Can a Sales Contract be Cancelled if the Home Buyer Tested Positive for COVID?

By
Real Estate Broker/Owner with Cam Realty and Property Management

Can a Sales Contract be Cancelled if the Home Buyer Tested Positive for COVID?

When the home buyers and sellers enter into a contract, everyone is excited and they look forward to completing each step that gets them closer to the closing table.
The first item is the home inspection, then the appraisal, and of course the loan commitment if there’s financing involved.
If the home inspection is not satisfactory to the home buyers, they can indeed walk away from the contract or ask the sellers to either make the repairs or give them credit towards the repairs. Savvy home sellers usually do what is necessary to list their homes and that includes making all the necessary repairs prior to listing. This is the ideal situation when selling a home.
The next step in the contract is the home appraisal. If the home gets appraised at the sale price, great, if not, that’s another obstacle to overcome.



There may be other circumstances that will give the home buyers an “out” to walk away from the sales contract and receive their escrow deposit. They may lose their job and no longer qualify for a loan. There may be a change in their debt to income ratio which would affect their qualification for the loan.

Over the years, I’ve had some strange reasons given to me by the home buyers who wanted to walk away from a contract. The most bizarre one came from my buyer clients the day before closing after 8 pm, our very own Joe Petrowsky was handling their loan. These buyers said God told them not to buy the house. Myself and Joe tried our best to talk some sense into these folks and were successful. They are very happy in their home and glad they listened to me and Joe.

One of my listings has been under contract for over two weeks, home inspection has been done, escrow received. The buyer tested positive for COVID and wishes to cancel the contract. I feel horrible and completely understand their state of mind. However, if we think logically, we might want to ask these questions;

-Did you lose your income and no longer qualify for a loan since you tested positive for COVID?
-Do you no longer need a home to live in since you tested positive for COVID?


If the answers to the above questions are NO, then, the buyers wouldn’t be entitled to get their escrow deposit back. There are exceptions of course! If there was an addendum in the contract allowing either party to cancel the contract in the event they test positive for COVID, the buyers, in this case, would be entitled to cancel and receive their escrow deposit back.

My seller clients are disappointed, I am disappointed that we as agents are not doing a better job explaining to our clients how contracts work. Perhaps we need to understand how they work so we can pass our knowledge onto our clients.


As a real estate professional, we have to do a better job of qualifying our buyer and seller clients. Some are not ready to be homeowners and that’s fine. They can certainly browse online looking at homes for sale and when the right time comes, they can start shopping for their new home.

In my case, following the direction of my clients, we canceled the contract and authorized the buyers to receive their escrow deposit back. Please understand getting tested positive for COVID is not a good enough reason to cancel a sales contract unless you lost your income and no longer qualify to purchase a home, in that case, it must be proven and followed by a denial letter from the lender.

Can a Sales Contract be Cancelled if the Home Buyer Tested Positive for COVID?

 

Comments (35)

George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Beth you are right just testing positive for COVID-19 in it self is not a reason to cancel the contract.  The lender will still allow the closing to take place unless the employer states the Buyer is temporarily out of work.  If the employer states that, then the closing will need to wait until they can produce an updated pay stub showing they are back at work.  However, if the employer does not state the Buyer is temporarily out of work, the Lender will give a clear to close and the closing can take place.

Sep 23, 2020 03:12 PM
Beth Atalay

Hi George Souto, thank you so much for your comment. You certainly have more knowledge in this than I.

Sep 23, 2020 03:44 PM
Anna Banana Kruchten CRS, CRB, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

Hi Beth Atalay glad this was featured as it gives all agents and brokers things to consider talking about with buyers and sellers upfront before writing a contract. Some buyers get 'cold feet' and just don't understand that siimply changing ones mind doesn't fly with an agreed upon contract.  Great post!

Sep 23, 2020 03:51 PM
Beth Atalay

Good morning Anna Banana Kruchten Arizona's Top Banana!, we as agents must do a better job when buyers get cold feet. It happens, it is our job to talk to them and understand what their challenges are.

Sep 24, 2020 07:00 AM
Lynn B. Friedman CRS Atlanta, GA 404-939-2727
Atlanta Homes ODAT Realty - Love our Great City - Love our Clients! Buckhead - Midtown - Westside - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

Beth Atalay 
For sure they are wonderful Seller Clients who chose to take the proverbial "high road" - didn't they?  The next contract their WONDERFUL Listing Agent brings them will be even better for them. No doubt about it.
All the best - Lynn

Sep 23, 2020 04:09 PM
Beth Atalay

Thank you Lynn B. Friedman, they are the sweetest people. They could've fought but like you said, took the  high road. 

