When it comes to buying a home, there’s a crucial step that involves putting down a good faith deposit, also known as earnest money, once you’ve gone under contract. This deposit is typically held in a neutral escrow account, safeguarding it until the deal is finalized. However, circumstances can change, and you might find yourself wondering how to exit the contract without losing your earnest money.
In this comprehensive guide, we’ll explore nine legitimate ways to safely exit a real estate contract and ensure you get your earnest money refunded in full. Whether you’re a prospective homebuyer or just curious about the intricacies of real estate contracts, we’ve got you covered.
Buyer Contingency Addendum: Your Safety Net
Due Diligence Period: The Inspection Window
Buyers have a critical period known as the Due Diligence Period during which they can inspect the home thoroughly. This period usually lasts for 10 days, but in today’s fast-paced market, it can be shorter or even waived. During this timeframe, you can cancel the contract for almost any reason and complete a form called the BINSR (Buyer’s Inspection Notice and Seller’s Response). Ensure your reason for cancellation relates to the property’s condition, not external factors.
Appraisal Contingency: Protecting Your Investment
SPUDs: Seller’s Property Disclosure Statement
The SPUDs, or Seller’s Property Disclosure Statement, is a document where sellers should disclose any known issues or defects with the property. Buyers have the right to cancel the contract within five days of receiving this document if they discover something alarming. It’s crucial to review SPUDs carefully for any red flags.
Loan Contingency: A Safety Net for Financing
If your loan application is denied by the bank or lender you’re working with, this serves as grounds for a refund of your earnest deposit upon contract cancellation. Loan denial can occur for various reasons, such as a job loss, interest rate changes, or new debts. Remember, buying that Ferrari while waiting for your home to close is not advisable!
Title Commitment: Uncovering Property Rights
CC&Rs: HOA Rules and Restrictions
CC&Rs, or Covenants, Conditions, and Restrictions, are rules imposed by homeowners’ associations (HOAs). If you disagree with any HOA rule, you can use it as grounds for contract cancellation. It’s important to read through the CC&Rs to ensure you’re comfortable living under these regulations.
Insurance Claims Report: Uncovering Past Issues
The Insurance Claims Report, which the seller must provide, discloses any insurance claims made on the property in the past five years. If you find significant issues like a major water leak that caused substantial damage, you can cancel the contract.
Custom Clauses: Tailoring the Contract to Your Needs
You can add custom clauses to the purchase contract as contingencies. While some ideas, like a contract contingent upon the Phoenix Suns winning the championship, might be outlandish and challenging to get accepted, custom clauses can address specific concerns or unique situations.
Can the Seller Cancel on the Buyer?
In conclusion, understanding the various contingencies and provisions within a real estate contract is essential for both buyers and sellers. These safeguards ensure that if unforeseen circumstances arise, you can exit the contract without losing your earnest money. Always consult with a real estate professional or attorney for guidance on your specific situation, and remember that real estate laws can vary by location.