Canceling a Real Estate Contract: Pitfalls to Avoid
Real estate transactions are complex, and a real estate purchase sale agreement is a legally binding contract that outlines the terms of a property sale or transfer. While there may be instances where such a contract can be canceled, doing so can be complicated and result in legal and financial consequences. In this article, we’ll discuss some of the pitfalls to avoid when canceling a real estate contract.
1. Breaking the Contract Terms.
Before canceling a real estate contract, it is crucial to understand the terms outlined in the agreement. The contract may include specific conditions that must be met before the agreement can be terminated. Breaking those terms can result in legal consequences, such as fines or even lawsuits.
2. Failing to Provide Proper Notice.
A real estate contract may include provisions outlining how notice of cancellation must be provided to the other party. For example, the agreement may specify that written notice of certain things must be delivered within a certain time frame. Failure to provide proper notice can result in a breach of contract and potential legal repercussions.
3. Losing Earnest Money.
When a real estate contract is signed, a buyer may be required to put down a deposit, called “earnest money,” as a sign of good faith. If a contract is canceled at no fault of the seller, the buyer may lose this deposit, as it is typically non-refundable in this scenario.
4. Potential Damages to the Seller.
If a buyer cancels a real estate contract, the seller may also be entitled to additional damages, such as lost profits or the cost of marketing the property and even the difference between the contract price and the fair market value of the property. The seller may also have the right to keep the earnest money deposit.
5. The Consequences of a Breach of Contract.
If a party breaches the terms of a real estate contract, the other party may be entitled to take legal action, including filing a lawsuit to enforce the contract or to seek damages. In some cases, the courts may order specific performance, requiring the parties to fulfill their obligations under the contract. In other cases, the real estate contract may require the party who loses the legal action to pay the “prevailing” party’s attorneys’ fees incurred during the court case.
In conclusion, canceling a real estate contract without sufficient understanding can have significant legal and financial consequences. It is important to understand the terms of the agreement and to follow the proper procedures for cancellation, to avoid potential pitfalls. If you are unsure about the terms of your contract or the steps you need to take to cancel it, it is recommended to consult with a real estate attorney first.