HELP! I need to Cancel a Real Estate Contract!
HELP! I Need to Cancel a Real Estate Contract!
LETS SAY: You are a buyer looking to buy a home in Tampa Bay and you hope to make a smart decision. You find a home you like and are eager to put in an offer, but you want to cover all your bases...and not get stuck with a house problem…or jeopardize your escrow deposit.
What questions should you ask? How long before you get answers? Do you need to know everything before you sign an offer? Will it get sold while you think about it? What if you want to later cancel the real estate contract?
Here are some answers that you will discover in this article.
- How to buy smart when I don’t know what to ask?
- Can I always protect myself with contract contingencies?
- Is my escrow deposit always in jeopardy?
- Can the seller ever cancel my contract?
- HOW CAN I CANCEL A REAL ESTATE CONTRACT WITHOUT LOSING MY MONEY??
Where does a Smart Home Buyer Start?
Gathering information and filtering questions starts with your own consultation with your dedicated buyer’s broker. This will help narrow down your wants or needs and help you understand your home buying rights as a home buying consumer. Do this before looking at homes.
After viewing homes more questions may come up and details can be researched about a property once the list of homes is shortened.
However, not all answers can be resolved before you go to contract.
How does a buyer proceed when they do not have all the answers on the property?
with contract contingencies in your offer.
The best way to insure you are not stuck buying a home that does not fit your needs, or is not what you thought, is to add contingencies to a contract so that you have an option to cancel the real estate contract if needed and keep your escrow deposit out of jeopardy!
Contingencies also allow additional time for you to get the answers to your questions without the property being sold to someone else while you investigate.
Contingencies in a contract can help a buyer cancel a real estate contract, if there are any potential “deal killers” discovered during your investigation period.
Hold on to your seat… this is about to get real. By now you probably already know that when you are looking to purchase a home that hiring a good Buyer Broker with experienced knowledge will help you navigate contract contingencies. Below, you will also learn the most common questions that Buyer Brokers hear most often from home buyers.
Types of Contingencies in a Real Estate Contract
There are three types of contract contingencies:
Common contingencies are already built into the FAR/BAR Florida Real Estate Contract.
Then there are buyer specific contingencies that could/should be added to the contract.
Contingencies that are contained in Florida Statute.
Let’s take a look at all three categories and how they may assist a home buyer if they need to cancel a real estate contract.
By exercising contingencies, the buyer will be able to cancel a real estate contract and have their Escrow Deposit refunded to them.
What is an Escrow Deposit in a contract?
An Escrow Deposit is a buyer’s good faith money deposit put down on the contract. It shows the seller that you are committed to the purchase.
In most cases, this money is paid to the title company at the onset of a contract and held in an escrow account where it stays until there is a change in the contract by either a closing or a contract cancellation.
The amount of an escrow deposit is a negotiable item in the contract. Your buyer's broker can help you determine what amount to offer.
Your escrow deposit is usually safe as long as you watch your time lines for contingency deadlines.
Contract Contingencies in a Florida Far-Bar Contract
These are state contracts written for Florida Realtors by the Florida Bar.
The FAR/BAR AS-IS contract is the most common contract used 88% of time, so we will focus on that one.
The FAR/BAR AS-IS contract has some built-in contract contingencies that allows a buyer to cancel a real estate contract should the buyer exercise this right within the allotted time period. (which is negotiated)
Here are common contingencies for FAR/BAR AS-IS Contact:
Inspection Period Contingency: This allows the buyer to cancel the contract for any reason at their sole discretion prior to the expiration of the inspection period.
The contract defaults to 15 days for the inspection period, but it is often negotiated by the seller to a reduced period of time…more likely 7-10 days.
The inspection period allows the buyer to hire a home inspector for the home as well as address any other questions that may be relevant to the buyer, such as HOA, or community questions.
If the buyer provides a cancellation of the real estate contract to the seller before the expiration of the inspection period, the buyer is entitled to a refund of their Escrow Deposit that was deposited on the contract. This allows a buyer to freely cancel a real estate contract.
Financing Period Contingency: This is also known as a “Loan Approval Period” which defaults to 30 days and is applicable for buyers that need to borrow money in order to close on the home.
This allotted period of time allows a buyer to pursue their loan approval contingency and a loan appraisal contingency that is satisfactory to the lender (not to the buyer).
Ultimately if the buyer does not qualify for the loan or the appraisal is not satisfactory to the lender, the buyer has a right to cancel the real estate contract prior to the expiration of the Loan Approval Period.
Those contingencies give the buyer the right to cancel the real estate contract and also have their Escrow Deposit returned to them.
Please note that an appraisal contingency is not based on a certain valuation unless stated in the offer. Otherwise, an additional appraisal contingency would need to be added in order to have a contingency based on the purchase price and satisfactory only to the home buyer.
Custom Buyer Specific Contingencies
Sometimes the contract, addendums, and disclosure may not address contingencies that could be important to a home buyer. In this case, additional contingencies can be added, which may include the following:
Homeowners Association (HOA) Documents:
This is a common one. Most buyers want to know about the Covenants, Conditions and Restrictions (CCR’s) of the specific HOA before they proceed with closing. These documents will address the community rules and regulations.
Common questions come up whether pets are allowed, fences are allowed, and short term or long term rentals are not restricted.
These documents are not automatically available but can be specifically requested from the seller.
Solar Panels: With the growing nature of homes with solar panels, buyers may want to add a contingency to make sure that the balance of solar payments will be paid off by the seller at closing.
If not, then a contingency that the buyer must qualify to take over the seller's solar panel financing or lease and that those terms are acceptable to the buyers.
Survey Contingency: You may want a contingency to determine allowable space to build a pool, fence or add on to the home size.
