Canceling a Real Estate Contract
Sept. 8, 2014
by Teresa Larson, Village Real Estate, Murray, Utah
20+ years real estate experience
A buyer has spent several days or weeks looking for the perfect home in an acceptable area and then finds a reason that is truly disturbing to them, disturbing enough to want out of the contract. Before requesting a cancellation the buyer would be wise to make sure that this is not buyer’s remorse. It is normal to have some worries, buying a home is a very big decision that has an impact on your future. If you are buying take the time to think your reasons through carefully.
A seller has usually stopped showing their home after a contract is agreed to between the seller and buyer. The seller is breathing a sigh of relief not worrying about showing the home any more. The seller is making plans for where they will move to. A new place of residence will need to be secured whether it is renting or buying. There will be lots of coordinating to be done in the process of the contract period.
Due Diligence Period
Buyers should consider the sellers needs and circumstances when writing a contract on a home. The due diligence period should be as short as possible. A reasonable due diligence period might be 7 to 14 days. It could be longer but the buyer and seller need to agree on the length of time. There will be some inspections at the buyer’s discretion so they should be done within the first few days of the contract. The buyer needs time to review and make decisions. The buyer’s agent will help coordinate with the sellers agent the inspections to be done during the due diligence period.
Sellers shouldn’t make any firm commitments on for their new place of residence if it is based on the sale of their home, until all cancelation deadlines have passed. In our Utah Real Estate Contract we have two different places that the buyer has an opportunity to cancel without any legal repercussions or penalties from the seller. (1) The due diligence period. (2)The appraisal and financing deadline. The buyer is entitled to their earnest money back if the contract is canceled properly. A seller is entitled to the earnest money if the buyer defaults or cancels after the deadlines.
Correct Way to Cancel a Contract
The correct way to cancel a contract for the buyer is to notify your agent with a phone call and in writing before the due diligence deadline has passed. Email does not work because you have agreed to notify the seller in writing and the letter needs your signature. The same is done for the financing and appraisal deadline. As a buyer give your agent a call 4 or 5 days before the cancelation deadline and tell them of your desire to cancel ask them to get you the paperwork to sign. The buyer’s agent will have a form that can be used for these cancelations. It is called the “Buyers notice of Cancelation” form. If they do not get the paperwork to you, then you need to go ahead and write a letter notifying the seller, sign it and deliver it to the buying agent, the selling agent and the seller before the deadline expires.
The Utah Real Estate Purchase contract is written so that the buyer doesn’t have to provide a reason. Peter J Christensen, J.D. Utah Association of Realtor’s legal counsel advises that it is better not to provide the reason if you really want to cancel because that opens it up for debate. The seller may disagree and challenge the reason.
You can however request that things be done to the property to correct flaws you have found in the property otherwise you are canceling. This would be on another addendum. In Utah our addendum is called “The Repairs to be made by Seller “. A seller does not have to do these repairs but many times the parties can come to an acceptable agreement . Deadlines can be extended in writing through an addendum to your contract signed by both the buyer and seller.
Canceling Due to Appraisal
If a buyer uses the appraisal condition to cancel then the buyer needs to provide a notice of appraised value showing the property appraised for less. Many times the buyer and seller are still able to work out the details and complete the sale of a home without canceling a contract when difficulties arise. A good real estate agent can help you work through these problems.
The buyer cancelation form available through the Utah Association of Realtors need only be signed by the buyer. There is not much available in the Utah Real Estate Purchase Contract that we have to help a seller cancel the contract. Section 20.3 talks about risk of loss. If a seller tries to back out prior to the contract being completed they may be subject to specific performance law suit.
Real Estate Purchase Contracts are Legal Instruments
Remember that when you enter into a contract to purchase a home there may be associated penalties for breaching the contract. Real estate agents are trained to help you fill out the contracts properly and to market and sell properties. Agents are not supposed to give legal advice. This article is intended to help you understand the process of buying and selling a home. If you desire legal advice you should consult an attorney.
Peter J. Christensen, J.D. “How to Cancel the REPC.” Utah Realtor Magazine Third Quarter 2014: 14-15. http://www.utahrealestate.com
Utah Association of Realtors forms, Real Estate Purchase contract 2014, Repairs to be made By Seller Addendum to Real Estate Purchase Contract 2014, Buyers Cancelation of Contract, Sellers Cancelation of Contract 2014, Sellers Cancelation of Contract
©Teresa O Larson PC, 2014