Can buyer back out of a real estate contract?

Question: Dear Kari, After having our family home on the market for more than four months we finally received an offer. Our agent referred to the potential buyer as a lovely couple with two small children. We had to engage in extensive negotiations before finally settling on a firm deal. As time passed, we were busy packing with excitement of moving to Arizona to be closer to our grandchildren. Our happiness came to a fast halt when our agent gave us the bad news: The buyer backed out of the deal. We are devastated. This is not right. How can this happen? Answer: I am so sorry this unfortunate situation has happened. While this won't lessen your pain, please know that a buyer backing out of a sale in not uncommon, especially in today's market. The entire process of buying and selling a home can be intense, involving strong emotions with a significant amount of money on the line. Both parties may encounter several hurdles and bumps that must be overcome before a home sale can make it to the closing table. Once a purchase contract is signed by both buyer and seller it is legally binding. Therefore, if the buyer decide to back out of the deal, it can be quite costly for them unless the purchase contract includes protective contingencies. A contingency is a condition written into a purchase contract that must be met before the home sale can be completed. In other words, it's a clause that makes the deal dependent on certain requirements being satisfied. If these specific contingencies are not fulfilled, the buyer can cancel the deal without losing their deposit money. Let's look at some common contingencies in purchase contracts: · A financing contingency allows the buyer to back out of the sale if they are not able to secure the mortgage approval. Sometimes, the loan can be denied even when the buyer has pre-approval from their lender. Reasons for denial may include rechecked credit showing issues, changes in loan terms, the application did not contain all of the buyer's debts, etc. In this case, the buyer can cancel the contract. · Home inspection contingency allows the buyer the right to have the home professionally inspected. If the inspections uncover problems with the home, the buyer may request repairs or credits from the seller, negotiate the purchase price downward or cancel the contract. · The appraisal contingency is most crucial when the buyer is financing the home. Most lenders require a professional appraisal to confirm the property's value which, needs to support the loan amount. If the appraisal amount comes in lower than the agreed purchase price, the buyer may cover the difference in cash, ask the seller to renegotiate the price or cancel the deal. · Homeowners insurance contingency allows time for the buyer to search and confirm they can obtain adequate homeowners insurance for the property at a reasonable cost. If the buyer is unable to secure said coverage, they can cancel the contract. · Title search contingency allows the buyer to examine the search performed by the title company. This is to make sure the home does not have issues that would prevent the clear title being transferred to the buyer. For example, unpaid taxes, contractor liens, boundary disputes, issues with public recodes or claims on deed, etc. In the event a clear title cannot be issued by the title company then the sale cannot take place. · Homeowners association (HOA) contingency applies to homes or condos governed by an HOA. This gives buyer the right to review HOA agreements, rules and financial documents before fully committing to the purchase. In the event the buyer disagrees with anything, they can cancel the contact. · Current home sale contingency, which means the offer on the seller's home is conditional on the buyer selling and closing on their current home. If they are unable to do so within the specified time, the sale will be canceled unless new negotiations can take place mutually between buyer and seller. Legally agreeing to buy a home is a serious commitment and should not be taken lightly. The best protection is to write in contingencies to the purchase contact up front. In addition, make darn sure both buyer and seller stay within the allotted timeframes that accompany each contingency otherwise you could find yourself forking over the entire deposit money and in some cases much more, depending on the fine print in the body of the purchase contract. Always make sure you work with an experienced real estate agent who can guide you through the entire real estate processes with your best interest first at all times. I wish you the best in your real estate adventures.