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Terminating Real Estate Contracts, When Is It Permissible?

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Real Estate Contracts

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Today we will be discussing two types of real estate contracts, the one that is entered into to list and sell a property for a commission, and the one that is entered into as an agreement to purchase. As you will see, the later is much more complicated and a considerably more serious concern than the former.

Terminating a Contract to List

Typically people do not sign a binding real estate contract thinking the relationship is going to sour and they will want to get out by termination. Further, most people feel uncomfortable about ending a relationship of any kind, but sometimes the situation has deteriorated to the point where the service expected is not apparent, and so the obvious thing to do is to hopefully cancel the agreement and move on. When involved in dealings with real estate agents there are rules of etiquette, as well as legal issues that must be adhered to before the relationship or contract can be severed.

The first issue to get out of the way is whether or not a contract was signed and is still being enforced. If you have taken on an agent for a commission fee basis and they have listed your home you most probably do have a contract. So get out your contract and review it carefully. If need be ask your lawyer to review it with you if you are uncertain about what it contains and who is obligated in what ways.

Some contracts are written containing clauses and provisions that will allow either party to exit the agreement based on a certain set of circumstances that are laid out within the contract. Most often this requires a request to terminate the contract in writing and that certain fees, or portions of fees, be paid to the broker if the house is subsequently sold within a certain time period following termination of the contract agreement. Some contracts may not be broken until a certain period of time has elapsed and then possibly a fee would also be due. Until you know for certain what the contract contains and how to precede it is recommended that you do not fire your current broker.

The first thing to consider when you reach the point where you feel you need to terminate a contract is whether or not it is legal or ethical to do so. If you are a buyer who has since decided that you do not wish the help of your agent because you think you may get a better price or deal, or you are now looking to avoid paying a commission, then you will probably not be able to. This is considered by most to be very unethical behavior and a breach of contract. However, if you're a buyer or seller who has a genuinely valid disagreement with your real estate agent, or you feel their services are not up to par or the standard they advertised, then there is no reason not to seek termination of your agreement in a sensible and ethical way.

Ultimately, many disagreements can be resolved simply by talking with the real estate agent. However, if the problems cannot be resolved through conversation and discussion then they will probably also feel that ending the relationship or terminating the contract is best for all concerned.

Terminating a Contract to Purchase Property

Most offers to buy real estate are made through the proffering of a contract from the buyer to the seller. If the seller is in agreement with the offer they will then accept a deposit of an agreed upon sum in the seller’s account. Not every state or locality uses the same forms and contracts, but they are ostensibly the same form place to place. The contract should contain no less than:

  • the offer amount,
  • legal description,
  • names of the parties,
  • and the date of closing.

A good contract offer will also encompass several other contingencies, disclosures of important information, and the procedures that will state the different responsibilities of both the buyer and seller. This contract, once enacted, is enforced through to the signings and transfer of funds on the day stipulated for the closing. If a buyer is unfamiliar with these kinds of contracts, or does not understand any aspect being discussed, they need to seek out the guidance of a real estate professional or attorney who can explain it to them, and also make certain the agreement is a fair and equitable one. If the day arrives that either party feels they need to terminate the contract offer, having understood beforehand what the contract stipulates in regard to this happening will be of the utmost importance. It is a legal and binding agreement and needs to be respected as such.

The Different Contingencies

The Inspection Contingency

Problems discovered through independent inspections that a buyer has requested are most likely the number one reason for contracts being terminated. During allowed inspection periods some re-negotiation of the price or terms in order to resolve repair issues are most often discussed, but many times they are left unresolved. Either the seller refuses to make repairs, or possibly they will not lower their price to compensate the costs that a buyer would incur if they were willing to do the repairs after purchasing the property. Whatever the reason, the contract will have a time frame that all of this must be done within and that time period must be adhered to.

Smart buyers will include within the contract their right to perform independent inspections of structures, electrical and plumbing systems, inspections for radon gas, or possibly perform other environmental inspections, such as well water. These will need to be done within the specified time and the buyer will have every right to terminate the  contract if any of the listed inspections turn up problems they do not wish to incur by purchasing the property.

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