Terminating Real Estate Contracts

terminated contract

I have been involved in a whole rash of transactions where the sellers are trying to avoid selling their properties even though the sellers entered into valid purchase and sale agreements with buyers. In nearly every one of the cases, the buyer’s agent was unsure of what to do.

Seller Termination Options

Buyers have contingencies.  Generally, sellers do not.  Therefore, once your seller signs a purchase and sale agreement, the seller likely has no option to terminate the contract unless the buyer agrees to terminate or the buyer has breached the contract’s terms, e.g., failed to close on time,  failed to deposit earnest money and the like.  The seller who wants to terminate must allow the buyer to inspect the property (and should, given that the buyer may elect not to purchase based on it).  The only real option the seller has in this situation is to refuse to make repairs.

It is acceptable for the seller to ask the buyer to agree to a termination, though it is rare for a buyer to agree.  However, if you represent the seller make sure to:

  1. Advise the seller in writing to get legal advice before attempting to terminate; and
  2. Get the seller’s permission to disclose the reason for the termination before actually disclosing it.

If the seller will not net enough or has just broken up with her fiancé, he or she may not want to advertise the reason.  It is also possible that the reason, if disclosed, will hurt rather than help the seller’s case, hence the need for the seller to see an attorney.  Whatever you do, do not request a letter from the seller explaining the reason unless the seller’s attorney has both agreed it should be sent to the buyer and vetted the contents.  These letters don’t help because they inevitably include facts that make it very difficult to resolve the  termination in the seller’s favor.

Buyer Termination Options

If you represent the buyer, remember professional is not a synonym for agreeable.  You need not say “yes” to the listing broker, so long as you say “no” in a professional manner.  In other words, it is just as important to learn to say “no” confidently and professionally as it is to learn to say “yes.”

The buyer in this situation is under absolutely no obligation to agree to the termination.  As the buyer’s broker, you should not try to convince the buyer otherwise.  The buyer may bring an action called “specific performance” to require the seller to actually sell.  If the buyer wants to purchase, you need only say “the buyer is not willing to terminate.”  Professional, yes?

By the way, I have never actually had to litigate a specific performance lawsuit as the threat is usually enough to cause the seller to rethink his or her decision.

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