Solidly written residential real estate contracts, like any other legal agreements, should contractually bind all parties to the terms set forth in them. However, there are some “escape” clauses in otherwise solidly drafted real estate contracts that may provide outs for one, or both, parties. The NVAR, or Northern Virginia Association of Realtors, contract is the most commonly used real estate contract for residential sales agreements. You can find some information by clicking on the NVAR link here. There are certain contingencies built into the standard NVAR contract that allows you to back out of the sale or purchase of a residential real estate contract.
4 Ways for a Party to Void an Otherwise Enforceable Real Estate Contract
- Essential Terms Missing. For a contract to be enforceable, it must be in writing, identify the seller and buyer, and include a description of the property. The contract must also include the agreed-upon sales price and signatures of all parties. If any of those contractual elements are missing, you may be able to void or cancel the upcoming closing.
- Simply Losing your Earnest Money Deposit. To show your good-faith willingness to proceed with the purchase of the property, you will give the seller an earnest money deposit (EMD), which the title company or your real estate agent holds in “escrow” until the closing. The standard NVAR contains what happens to the EMD if one party breaches or the sale doesn’t proceed to closing. Customarily, it is about four-percent of the total sales price, but it can be any amount that would convey your seriousness to proceed with the purchase. If you pull away from the contract without a good reason, you will likely forfeit your earnest money. In this situation, you may be able to back out of the deal, but you may be forfeiting your EMD, and in some cases, the seller can sue you for illegally breaching the contract.
- NVAR Contingencies. The standard NVAR contract contains several contingency clauses you may use. These NVAR contingencies are certain “deal breakers” built into your contract to protect each party. A financing contingency is a way a buyer can cancel a contract if he is unable to secure financing under certain conditions; for example, the inability to secure a conventional loan with a set interest cap, the appraised value of the home being less than the agreed-upon purchase price, unforeseen damage to the home (such as termite infestations or structural integrity issues) or the seller not having a clear title.
- By Mutual Agreement. If both parties agree to cancel the contract, the seller may choose to either return or split the earnest money with the buyer. In most cases, sellers want to get the property listed for sale again as soon as possible, so they will not try to fight buyers who no longer have any intention of purchasing. Either way, you will need to obtain each party’s written release.
Understanding your legal rights when canceling your real estate contract requires the experience of a seasoned real estate attorney. Contact Keithley Law, PLLC, PLLC today by calling (703) 454-5147and schedule an initial consultation in our Fairfax law office with an experienced real estate attorney. We can walk you through the steps to get the most out of your case.