What Happens If The Buyer Or Seller Of The Property Wants To Cancel The Contract?
As a Buyer, if you change your mind and want to cancel the contract after it is signed by you and the Seller, the Seller sometimes may try to retain the down payment, also referred to as the “contract deposit” as liquidated damages. The down payment is the Seller’s remedy if the Buyer backs out of a contract in the standard Contract of Sale. For the Buyer, you are putting your down payment at risk, which is usually 10% of the purchase price. The down payment can be a significant amount of money for the Purchaser.
As the Seller of real estate, if you decide to change your mind and back out of a contract after it is signed, then the Purchaser can sue you for specific performance, which is a lawsuit that seeks to obtain a Court Order directing the Seller proceed with the sale. In addition, the Buyer can not only sue for specific performance but also any damages the Buyer incurs because of the Seller’s default.
It is important to note that when you sign a real estate contract, you are locked into the terms of the deal and cannot cancel the Contract on a whim. Therefore, you should have every intention of moving forward with the contract and closing on the transaction.
It should also be noted that litigation is often time-consuming and expensive. It is usually best to avoid going to court if there is a reasonable out-of-court solution.
What Happens If The Appraised Value Is Lower Than The Asking Price? Can I Insist The Homeowner Drop The Price?
If you are buying a property and the appraised value is lower than the sales price you cannot insist that the Seller drop the price unless the Contract of Sale specifically contains an appraisal contingency clause. However, if the Purchaser has a mortgage contingency, and because of the lender’s low appraisal, the Lender will not issue a firm mortgage commitment as outlined in the Contract of Sale, then a Purchaser will often be able to cancel under the mortgage contingency provision in the contract. This is a “back-door” appraisal contingency just by having the mortgage commitment contingency in place. Most of the time when the appraisal comes in low and the Buyer cannot obtain the mortgage commitment, the Buyer and Seller will negotiate a new sales price, and sometimes the Purchaser is willing to pay a little bit more out of pocket, to bridge the gap between the mortgage amount in the mortgage contingency clause and how much the lender is willing to lend post-appraisal. If the Buyer and Seller cannot reach a compromise on the sales price and the Buyer decides to cancel based on the mortgage contingency clause, the deal sometimes falls through and the parties go their separate with the down payment being refunded to the Purchaser. Each Contract of Sale is unique as are the facts of each so there are no absolutes when it comes to these issues. However, the above options are typical when the buyer’s mortgage loan appraisal comes in low, and the Lender will not loan the amount indicated in the mortgage contingency clause of the Contract.
For more information on Cancellation Of A Real Estate Transaction, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (800) 619-3570 today.
CALL NOW FOR A CONSULTATION
Toll Free: (800) 619-3570
New York City: (212) 786-7950
Westchester County: (914) 719-6970