How to Cancel a Real Estate Contract

Three Parts:Canceling a Contract With Your AgentCanceling a Contract to Buy a PropertyCancel a Contract to Sell a Property

The details of how a contract is broken are typically specific to the provisions originally laid out in the contract. But, there are some standard features of real estate contracts which, although not true in all cases, typically allow you to end a deal that you have made. You will need to be very attentive to detail and responsive in ending such a contract. Real estate contracts are constructed to be strong and often have time provisions that make it nearly impossible to alter the arrangement after a predetermined date.

Part 1
Canceling a Contract With Your Agent

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    Recognize the difference between buyers and sellers. If you are in the market to buy a house, it should be easy to break off an arrangement with a real estate agent. As a seller, however, you will find that your agent has invested considerable money toward advertising your property and might be disinclined to let you go. To maintain a good record of customer service, most will allow you to end the relationship, but you could encounter some difficulties.[1]
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    Look for an opt-out clause. These clauses are common with large, national companies. They allow you to exchange one agent at the company for another. If you have a problem with the individual, but are content with the company, this is a relatively painless way to rectify the situation.[2]
    • Other contracts include a termination fee, which allow you to void the contract completely for approximately $300 to $500.[3]
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    Talk to the agent. Most sellers become dissatisfied with their agent because of a failure in communication. It is possible that issues can be resolved in a conversation. If not, the agent will likely to allow you to leave contract.
    • Discuss whether you want to break the contract with an agent because you have decided not to sell your home, or because you are not happy with the service the agent is providing.
    • If there are no provisions in the contract for voiding the agreement, you will often need to negotiate over a termination fee. The agent might ask you to cover the expense of advertising.
    • If you do negotiate an early end to the contract, be sure to get the agreement in writing that all of the stipulations of the original contract are void. Oftentimes the original contract will have provisions that would allow the broker to receive commission if you sell the house independent of him.[4]
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    Wait. If the agent is unwilling to free you from your contractual obligations, you can simply wait until the contract is voided. Most such contracts are valid for no longer than six months. During that time period, however, you will need to actively hinder the sale of your house by refusing to provide access to the property for open houses.[5]
    • If you manage to sell the house during the contract period, the agent will be owed a commission, even if you brokered the exchange without her active involvement. Also, if the broker manages to find a buyer willing to pay the listing price, contracts often allow the broker to claim a commission, even if you refuse the offer. Such a stipulation, however, would only be evoked in cases of a particularly strained relationship.[6]
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    Find violations in the contract. If the agent is unwilling to release you and you do not want to wait for the contract to expire, the only remaining option is prove a breach of contract. The contract might stipulate that the agent show the house a certain number of times per month or take out a specific number of ads. If you can prove that the agent did not perform these tasks, you can legally break the contract.[7]
    • This should be a course of last resort, because breach of contract will ultimately need to be proven in court. It is extremely rare that your agent would be inclined to take you to court over a contract. However, alleging breach of contract can quickly escalate the situation.[8]