Sep 24, 2020 07:01 AM
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

Beth, an important post from your Day In the Life, a real world situation with unexpected outcome.  Thanks for expanding awareness and presenting food for thought.  Good info every agent can apply.

Sep 23, 2020 04:44 PM
Beth Atalay

Thank you Kris Collis, Associate Broker, I hope nobody else experiences this. 

Sep 24, 2020 07:01 AM
Adam Feinberg
Elegran - Manhattan, NY
NYC Condo, Co-op, and Townhouse specialist

We started seeing attorney's add in Covid clauses into contracts by April. The deals I currently have in contract don't have Covid clauses- but I expect to encounter it sooner rather than later.

Sep 23, 2020 10:47 PM
Beth Atalay

Good morning Adam Feinberg, if the buyers' income was reduced/lost and no longer qualify for a loan, I get it. Testing positive for COVID-19 should not be a reason to cancel a sales contract. 

Sep 24, 2020 07:03 AM
Adam Feinberg

It's very different here due to the shared living arrangements (common hallways, elevators, lobby). Co-op boards can reject a buyer for any reason (non-discriminatory), and if a buyer has Covid and could potentially spread it- that could be a reason that a co-op might consider to reject a buyer. The co-op board doesn't need to state why they rejected the buyer- but if a buyer wants out- they can tank the board interview in subtle ways.

Sep 24, 2020 07:51 AM
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

I think you and your seller took the high road. There was no legitimate reason to cancel the contract for a postive Covid test. They could test negative the next day the way these things go.  But you and your seller did the kind thing and it will pay off in the long road. 

Sep 24, 2020 01:06 AM
Beth Atalay

Exactly Debra Leisek, testing positive is not the end of the world. 

Sep 24, 2020 07:03 AM
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Never get hung up on the deposit, it's the real estate sale. If a buyer pulls out for whatever reason, rather than wrangling over the tug of war deposit, move on. Find a buyer in this hot market that will follow through.

I have found some sale derail buyers are doing the seller a favor. Where as the deal goes on and on, you start to realize after the closing, if you get that far, there will be more drama and problems after the everyone got bloodied real estate sale. Just had a single buyer have his nurse sister go into the hospital, is on a ventilator and her three kids are going to end up being his care because single mom, no dad in the picture. Life can throw curves and seller in this case says you will find another buyer Andy. Already have. Often a better buyer situation happens. It is never closed even with cash sometimes because life happens, we are dealing with people and their life events.

Sep 24, 2020 03:30 AM
Beth Atalay

Hi Andrew Mooers | 207.532.6573, thus the reason we canceled and returned their deposit. This is not to say testing positive for COVID is a good enough reason to cancel a contract.  

Sep 24, 2020 07:05 AM
Brenda J. Andrew
ULTIMA REAL ESTATE - Corpus Christi, TX
Professional Realtor in Corpus Christi, TX

That is so frustrating Beth.  I think you are right, agents do need to do a better job explaining things to their clients.  I have not come across anything like this yet, but when Covid first came out a lot of the contracts coming through had the Covid form.  I had a hard time getting one of my sellers to sign since there was so much uncertainty.  Thankfully all of my deals closed, even with this going on.  I agree with everyone else here.  Another buyer will come along who will be a better fit and the buyer who backed out will probably end up wishing they would have gone through with the sale.  Thankfully you had a seller who was willing to keep moving forwrad and pushing towards the goal of getting the house sold!  Thanks for sharing!

Sep 24, 2020 03:49 AM
Beth Atalay

Hello Brenda J. Andrew, sometimes, we don't do a good job qualifying the buyers on day one. Those are the ones that get cold feet.

Sep 24, 2020 07:23 AM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, eXp Realty - Kalispell, MT
Helping your Montana dreams take root

I would think the "God told me not to buy this house" would have been harder to  handle. As for the Covid buyer, your seller has opened the door for the right buyer to come in. Hopefully they'll get an even better deal!

Enjoy your day.

Sep 24, 2020 04:54 AM
Beth Atalay

Hi Kat Palmiotti, the buyer who heard from God was one of the most difficult clients I worked with, I know it was the same for Joe Petrowsky who did their loan.

