You can end a real estate contract if...Credit: Kakisky (

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When you decide to make a good faith deposit - earnest money - on a house, you first sign a real estate contract, which is a legally binding document. The money then goes in an escrow account. If either party decides to back out of the contract, both parties can suffer the consequences. For instance, once the seller accepts an offer, he will most likely take his property off the market. The seller is also forced to either buy another home or sign a lease agreement on a rental propertyYou can see why signing a real estate contract can serve as a protection for both parties involved. If despite your best intentions you need to end a real estate contract, however, you can take measures to minimize the risk.


Ending a Real Estate Contract as the Buyer

Read the contract thoroughly. Real estate contracts generally state information, such as the closing date, the earnest money amount and any contingency clauses. For example, the sale of the property may be contingent on the buyer's ability to qualify for a mortgage by the closing date and on inspections results.


If you are unable to secure a mortgage by the date stated on the contract, you can most likely end the real estate contract without any consequences. Furthermore, if any inspection results are unfavorable, you will likely have a legal basis to end the contract.


Keep in mind that if you back out of the contract once the contingency dates have lapsed, you will most likely lose your escrow money. There is also the chance of that the seller can take you to court. Take comfort in the fact that sellers often settle for the earnest money amount and almost never sue the buyer.


An extreme change affecting your financial status may make it possible for you to end the contract. For instance, a job loss or a drastic pay cut could provide a basis for you to terminate the contract. However, this is not the norm. Only an experienced real estate attorney can fight for you if you have to go to court.


Once you are sure that you will end the contract, regardless of whether the contingencies dates have lapsed or not, be sure to contact your real estate agent as soon as possible.


Ending a Real Estate Contract as the Seller


Contact your listing agent to inform him of your decision to end the contract. Be prepared to return the escrow money plus any interest. Make sure that you can reimburse the buyer for inspection and application fees. If the buyer had any temporary housing expenses, you may also have to compensate him for such expenditures.


Keep in mind that although some buyers may willingly let you out of the contract without any consequences, others may choose to file a lawsuit. If the buyer decides to pursue litigation, be aware that some cases can take years to reach a resolution.


Overall, ending a real estate contract is not something you can take lightly. Regardless of who ends the contract, both parties will most likely suffer the consequences. Therefore, read the contract thoroughly before signing it. Make sure you understand all the clauses and terms, and if despite your best efforts you still need to terminate the real estate contract, consider the pointers mentioned above to minimize the consequences.

Copyright © 2011 Ana Jackson. All Rights Reserved. Reproduction in whole or in part constitutes plagiarism, is illegal and strictly prohibited.




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