So You Went Under Contract On A House. Is It A Done Deal?
A lot of buyers and sellers have asked me if they are fully committed to buying or selling a home once it goes under contract. The answer depends on a lot of factors. Typically, in DC, MD and Virginia buyers have more outs in a contract than a seller. As a seller you are usually contractually bound to selling the home, provided that the buyer performs per the contract terms. Buyers, however, generally have more options when it comes to getting out of the contract.
Here are some of the more common scenarios on backing out of a contract.
If you are buying a home that is part of a Homeowners Association or a Condo Association, you have three days to review the HOA or Condo documents once they are delivered to you. Prior to that three day mark, you can void the contract. While this is typically done only if some negative information is found in the HOA or Condo documents, the buyer has the right to simply cancel for any reason, and the reason does not have to be stated.
Another common scenario is to void using the Home Inspection Contingency, if your contract has one. In most cases, home inspection contingencies give buyers a certain amount of time to inspect the home using a professional. After the inspection the buyers can remove the contingency, ask for repairs or credits, or void the contract. While usually you have to have the inspection done by a professional (which typically costs $400 to $800 depending on the size of the home), in theory you can cancel the contract for any reason.
Financing and Appraisal Contingency
Financing and Appraisal Contingencies give you the ability to get out of a contract if the appraisal comes in low or if you cannot get approved for the specified loan. Unlike other scenarios, this type of contingency is for the most part out of your control as a buyer. It is in the hands of the lender and the appraiser. If the appraisal comes in low, the seller does have the option of lowering the price. As the buyer you also have the option of increasing your down payment or finding different financing, if the appraisal is low and the seller does not lower the price. You also have the option of voiding the contract.
Home Sale/Settlement Contingency
A Home Settlement Contingency gives you the ability to get out of a contract if your own home does not go under contract and close. You also risk getting kicked out of the contract if the seller gets an offer that does not have this kind of contingency. Due to the competitiveness in the DMV Real Estate market this is not often used and is one of the main reasons our team offers a home sale guarantee.
Home of Choice Contingency
One of the few ways a seller can get out of a contract is if they have a home of choice contingency. Home of Choice gives sellers the right to cancel a contract if they cannot find another home to buy. Warning: it is not a contingency I see often, and it can lead to a lower sales price because of the uncertainty the buyer will face.
There are other reasons and ways buyers and sellers get out of contracts, but these are the most common ones that don’t have financial implications or risk losing your deposit. If you do have to cancel a contract, give it serious thought and make sure you consult with your real estate agent and potentially an attorney.