depending on when you do, you may have to forfeit your earnest money.
You’ll encounter two main scenarios when withdrawing an offer. Here’s what you can expect from each, with one major caveat: to be successful, you’ll need to rely on and communicate clearly with your agent every step of the way.
Within a contingency period
Once you and the seller have negotiated the contract and both signed, the deal is now binding. That said, a standard real estate contract comes with many contingencies. Meaning that, yes, you would like to purchase the home, but all contingencies must be met for you to move forward.
You’re agreeing to purchase the home based on a successful inspection, an appraisal, receiving financing to purchase the home — you get the picture. When all of these contingencies are satisfied, then the transaction moves forward toward the final home purchase.
However, there might be a catch. If, for example, the inspector’s report noted that the roof needs to be replaced and for that reason you’re unwilling to buy the home, you’re perfectly within your rights to cancel the contract with a full return of all earnest money.
No one wants to see a sale fall apart, but better to have it happen in the early stages of the contract so the seller can quickly find a new buyer. This is the cleanest and easiest way for both parties to walk away from the transaction.
Outside of a contingency period
Canceling within a contingency period is easy. But outside of a contingency period? Things can get a little sticky.
If all parties have signed the contract and contingencies are in the rearview, you should expect to forfeit your earnest money when you default on the real estate contract, to reimburse the seller for damages.
It bears repeating that regardless of when you find yourself considering a withdrawal, a seasoned real estate agent will make all the difference in advising how to navigate the process. This is why you hired one: chances are, she has seen this scenario play out before, and benefiting from her experience is a no-brainer.
If you find yourself in the latter situation, don’t freak out just yet.
Earlier is better
If you want out of the contract, don’t sit on the information.
As soon as you know you need to cancel the contract, notify your agent immediately. Work with her to fill out the proper paperwork and get the information over to the seller and ultimately out on the table — it’s the best way.
“About two weeks after signing a contract on our perfect home, we found out that my husband was being transferred by his company to the Chicago office — 1,700 miles away. We didn’t have much choice and felt terrible,” says Jennifer Lawson, a (former) prospective buyer in the Seattle market. “We disclosed it immediately to the sellers, and they were able to find another buyer in a matter of days.”
It was a tough situation for everyone, but the couple’s quick communication helped resolve the issue favorably for themselves and the sellers.
Transparency is key
Withdrawing from a contract tends to go over like a lead balloon with sellers — crazy, right? (I hope you’re picking up on my sarcasm here.)
Do yourself and all parties a favor and act with integrity and transparency when canceling or withdrawing your offer. Providing information to the seller will make the situation less tense.
Work with your agent to draft the letter carefully, beginning with an introduction outlining your purpose for the letter. Also, make sure to include a detailed explanation of your reasons for voiding the agreement or requesting to be let out of the contract. Adding in specific dates that reflect your change in circumstance will help the seller grasp the immediacy of the situation as well.
Entering into a contract to purchase real estate is like a relationship: all is well until one party wants out. These situations can go south quickly. I cannot emphasize enough how invaluable a seasoned agent’s skill is in this scenario.
There are many ways for this to play out, but keeping the communication lines flowing is the best way to reach a favorable ending.