Sep 24, 2020 07:24 AM
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

I am seeing more and more skiddish buyers. Most of the time i am on the listing side and it puzzles me that the buyer agent did not go over this with the buyer before they signed a contract. 

Sep 24, 2020 05:14 AM
Beth Atalay

I'm with you on that Scott Godzyk, I just feel horrible for the sellers. 

Sep 24, 2020 07:24 AM
Carol Culkin
Diamond Partners Inc - Overland Park, KS
Overland Park Residential Real Estate

It is customary in my area to have a corona virus addendum. But, I agree with you about the questions you have presented. Not all COVID circumstances are ones that would cause people to back out of agreements. 

Sep 24, 2020 05:25 AM
Beth Atalay

Hi Carol Culkin, ReeceNichols, the COVID addendums we have are covering the delays, we don't have an addendum giving the right to cancel if either party tested positive for the virus. 

Sep 24, 2020 07:26 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

It's not an excuse to cancel the contract. Covid is a fortuitous event, thus it's beyond man's control. Thank you for posting this! 

Sep 24, 2020 05:31 AM
Beth Atalay

I agree with you Joe Jackson 

Sep 24, 2020 07:26 AM
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Great topic! I think it depends on the state. The way N.C. contracts are written the buyer can walk during a Due Diligence  period no questions asked, and get the earnest money back! After that period the earnest money will be lost! There are very few ways to save that money after DD, and Covid is not one of them!

Sep 24, 2020 06:07 AM
Beth Atalay

Hi Tom Bailey, it is the same in FL. 

Sep 24, 2020 07:27 AM
Brian England
Vacasa - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

I don't see why testing positive for covid would be a valid reason for backing out of a contract unless the person was actually going to die from it, then that would be a whole different matter.

Sep 24, 2020 06:55 AM
Beth Atalay

Exactly Brian England but why drag it out. It is a beautiful home and I have showings lined up already.

Sep 24, 2020 07:27 AM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Broker / Real Estate Advocate

This is always going to be a topic of discussion for a while ... we do have an amendment that allows that option of opting out or choosing a POA to sign for you... as a piece of that pie.

Sep 24, 2020 08:08 AM
Beth Atalay

Good to know Dan Hopper, great to know. Indeed, this topic won't be going anywhere for a while. 

Sep 24, 2020 10:40 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Can a Sales Contract be Cancelled if the Home Buyer Tested Positive for COVID?

The answer, in California, is YES, if the buyer’s agent included the proper Addendum and it was signed as part of the purchase agreement paperwork or added later with the agreement of all parties.

Sep 24, 2020 09:49 AM
Beth Atalay

Thank you for sharing John, good to know.

Sep 24, 2020 10:39 AM
Jill Sackler
Charles Rutenberg Realty Inc. 516-575-7500 - Long Beach, NY
LI South Shore Real Estate - Broker Associate

The most interesting scenarios I've ever come across - both of them!

Sep 25, 2020 01:31 PM
Beth Atalay

I hope you'll never encounter it Jill Sackler

Sep 29, 2020 07:24 AM
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Wow, that's quite an interesting situation, Beth. It does make sense to discuss this with our clients prior to entering into a contract.  What if? It sounds like the sellers are in a good spot though, and you will likely get it sold (again) soon. 

Sep 26, 2020 08:06 AM
Beth Atalay

Good morning Debb Janes EcoBroker and Bernie Stea JD, a good agent should go over every scenario with their clients prior to entering into a contract. You could pretty much tell if the buyers are truly ready to buy or not. 

Sep 29, 2020 07:23 AM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Wouldn't happen around here. That is not a valid reason whatsoever. 

There have been attorneys who have thrown in riders during the atty review I know.

Sep 27, 2020 12:13 PM
Beth Atalay

Hi Lyn Sims, it is not a valid reason here either but it is up to the sellers if they wish to let them out of the contract, and in this case, they did. 

Sep 29, 2020 07:20 AM
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Flower Mound, TX
Selling Homes Changing Lives

Beth Atalay - TX REALTORS say the same thing about COVID buyers and contracts. I think FL and TX are very similar when it comes to real estate contract and sales.

I wish you the best always!

Sep 27, 2020 05:10 PM
Beth Atalay

Hi Patricia Feager, MBA, CRS, GRI,MRP, nothing really surprises me anymore. I think you're right about TX and FL having similar real estate contracts and sales. 

Sep 29, 2020 07:20 AM