The Contract
Summary: Can I cancel a real estate contract? That’s the question asked by a person that wants to walk away from a real estate deal because there are too many issues with the house, builder, and real estate agent.
Q: We agreed to purchase a home under construction. We have had no say into what the builder is putting into the home. Our financing is in place. We signed a contract for the purchase and delivered $2,000 earnest money. The closing is in about a three weeks. The problem is that there are two many issues with the house, builder and the real estate agent that we cannot seem to resolve. In fact, there are too many problems to list. Can we cancel the contract?
A: In general, you can’t just terminate a contract. There must be some reason for the termination, and that justification must have some basis under the purchase contract or under a statute in the state of Tennessee.
You need to review the contract and determine whether the builder is in violation of the terms of the contract. You may also find out if all of the “problems” with the house would prevent the local municipality from issuing its certificate of occupancy. Certainly, if the builder can’t get a certificate of occupancy due to construction problems, you should not have to close on the purchase of the home.
If you believe that there are problems with the actual construction of the home, you may wish to discuss these with a professional home inspector to determine if these problems are major or minor.
If you discover that the home has major construction or structural issues, you can always try to contact the local building department to determine if they have inspected the home and if they have cited the builder on these issues. If they have cited the builder, the builder should correct these issues prior to your closing.
You should consult with a real estate attorney, who can look over the document you signed, and get his opinion on what options you may have.
In the story above, all these problems could have been averted if they had hired a Buyer Broker that has extensive experience in building as Knoxville Discount Realty has. We would have insisted they hire a professional home inspector to level the playing field with the builder and we would have put contingencies in the contract that would have protected the buyers, also we would have looked over the plans and specifications and the buyer would have agreed on them before the contract was signed and if the builder deviated from them it would be grounds to void the contract.
Some buyers make an offer to buy a home before they even list their own home for sale. However,they need to sell their present home in order to come up with the down payment to make the purchase. So they make their offer “conditional” on the successful sale of their own home.
That is a “contingency.” Actually, it is a major contingency. Contingencies are important in real estate contracts because they limit a buyer’s or seller’s responsibility to fulfill the contract and close the deal. Some are major, some are minor.
Some contingencies are frowned on-others are not. Other contingencies are “normal.”
For example, in a seller’s market most sellers would not accept the contingency listed above. A potential buyer with a home to sell should already have their home listed And have an accepted offer from a “ready, willing and able” buyer.
Also, the seller would not want to take his home off the market while waiting on the buyers home to sell.
Other contingencies make perfect sense. For example, a buyer might want to make their purchase “contingent” upon their ability to obtain financing. If they can’t get the loan, they can’t buy the house anyway, so it is a contingency that makes sense.
Another buyer may want to make his offer contingent on the home appraising at (or above) the purchase price. Since the appraiser is hired by the lender and is independent of the actual transaction, that is another contingency that makes sense.
In addition, there are loads of inspections. Buyers will often want to make sure the property passes these inspections, so these become additional contingencies,and that is what makes a real estate contract different than most contracts.
Most contracts are set at the time of offer and acceptance. They are a “done deal” and both parties are liable to fulfill their obligations no matter what. If either party attempts to renegotiate any point, the other party can “void” the original offer and acceptance. Real estate contracts have specific clauses which allow renegotiation in limited areas. For example, a real estate contract may require a buyer to get his home inpsection in fourteen days. It allows the buyer three days (or whatever) to review the inspection and report any problems to the seller. If no problems are reported, that contingency automatically disappears.
Suppose the inspection is performed within the required time frame, it shows a
door knob missing and the buyer reports that problem to the seller. What happens next? The buyer and seller renegotiate that aspect of the deal. It’s a legal contingency. It is subject to renegotiation. The seller may decide to replace the door knob-or he may decide not to replace the door knob. The buyer decides whether it is worth losing the house over a missing door knob or not. The seller decides whether it is worth losing a buyer over a small thing like a missing door knob.
That example was purposely minor. The problem could be a faulty heating and air conditioning system. That would require more serious thought.
Contingencies are a part of real estate contracts and so are re-negotiations-but only in limited areas and according to the contract. Some buyers and sellers never fully read the contract-be sure to read yours. Knoxville Discount Realty would help you with every phase of the contract and would insist you let a good real estate attorney read and explain any thing you were concerned about.