How to Cancel a Purchase Contract
Getting Your Earnest Money Deposit Refunded
Just like how the best time to think about selling a home is when you decide to buy a home, the best time to think about canceling an agreement is when you sign an agreement. This means any kind of agreement: a contract to purchase real estate—known as a purchase offer—or a buyer's broker agreement, documents to refinance a mortgage, a listing agreement, or any document that binds you to perform.
Before you sign legal documents such as these, ask how you can cancel if things don't work out the way you hope or if you change your mind. If you don't receive a satisfactory answer or you can't figure it out yourself by reading the cancellation clauses, then don't sign until you have a lawyer review it and advise you. Here is what you should know about canceling listing agreements.
Ask About Cancellation Upfront
Before you sign a listing agreement, ask your agent if you can be released for any reason, even if that reason is, "Hey, I want to list with another broker." If your agent tells you "no," then you might not want to list with that company. Why, I ask you, why would you list with a company that would not guarantee your satisfaction with its services? If an agent says it's company policy, then that is not a company with whom you want to do business. Period. Next broker, please.
Ask the Broker for a Cancellation
Be aware that exclusive right-to-sell listings contain a safety or protection clause. If you ask an agent after the fact to cancel the listing and the agent refuses, call the agent’s broker and request a cancellation. Your listing, believe it or not, is not between you and your agent. It is between you and the agent's broker.
If the Broker Refuses to Cancel
If the broker rejects your request for cancellation, then ask the broker to assign another agent to you. Most brokers are happy to assign another agent and keep the listing in-house. The way this works is often the broker will pay your fired agent a referral fee.
Find Out if the Broker Is Reputable
Most brokers who want to maintain good community relations will cancel a listing if the seller insists. Nobody wants to be known for holding a gun to the seller's throat. In the days of online reviews, brokers want positive reviews posted.
Call a Real Estate Lawyer
If there are no workable solutions, call a real estate lawyer for termination assistance, but first, tell the broker of your intentions to do so. Sometimes that’s enough to get a release. Bear in mind that many listing agreements are bilateral agreements: a promise for a promise. This means a good lawyer might be able to find a way to argue that the broker did not hold to the promise and get you released.
Canceling a Buyer’s Agency Agreement
Ask your agent to give you a form called termination of buyer agency. The TBA issued by the California Association of Realtors, for example, will cancel oral or written agency agreements when properly acknowledged and executed.
How to Cancel Purchase Agreements
- Read Your Agreement. Ask your agent or lawyer to point out to you the cancellation clauses. In some states, all inspections are completed upfront, and once a purchase offer is signed, the offer is binding. In other states, inspections take place after the offer is signed and provide for the return of the buyer's deposit if the offer is canceled pursuant to an inspection.
- Federal Law Gives Buyers 10 Days to Inspect for Lead Paint. Ask your real estate agent or lawyer if you want to or need to cancel during this time period. Ask how you do it and which form to sign. You can waive this right in writing but few buyers would be prudent to consider doing so. Many homes built after 1978 do not contain lead-based paint.
- Cancellation Before a Contingency Period. In some areas of the country, a home inspection is performed after the purchase contract is signed. Sometimes buyers uncover significant defects that can cause a buyer to cancel. Property condition might be covered in your contract as a contingency period. Another contingency might be appraisal or loan. If you cannot obtain a loan or if your appraisal does meet the sales price, you might be able to cancel.
- After Expiration of Inspection Periods. In states like California, standard default periods are 17 days for inspections. However, if a buyer does not withdraw all contingencies, that time period is extended until the contingencies are withdrawn. In other words, the buyer does not lose the right to cancel simply because the contract cancellation period has expired or lapsed. It continues until a seller objects.
In such cases, sellers are advised to give buyers a notice to perform, calling for action within a certain time period, typically ranging from 24 to 72 hours. If the buyer does not sign a release of contingencies within that time period and deliver it, the seller can then cancel the contract. For more information, contact a real estate lawyer.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.