When Can You Terminate A Real Estate Contract

Updated: Dec 12, 2020

When purchasing a home, home buyers and sellers enter into a home purchase contract. This establishes the terms of the contract including price of the sale, any contingencies and dates the parties will meet at the closing table. Sometimes however one of these parties wants to terminate the contract. Below will review when it is acceptable to terminate the contract and what possible repercussions can occur.

Home Sellers Termination

Home Sellers can almost never terminate a home purchase contract, they have already made the decision to place their house on the market and accepted the purchase price of the home. When you review the notice to terminate contract, it highlights how many additional reasons a home buyer has to terminate, than a home seller does. Home sellers can force the hand of a home buyer since almost all home buyers find things during the inspection phase or appraisal phase. This can often occur when there is a backup offer on the table that is better than the current purchase contract. When the inspection objection arrives, the home seller can refuse to fix the issues or give concessions usually causing the home buyer to implement the termination of the contract. With any real estate transaction, there are a plethora of time frames. The home seller can also refuse to sign any addendums that extend contract dates. These could change the time period for contingencies or even modify the names of the home buyers on the contract. Refusing to do these things can cause the home buyers to be nonperforming and allow the seller to terminate the contract.

Can a home seller back out of a purchase agreement without cause?

Home sellers can get cold feet due to looking at new homes and finding out that their current home is actually better than the other new homes out on the market for a similar price. They also may learn that the home buyer is looking at making major changes or become afraid that they may not keep the property as nice as they have cared for it.

A home seller who attempts to back out of a home purchase agreement without cause is subject to legal liability from not only the home buyer but also their own sellers agent. The sellers agent will want to be compensated for their time and marketing materials. The home buyer could feasibly go to court and could force the sale of the home due to the signed contract. Since the seller failed the specific performance of the contract, the buyer could even place a lien on the home known as a Lis Pendens.

Home Sellers can back out of a purchase agreement when:

  • There is only a verbal agreement in place. This is because the sale of land requires a written contract due to the statute of frauds.

  • If the contract is unsigned than the contract isn't enforceable. Real estate contracts generally have a time that the parties must sign by until it expires.

  • If there is a new home contingency. This formally establishes in writing that the home seller has the time to find a new home that meets their needs or else they may legally back out of the contract.

  • If there is a scam that is present such as the purchase price is egregiously low. This doesn't mean a lowball offer, but more like a $40,000 purchase price for a $400,000 home.

  • If the buyer agrees to the termination of the contract

Often the outcome of a home seller backing out of a contract is that the home buyer and sellers agent negotiate a fair compensation for their time. This fee has a large range and depends on the circumstances however it wouldn't be uncommon to spend $20,000 in total to the affected parties. This is still an expensive thing to do and why it is important to know for sure that you want to sell your home before signing any contracts.

Can a home seller back out of a listing agreement?

When there is a home sale, the seller and listing agent will generally enter a listing agreement. Listing agreements establish the sellers brokerage has the exclusive right to sell the home for a set period of time. A home seller can back out of a listing agreement, however there are some caveats. The first thing the home seller should do is attempt to work with their current listing agent and identify where the agent isn't meeting expectations. Working with the agent they may be able to modify their performance.

The next step is to identify if you signed an exclusive right to sell agreement. If this is in place understand that contractually the listing agent technically cannot be fired if they