Everyone wants to understand the process for buying a home and where all the pieces fit in the puzzle.
If that's your interest, here's a step-by-step flowchart for purchasing a home in Northern Virginia or D.C.
Most people want to make sure that the home purchase proceeds smoothly. However there are times where you might wish to get out of a home purchase whether it is a case of buyer's remorse, you find something drastically wrong with the structure of the property, you change your mind, or the appraisal comes back very low.
Last year, one client continually asked me the question "When can I get out of the contract?" His intention was not to get out of the contract -- he loved the house, got a decent price, and was looking forward to settlement. Rather, he just wanted to know all the options and opportunities to get out if needed. In all fairness, he's an engineer by training and likes things to be orderly, step by step, and wants a complete picture of the process and his options upfront.
Since that time, my clients are presented with these options upfront so they understand the different points where they can get out of the sales contract.
Before discussing these potential "outs," you must understand when a contract is formed.
The law defines a contract as a binding legal agreement between two or more parties. To be enforceable, contracts must be certain, definite, complete and contain essential terms. In order to form a contract, there must be:
- an offer
- consideration (an exchange of something in value; a promise to make a gift is not binding)
- a legal object (you cannot have a legally binding contract paying someone to murder someone or to blackmail another)
- competent parties -- defined as the possession of mental capacity sufficient to transact business with intelligence and an intelligent understanding of what one is doing
In real estate, a written offer is submitted by a buyer on a home that is for sale. So until that offer is accepted in writing by the seller, no contract exists. Thus, you as a buyer are free to withdraw your offer anytime before the seller accepts it. If you find another home that you like more after submitting your offer, you can withdraw that offer at anytime without penalty as long as the seller has not yet accepted the offer and formed a binding contract.
You must understand that acceptance means acceptance of all of the terms of your offer. If the seller comes back to you with a counter-offer, that voids your initial offer and has the effect of being a new offer from the seller to you, which you can then either accept or reject. There is NO CONTRACT yet.
Okay, the Seller Accepts Offer -- Now there is a Legally Binding Enforceable Contract
When Can You Get Out of the Contract?
- HOME INSPECTION: If you choose to have a home inspection (highly recommended), your purchase contract will specify a certain number of days for it to be completed. At that point, you will submit an addendum to the seller asking for certain items to be fixed or for compensation to be provided. This is an area of negotiation between you and the seller of the home.
- If the seller does not cooperate to your satisfaction or if during the home inspection you find issues that you don't want to deal with, you can void the sales contract.
- RADON INSPECTION: This works the same way as a home inspection clause. If the sellers fail to remedy problems, of if the radon inspection comes back with a high result, you have the option of voiding the sales contract.
- APPRAISAL CONTINGENCY: Mortgage lenders will only give financing on a home up to the appraisal amount. If an appraisal on your purchase comes back lower than the agreed upon sales price, the seller has the option of lowering the sales price to the appraised value, or you and the seller can work out mutually acceptable terms. If you and the seller fail to agree, the contract will become void.
- CONDOMINIUM DOCUMENTS or PROPERTY OWNER'S ASSOCIATION DOCUMENTS: In Virginia and D.C., all home sellers within a condominium or property owner's association development must provide disclosure packets from the appropriate association. You have a 3 day right of rescission to cancel the contract upon receiving these documents. No questions asked, your deposit is returned.
These are the primary points where you can cancel or void a sales contract without losing your earnest money deposit. Otherwise, you must remember that a real estate sales contract is a legally binding contract that can be enforced in court.
CAVEAT: Whether voiding a contract based on one of these provisions, or you decide to back out for any other reason, I highly suggest that you contact an experienced professional real estate attorney to advise you.
If you need a recommendation for a good real estate attorney, feel free to contact me and I'll be happy to provide you with some of the best.