Buyers cancel contract:
One of the most common ways a contract can be terminated is when a contingency is not met within the specified date.
Buyers who specify too many contingencies, or “subject to” conditions give cause for alarm. Are they inserting too many “weasel clauses” so that they can easily get out of a contract?
The contract could specify different situations that could legally void a sale. If one party dies or the house is partially destroyed in a fire, flood or some natural disaster, this could be spelled out in the contract or subject to negotiation and resolution by the parties or if necessary, the courts. State laws may also cover specific (and unusual) situations.
Buyers can get out of a contract because they fail to get approved for financing, they are unable to sell their house within the necessary time frame, you and the buyers cannot come to an agreement on the proposed resolutions of the house inspection, etc. These are common contingencies.
A buyer can request that the contract be contingent upon his or her spouse approving the house. This situation arises when a person transfers into the area and the spouse has not seen the home before the offer was made and accepted.
I bid on a house on a Sunday and asked to have until the following weekend for my wife to fly in then and approve the purchase. Of course I had her fly in on Tuesday and look at anything and everything on the market before she saw the property in question. We bought the house.
Failure to meet a contingency:
Failure to meet a contingency usually results in the contract being voided and the earnest money is returned to the buyers. But not always, as the purchase contract may provide that the earnest money is forfeited to you in certain circumstances.
Should the buyers simply change their mind about fulfilling their contractual obligations, then you would probably get to keep the earnest money. If there is a real estate listing agreement involved, the fine print may say that forfeited earnest money will be split with the agent or go to pay for an agent’s expenses first.
The (hidden) killer contingency:
The closing date is often overlooked as a legitimate contract killer. Usually the buyers will apply for a loan and get approval–but with a rate that is locked in until a certain date that is typically 60 days out.
Suppose the rates jump considerably before closing. No problem, because the buyers’ rate is locked in. But what if something comes up and the closing is delayed for a couple of days? If the new closing date is rescheduled after the buyers’ lock date, a new (higher) rate could take effect and kill the deal because the buyers can't afford the monthly payment. The financing approval contingency - that had already been met - is now reversed!
Avoid this by checking with the buyers’ lender to see if the close date would be impacted by the lock-in date. Make sure the lock date gives you at least a week should the need for a delayed closing arise. If not, contact your attorney to help arrange for the close date to be moved up.
Attorney approval contingency:
Many sales contracts contain an ”attorney approval” clause, allowing each party to have their attorney review the contract and make suggested revisions (limited to a few days after acceptance).
Buyers who change their mind about purchasing a house could have their attorney demand ridiculous changes to the contract changes, such that the revisions would never be acceptable to the seller, such as delaying closing for years or reducing the earnest money to $100.
This is obviously a highly unusual use of the attorney review contingency, but it can be used to kill the deal. On the positive side, the short life of this review condition allows the sellers to quickly regroup and start remarketing the property.
If the buyers really want to squash the deal, with or without an attorney, they can make ridiculous demands based on issues raised during the home inspection.
The attorney review contingency is also covered in the NEGOTIATE section under the Contingencies topic.
Similarly, sellers can't simply get out of a contract because they receive a better offer. They'd be in breach of contract and open themselves up to a losing lawsuit.
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