We know that buying a home or a piece of property is for many people the most expensive and important purchase you’ll make in your lifetime. Even if you are a real estate investor, each property you buy is important to your financial health. However, sometimes there are things that come up after you’ve signed the contract that make that purchase a bad decision, and you’ll want to back out of those kinds of deal before they impact your financial future. Here’s an in-depth look at some of the most common reasons buyers legally back out of real estate contract deals that we’ve seen at ZinnLaw in Southwest Florida.
For sellers, the professional inspection can be nerve-wracking. That’s because the inspector may identify structural problems that would cause the buyer to rethink their offer. Most buyers write a contingency clause into the sales contract that allows them to cancel the contract or renegotiate the terms if issues are identified on inspection. For example, if the professional home inspector determines the roof needs to be replaced or the plumbing system needs extensive repairs, buyers have options. They can:
- Choose to walk away from the sale
- Ask the seller to make the repairs before closing
- Renegotiate the sales price based on the estimated cost of the repairs
This contingency is especially important in your sales contract. Otherwise, buyers could wind up legally required to buy a home with significant deficiencies. However, this contingency means you can walk away from the deal and keep your earnest money deposit.
An appraisal is part of any real estate transaction that’s financed with a mortgage. The lender requires the appraisal to determine the home’s fair market value. An independent appraiser will conduct the assessment.
If the appraiser determines the price you’ve agreed to pay for the house is higher than the home’s fair market value, your lender won’t cover the difference. In simple terms, if you agree to pay $250,000 for a home, but the appraisal comes in at $225,000, the bank will only loan you $225,000. You’ll have to rethink how to handle the purchase.
At that point, you have two options. Since your lender won’t finance anything over the appraised value, you can make up the difference with cash. If you can’t or don’t want to pay the difference and have an appraisal contingency in place, you can walk away from the sale without penalty. Having an appraisal contingency protects buyers if the appraisal is low. You’ll be able to retain your earnest money.
Buyers are also protected by financing contingencies. If you plan to purchase a home using a mortgage but can’t secure financing, you can walk away without penalty, as long as the contingency is in place.
You’ll first get preapproved for a mortgage loan. This will tell you how much you can spend on a home. Once you’re under contract, the comprehensive approval process commences. A change in your employment or financial situation or information that wasn’t included in the preapproval process can change your ability to get a loan. If this happens, the financing contingency lets you back out and keep your earnest money.
Can’t sell your home
If you must sell your current home before purchasing a new one, your contract will have a home sale contingency included. This means the purchase won’t move forward until you sell your home. It typically lays out a certain time frame to complete the sale of your home.
If you can’t find a buyer or your buyer backs out during this time frame, you should be able to get out of the contract without penalty.
If you hold title on a home, you are its legal owner. It’s a legal way to establish ownership. When you buy a home, a title search is conducted to ensure no one else can interfere with your claims to the new home. Liens or unpaid property taxes are the most common issues that arise during a title search. Buyers who encounter title issues when purchasing a home can back out of the deal.
Contact Brian Zinn at ZinnLaw of Fort Myers for more information or help with your Real Estate contract.