Part 2
Canceling a Contract to Buy a Property

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    Immediately notify your agent or broker that you plan to withdraw from the contract. Whether or not you will be able to cancel your contract without substantial penalty to yourself will often be contingent upon how quickly you act. The rules for cancellation are generally specific to your particular contract. Your agent should be familiar with these provisions.
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    Review the contract. It should stipulate which reasons are acceptable for the buyer to cancel the contract. Typically you will be given a set period of time to cancel the contract as well as a set of contingencies that need to be fulfilled before the sale is final.
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    Cancel at will before signing. Although you have offered a verbal agreement and a bid for the property, this is not binding until all parties have signed a contract. If you are still in this “contingency period,” you should have your agent or attorney write a formal purchase contract cancellation agreement to the representative of the seller.
    • Though you should not have paid a deposit at this phase in the process, if you have, the letter ought to indicate that the money will be returned.
    • The letter should include basic identifying information about the exchange, including the address of the property, the date of the contract, and the name of the parties involved.
    • The contract will be considered void after receipt of the letter.[9]
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    Look for “right of rescission” provisions in the contract. Most contracts specify a certain period of time during which the buyer is permitted to void the contract. This is often approximately somewhere from three days to two weeks.[10]
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    Use contingencies. Although they vary with each contract, every real estate contract should include some contingencies upon which the buyer is able to void the contract. In some cases, you can actively work to ensure that these contingencies are not fulfilled to void the contract.
    • Most contracts allow the buyer to conduct a property inspection and ask for revisions of the contract if there is physical damage to the property. Similarly, if you are unable to get funding from the bank or the appraisal determines that the property is priced too high, the contract will be voided.
    • In cases where the property is part of a homeowners association, condo association, or co-op, the sale will be contingent upon those bodies approving the buyer. In some cases, the buyer will also be given a period after signing the contract to review the regulations of those associations and reject the offer.
    • Other contingencies that sometimes appear in contracts include: inability to find sufficient insurance, the discovery of liens against the property, or the failure of the seller to provide documents in a timely fashion.[11]
    • You can use property evaluations as a pretense to void a contract that you have soured on by simply indicating that it was not in the condition that you believed it to be, even if there are no major structural issues. Similarly, you can talk to your bank about delaying your loan to get out of a contract.
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    Be prepared to lose your deposit. If you have allowed your contingencies and right of rescission to expire before breaking your contract, you will lose the earnest money deposit that you put in escrow. This could be anywhere from a few thousand dollars to 10 percent of the purchase price.[12]
    • Real estate contracts are generally solidly written. If the case goes to court, those who break these contracts will invariably lose.
    • Though losing the deposit will be painful, in some sense it protects you by freeing you of any further obligations. The alternative is that the seller can sue for “specific performance.” Although rare, this would force you to do what you promised in the contract, essentially making you go through with the purchase of the property.[13]
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    Consult with a lawyer about cancellation. If you have decided that you can cancel the contract on acceptable terms, you should immediately consult a lawyer or your agent. Have them void the deal under terms defined by the contract. Act quickly to save your opportunity to claim contingencies.

Part 3
Cancel a Contract to Sell a Property

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    Consult your attorney and real estate agent. As a seller, you have fewer opportunities to cancel a contract than a buyer. The consequences of breaking the contract can also be more severe. You should immediately seek professional assistance.
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    Review the contract for a “kick-out clause. These are relatively rare. However, some contracts include clauses that stipulate that the seller can escape from her contract if she manages to find a buyer willing to pay more for the property. Such clauses are only valid for a period of time specified in the contract.[14]
    • This clause will only, however, allow you to replace one buyer with another. If you have changed your mind about selling the property, this clause might not be the escape route you need.
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    Refuse negotiations. In cases where there is some damage to the property or the assessment has come in below the sell price, contingencies kick in and the seller has the right to revise or reject the contract. Typically, he will negotiate for a lower price or for you to pick up some of the expense of repairs. Refusing to meet the buyer’s demands is often an effective way to end the deal.
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    Be attentive to buyer failures. Often the contract stipulates that the buyer is supposed to fulfill a contingency by a specific date. You can use this to your advantage. If, for example, the buyer fails to get financing within a particular time span, you can use this as justification to void the contract.
    • In order to successfully employ this strategy, you should review the contract closely. Such a tactic could save you considerable trouble, but it will require considerable attention to the details of the contract.
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    Be prepared to pay. If none of the aforementioned strategies are available to you, you will need to offer a financial settlement. The buyer has the full legal right to sue you, forcing you to sell the house and pay damages. However, depending on her disposition, she might not be inclined to engage in the necessary legal battle. You will need to offer a settlement large enough to dissuade her from following such a course of action.
    • In these cases, the buyer has good standing to sue for “specific performance,” which would compel you to proceed with the sell. However, such cases often take years and are extremely expensive. Most buyers would prefer to take a payout. You will need to negotiate over a specific sum.[15]

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Categories: Real Estate