When an offer is made on a home and accepted, the deal isn’t done. In fact, there is a lot of work that has to take place before you sign the grant deed to your property over to the buyer and your home becomes their home. This process can often take weeks or even months to complete. This means that there is a chance that you, the seller, may face a change in your circumstances that makes you want to back out of selling your home. If you’re wondering about cancelling the sale of your Silicon Valley home, please keep reading.
In some cases, a family emergency, unforeseen circumstances, or something else out of your control may cause you to need to get out of the deal. However, there are also cases where a seller simply changes his or her mind about wanting to sell their home. Perhaps you’ve spoken with your accountant, tax professional, or even your family, and decided that it’s simply not the right time to sell your home. If you’ve already signed the purchase agreement, do you have anyway out of the deal?
Overall, this is a legal question, and I am not a lawyer. You will find no legal advice in this blog, my videos, or anything else that I publish. If you have questions about the legalities surrounding the California Residential Purchase Agreement, including your ability to back out of the deal, you should certainly speak to a qualified California attorney who works in real estate. However, I can provide you with some insight into how California real estate contracts work based on my personal experience. If you need a referral to a great California real estate attorney to talk about the specifics of your particular situation, please don’t hesitate to contact me.
Everyone wants to know…
How do Purchase Contracts work?
Most real estate agents that you work with will use the standard California Association of Realtors (CAR) Purchase Contract. There are some areas in our state that have their own purchase agreements (e.g. San Francisco), but most transactions that take place in California involve the standard California Purchase Agreement. While that is a good thing in the sense that it allows you to know that most people are using the same contracts, there’s also a downside.
The California Purchase Agreement greatly favors the buyer. In fact, there are a number of ways for buyers to get out of the contract after they’ve signed it. Since buyers will usually want to have contingencies on the purchase, their offer usually includes several ways for them to get out of the deal and walk away with their earnest money deposit.
Buyers have the option to put contingencies in place that cover the appraisal of your home, their ability to get a loan, and the home passing different types of inspections, Of course, it’s completely up to the buyer to decide if a home “passes” an inspection, and buyers may spend numerous days dithering over things they discover in their due diligence inspection period. Buyers can also require that the deal is contingent on them closing the sale of their current home.
What does that mean for the seller? Are you powerless in this situation? Not exactly, but the process of getting out of the deal is a bit more difficult when you’re the one selling a home and want to cancel a purchase contract you’ve signed with a buyer.
Time to talk to a REALTOR?
Can a Seller Cancel a Contract?
Ultimately, backing out of the deal after you have signed the purchase agreement means cancelling a contract. Since the seller doesn’t have the contingency options that buyers have, that can prove a bit more difficult. One exception to this would be where the seller has a contingency on finding and/or closing on a replacement property. This gives the seller a certain amount of time to find and/or close the sale of their next home – and if you are unable to do so, you are free to cancel the sale of your current residence.
However, even if you don’t have the replacement property contingency, the seller can force a buyer out of contract and cancel the sale with little risk under certain circumstances. The biggest opportunity for a seller to cancel a contract with a buyer is when the buyer fails to perform. In the purchase contract, the buyer promises to do certain things within a certain period of time – and if the buyer fails to do each of those things, it presents an opportunity for the seller to cancel the contract.
Commonly, these things include:
- Make the Earnest Money Deposit
- Release the Inspection Contingency
- Release the Appraisal Contingency
- Release the Loan Contingency
- Release the contingency on the sale of their current home
In order to cancel the contract this way, you are required to provide the buyer with a written Notice to Perform. In that notice, you can tell the buyer that he or she has two business days to close the deal. If that timeframe passes, you can walk away from the transaction.
Lastly, the contract will require that the deal will be closed by a certain date, and if that date passes, the seller can issue the buyer a demand to close escrow. The demand to close escrow will give the buyer three additional days to close, and if the buyer is unable to do so, the seller can unilaterally cancel the contract.
But what happens if the buyer has performed everything written in the purchase agreement? Ultimately, in that situation, there is no easy way out of the transaction for you. Take note, nobody in the transaction (buyer, seller, agents, brokers, the escrow company, etc.) can force you to sell your home. If you refuse to sign the grant deed over to the buyer, the notary or closing officer will not force you to sign the paperwork.
However, if the buyer has met all their obligations and you the seller just decide that you don’t want to sell no matter what, this does open you up to serious legal and financial jeopardy.
Take all your equity when you move
What Can Buyers Do if a Seller Cancels?
Buyers have a number of options available to them if you back out of the purchase agreement. First of all, they can sue you for damages if they believe that your decision to cancel the contract has cost them money. They will have the option to sue you for specific performance in a California court of law. I’ve never seen this happen in a transaction, but buyers are within their rights to pursue this option.
Buyers also may ask that you reimburse them for the cost of inspections and other expenses that they have accrued during the transaction. For instance, if they paid for termite inspections, mold inspections, appraisals, and other facets of a real estate transaction, they may ask that you simply give them their money back. Doing so may serve as a negotiated agreement that keeps the case out of court.
The best way to make sure that you don’t face any of the legal issues associated with cancelling a contract is to make sure that you’re truly ready to sell your home before you put it on the market, and certainly before you sign a purchase contract with a buyer. Spend some time speaking to your family about what the move is going to look like and mean for them. Moreover, make sure that you’ve talked to your tax professional, accountant, and anyone else who may be able to provide insight. When your ducks are in a row, you don’t have to worry about backing out of the deal.
Access Off-Market Inventory
