Someone just hit my blog asking if a home buyer that is under contract can back out of purchasing their home.
Simply put, It ain't over till the fat lady sings!!
It may vary from state to state depending on state law and what is considered standard and typical in your state. In Massachusetts, many of the basic contracts are relatively the same when it comes to purchasing a home. There are typically two contingencies in the contracts that we see where buyers can withdraw from a contract and if done it a timely manner and properly they will receive all deposit monies back.
- Mortgage Contingency- The buyer usually has about 30-45 days from the date of signing the contract to secure a mortgage. If they cannot obtain financing by a certain date they can notify the seller and back out of the contract with no recourse to them.
- Home Inspection Contingency- The home buyer will typically have 5-10 days to complete a home inspection. If anything is to their dissatisfaction they again may withdraw from the contract with no further recourse to the buyer. (unless new terms can be negotiated)
Once the contingencies have passed then a home buyer must complete the sale or risk losing their deposit monies. While most transactions that have reached this point will close on time their are unforeseeable events that could prevent the buyer from closing on the purchase of your home. What are some of these events we may see?
- Loss of job/ income- not being able to pay the mortgage or their financing is withdrawn
- Credit profile has changed which again prevents the financing from being withdrawn
- Buyers just change their mind- illness, lost interest, change of situation, divorce......
What happens if a buyer does not close on a property after the contingencies have passed? In Massachusetts most contracts state that damages are limited to the deposits tendered. Unfortunately, its not always that simple to keep deposits..... I will address the release of escrow funds in a future post as that is a post in itself.
What can I do as a home seller to limit a buyer backing away from a deal? A home seller always takes a risk when taking his or her home off the market for a buyer. One thing you can do is insist on a large deposit. Typically a 5% deposit is the highest amount that is given. Many buyers in this buyers market have gotten away with putting down much less. Basically, if the buyer walks a way and leaves deposit money on the table you want it to hurt a little. It could be easy for a buyer to walk away from $1500 dollars but not so easy to walk away from $15,000. Ask for the highest deposit you think the buyer will be willing to risk.
Secondly, look at the financing very closely. Obviously a deal that has a 20% down payment is more likely to close than a deal that where the home buyer is only putting down 3.5%(FHA Financing). Also take a close look at the financing pre-approval. As a sellers agents I always verify that assets, income and credit have been verified by the loan officers. There are companies that will issue a pre-qual based on verbal information that is given, this is where deals can start to go bad.
One last thing to do is do a pre-home inspection. Hire a home inspector to provide you with a home inspection prior to listing. Consider fixing items on the report or at least show the report to a prospective buyer so there are no surprises when they do their home inspection and they have tendered an offer based on the known issues of the house.
There are also things sellers can do that will prevent a home from closing which could be title issues, material change in the condition of the house (fire damage, water damage) not delivering the house as spelled out in the contract and so on....
As real estate agents we are not attorneys, if any issues should arise you should immediately consult an attorney to see what rights you may have. As a general rule of thumb, while not necassary I always think its prudent to involve an attorney in a real estate transaction.
This post, It ain't over till the Fat Lady Sings, is a reprint from Merrimack Valley Ma Real Estate and was provided by Kevin Vitali of EXIT Group One Real Estate In Tewksbury MA. You can contact Kevin by email at firstname.lastname@example.org or call 978-360-0422.
I pride myself in the quality of my work while helpingbuyers and sellers make dreams come true.
Real Estate Services in the northeast Massachusetts, around the Merrimack Valley, Southern New Hampshire including the towns of Andover, Billerica, Boxford, Chelmsford, Dracut, Georgetown, Groveland, Haverhill, Lawrence, Lowell, Merrimac, North Andover, Newbury, Newburyport, North Reading, Rowley, Tewksbury, Tyngsboro, Westford, Wilmington, West Newbury