Homeowner Insurance: If a buyer is purchasing a coastal property, a large property or commercial building and has specific insurance concerns, a contingency for that can be added.
Florida Statute Contingencies (A statute is a law enacted by a legislature).
Regardless of whether these certain items are documented in a contract, Florida has some specific Florida Statutes that impact a real estate transaction.
Homeowners’ Association/Community Disclosure: Per Florida Statute 720.401 a buyer can void the contract and cancel within 3 days after receipt of the Disclosure, if the buyer did not receive the HOA Disclosure prior to signing a contract to purchase a home.
Condominiums: Unlike HOA’s, Florida Statute 718 automatically allows buyers to request the following information, including new information forthcoming with new condo inspection laws.
The buyer can void and cancel the contract within 3 days of receipt of the requested condo information. Even if that information is provided to the buyer at the closing table…yes, the buyer can delay the closing.
The Home buyer is entitled to receive the following condo docs at the sellers expense:
- The Declaration of Condominium.
- Articles of Incorporation of the Association.
- The latest financial statements.
- Frequently Asked Questions.
New Changes to Florida Condo Rules
Due to the Surfside Condo collapse in Miami in 2021, Florida legislation has implemented more changes for condo building inspections, condo boards, and reserves.
This is a huge change to the condo real estate market and specifically to Tampa Bay with the large number of condos available with close proximity to the water.
Right now condos that meet the criteria below are required to implement these new changes; the documents will be fully available for home buyers on all condos purchased after December 31, 2025.
Stay tuned for these upcoming additions as well as updates to the condo riders for purchase.
Condo buildings today are required to get special inspections which can also be used as contingencies in your contract.
- If the building is 3 stories or higher
- Condo 30+ years old located more that 3 miles from the coast
- Condo 25+ years old located within 3 miles of the coast
- Certificate of occupancy done prior to 1992 must be updated to 2024.
As these condos acquire these new reports, home buyers are entitled to receive the reports. The homebuyer can then cancel the real estate contract within 3 days of receipt.
- Governance Form. This form is so that the purchaser understands the board and governance.
- Milestone Inspection Report. This report evaluates the structure and must be completed every 10 years.
- Turnover Report. This report evaluates structure plus all other components of the building when the developer turns over control of the condo association to the owners.
- Structural Integrity Reserve Study. This report shows what the amount of reserve needed to take care of repairs.
Military Members: Florida Statute 689.27 (2)(a) allows a service member to terminate a real estate contract before closing if there is a disruption in the active service member location while under a real estate contract. (or a rental lease)
To Clarify: a Military Member can cancel their real estate contract ( or lease) without penalty if:
- They receive a permanent location change 35 miles or greater from the property location.
- Or they are assigned to a temporary location change greater than 90 days.
- Or they are released from active duty and the property under contract is more than 35 miles from service members' hometown.
The military member must provide the seller, or landlord, and the mortgagor the papers of an official copy of the military orders or written orders from his/her commanding officer in order to cancel a real estate contract without penalty.
When should you add contingencies to a contract?
Home buyers should try to keep the contract contingencies at a minimum or just include the most important deal breakers.
If the buyers ask for too much, the seller will perceive it as too picky and it may push the seller to select a different offer with less contingencies. No seller wants a hassle…especially when there are other offers to choose from.
A good buyer's broker will let you know what contingencies are appropriate for the market scenario and which ones you need to keep to be protected in your contract.
Are there contingencies in new home builder contracts?
New construction contracts are considered “contracts of adhesions" which essentially means there will not be any changes and it is a “take it or leave it” contract.
However, typically there is one allowable contingency and that is for financing for home buyers pursuing a loan. This financing contingency is not a guarantee in every contract or with every builder.
There are exceptions:
Some builders will remove the buyer's financing contingency completely if a home buyer uses an “outside lender”. (That means a lender of your choice and not the builder's lender).
On rare occasions there have been builders who do not have a financing contingency at all…
Even if you do use the builder's lender, the builder will ONLY allow you to keep the financing contingency in the contract for 30-45 days.
For Example: if the new home takes 9 months to build and you lose your job in 8 months and no longer qualify for the loan, you will need to either pay cash for the home or the builder can exercise their right to keep your deposit.
3 Most popular questions from Home Buyers
#1 QUESTION: Can the seller cancel my contract? ANSWER:The quick answer is “no” because almost all of the contingencies are for the buyers. However, here are more details.
#2 QUESTION: Should I use the builder's lender? ANSWER: The short answer is that it depends upon your personal finances. Go here for more details.
#3 QUESTION: “If I cancel the contract, will the seller pay for my money spent for inspections and appraisal?” ANSWER: Not unless the seller breached the contract. If you as a home buyer simply exercise your contractual right to cancel the real estate contract then the answer is “no”.
There is no automatic language in the real estate contracts that allows the buyer to be reimbursed for expenses, if you do not like inspection results or cannot qualify for financing and have those contingencies, then the answer is still “no”.
Likewise, the seller is also not reimbursed for any expenses or lost time on market due to you canceling the Real Estate Contract.
Summary of what you just learned:
There are several different types of contingencies:
- Contingencies already built into the contract
- State of Florida Statute contingencies
- Custom contingencies added to protect the buyer
- Custom Contingencies based on the type of home purchased;condo, single family,townhome or vacant land.
- Contingencies should be added to the contract for the protection of the home buyers needs and the buyers investment…not always just to cancel a real estate contract.
While you do not need to memorize all the contingency possibilities, you do need to hire a good Buyer's Broker to represent your best interest and protect your money.
This blog is a perfect example of why you need an experienced Buyer Broker to help you navigate the complexities of Florida Real Estate Contracts and Cancellations.
Call Buyers Broker of Florida 727-202-9130.