It’s the kind of email real estate agents dread finding in their inbox late at night.
After months or years of effort, a buyer client is finally in contract with the right property.
But now, at the eleventh hour, something has gone wrong.
The property has a defect, an issue has come up as a result of the property inspection or the buyer can’t get financing in place. Or the buyer simply has cold feet. The bottom line: The buyer wants out of the contract.
Usually, when an agent has a good relationship with a buyer client, uncertainties regarding the purchase come up well in advance, and they often work themselves out. But sometimes those uncertainties throw even the best agent for a loop.
In a real estate or any other legal contract, all parties should always enter into the deal in good faith. And all contracts are not alike.
All that said, buyers generally have some options for exiting a contract (though sellers‘ options are typically more limited). Here are ways you can get out of a contract if you must.
A standard contract comes with various contingencies. The buyer is purchasing the home contingent upon inspections, an appraisal, a loan, or review of property disclosures, a title report or any mandatory local reports. For example, when a property doesn’t appraise for the purchase price and the sellers and buyers can’t come to a mutual agreement, the buyer may exit the contract via the appraisal contingency.
If the buyers can’t get the loan as outlined in the contract, they can cancel the contract via their loan contingency. Does the property inspection reveal more termites than anticipated or that the foundation has a giant crack? The buyer has an out, thanks to the inspection contingency.
A serious buyer and a willing and able seller will usually do their best to keep the deal together. Any of the above issues can be overcome, but a little more work or negotiation may be needed to get to the next step.
A good agent will work with all parties to see if concessions can be made and if it’s possible to keep the deal together. If the home just needs more work than anticipated or the appraisal number is too far off, then the deal is over.
The cold feet contingency
While there’s no such contingency in a contract, buyers often get cold feet. They may feel they’re paying too much, or they aren’t sold on the neighbourhood or feel the home isn’t going to meet their needs after all.
In that case, buyers often use the inspection contingency as a “get out of jail free” card, also known as the “cold feet contingency.” A buyer doesn’t necessarily need to have a bad inspection to use the inspection contingency, though some lawyers may argue otherwise. Ultimately, many real estate contracts are written in favour of the buyer.
The best way to avoid getting cold feet? Don’t sign the real estate contract if you have any doubts whatsoever. A good agent will work with you to identify your concerns and fears before you get into contract.
There isn’t any sense spending time and money on inspections, loan fees and appraisals if you aren’t sure you want or can afford the home. Additionally, it’s an emotional burden on the seller to have a buyer walk away. Also, the agents spend a lot of time and energy getting a deal to work. It’s better for everyone involved not to move ahead if you have doubts.
At stake: Your deposit
Had all your inspections and you removed the contingencies in writing? Is your loan finalised and you have the loan commitment back from the lender? Are you ready to close — but something has come up? Are you out of contingencies but need to get out of the contract?
When this happens, buyers won’t be forced to purchase the home. But they risk losing the earnest money deposit they put in escrow. The amount could be from a few thousand dollars up to 10 per cent of the purchase price, depending upon where you live.
Keeping the deal together
It’s rare that a bank will simply reject a loan and the buyer walks away. Or that the buyer wants to cancel the contract because the house needs a roof. Obstacles come up in every deal, and they can be standard appraisal or loan issues or they can come out of left field. Does the home need a new roof? The seller can offer the buyer a credit. Did the appraisal come in a little low?
Renegotiate the purchase price. Did the homeowners association impose a one-time assessment right in the middle of the deal? Ask the seller to pay it. A serious buyer and seller will work with their agents to overcome whatever comes their way.
This story was originally published by Zillow.The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
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