Every situation is quite different. Most contracts are written with contingency that allow for attorney, financing, and home inspections for the buyer and are usually limited to 5 to 7 seven days from the date the seller executes the contract. The most common contingencies are Attorney Review, Home Inspection, and Mortgage. Because every situation can be different other contingencies can be added into a contract but we are going to keep to the basics. If the time contingency and all the above has been meet the buyer may find him or herself in a precarious position. Also note, in a standard contract to purchase if it is not stricken out, the contract has a provision for the seller to obtain financing on behalf of the buyer.
Remember both seller and buyer has signed off on the contract that is why it is so important that both parties have good attorneys and good brokers representing them.
In the real world a buyer does has the right to walk away from a purchase if the home inspector finds major defects in the property that were not disclosed, or during the attorney review the attorney finds something wrong and wisely advises his/her client to walk away from the purchase listing the reasons why.
Ah, did I forget the mortgage contingency? No I didnâ€™t. In todayâ€™s economic climate with the new rules put in place for obtaining a mortgage, I feel a buyerâ€™s broker is doing his/her client a disservice is if they have reached the contract stage and the client has not already been pre-approved for â€œaâ€ purchase. Also, while we rely on our mortgage lenders to educate our buyers about why not to open any new lines of credit after being pre-approved, we as brokers must remind them not to do so as well. If our buyer opens a new line credit after the pre-approval, the loan ratio may change and they may no longer qualify for the loan. I have seen this happen.
What happens if all the contingencies have expired and have been met and the buyer simply wants to walk away? If the seller has been â€œdamagedâ€ the seller has the right to retain the earnest money as damages. Likewise, depending on how the contract was filled out the seller may be entitled to entire value of the contract. As simple as this sounds it is not. The buyer most agree and sign of to release the earnest money to the seller. If the buyer does not agree to release the earnest money, costly litigation could follow. The above would be handled by each parties attorney and is a worse case scenario.