Exiting Your Contract

Life happens, it's true. Sometimes you have family issues, job changes, etc... That's why it's fairly often that we get the question...Can I back out of my real estate contract? Whether you or a buyer or seller, a real estate contract is a legally binding agreement. Here are some things that you need to know about trying to exit your purchase agreement or real estate contract.

Buyer Options

Good news for buyers, atleast in California, you have some options when it comes to exiting your agreement. These options fall under your contingencies in the contract. Most often, your inspection, loan, and appraisal contingencies.

Inspection contingency. While not originally meant to be so, your inspection contingency is often used as a "buyers remorse" or "change of heart" contingency. It gives the buyers an out if they feel they no longer what the home.

How is this possible? They can simply state that they have something wrong with the home that was not previously discovered and would like to cancel.

The inspection contingency can also be a "right to renegotiate" contingency. If the home inpsection uncovers a potentially large expense the new buyer might have to cover in the future, a credit or new price can sometimes be renegotiated.

The other back out continencies involve a third party and are only used if said third party shows evidence. These are your loan and appraisal contingencies.

The buyer would have to show the seller a low appraisal or proof they cannot fund the loan in order to use these contingencies to exit the contract. The appraisal contingency can also be used as a renegotiating tool, if and only if, it comes in low.

Seller Options

Sellers in CA have much fewer options. In fact, they can typically only exit the contract if the buyer fails to perform on their timelines and/or contingency removals. For example, if a buyer fails to remove their loan contingency on the agreed-upon date, the sellers can issue a "notice to perform".

This notice allows the buyer 2 days to perform according to the contract, after that, the seller has the right to cancel. If a seller is trying to cancel outside of this scenario, they will likely find themselves having some upset buyers and potentially dealing with mediation, arbitration, or worse.

If you have more questions about real estate contracts here in California and SanDiego, please reach out to us. We would love to be your real estate resource.