We’ve all been there: we’ve signed up for a major purchase when we think, “Wait a sec — was that REALLY a good idea?” Given the costs associated with the purchase of a home, this moment of doubt can be downright crippling when it occurs after you’ve signed a purchase and sale agreement (PSA). Usually, we get over it and press ahead with the purchase. But what if you don’t — what if you really want to back out of the deal?
Most people in this situation will turn to their agent for advice. Before you do so, however, recognize two facts. First, you’re hoping to avoid a legal obligation without incurring liability. The analysis of your situation — i.e. a determination of whether and how you can avoid your legal obligation — constitutes the practice of law. Your agent, though, is almost certainly not a lawyer. Second, your agent has an interest in seeing you go through with the purchase, as your agent only gets paid for his or her efforts if the deal closes. Many agents — and certainly those who contribute to RCG — recognize that the interests of the client are paramount, and they would not permit their own self interest to interfere with the service and guidance they provide to their clients. There are, however, other agents who, whether consciously or subconsciously, will allow their own self interest to influence the advice they give.
On the other hand, legal counsel can be expensive. In most instances, the PSA indicates that, upon buyer’s default, the seller’s sole remedy is to retain the earnest money. If that’s not the case in your situation, and if your agent did not bring this option to your attention before you signed the offer, then you may have a claim against your agent for negligent representation. However, assuming you have so limited your liability, you should compare the cost of hiring a lawyer to the amount you stand to lose under the PSA. If you put up $1000 in earnest money, then you can walk away from the deal relatively pain-free, and there may be no need for legal advice. If you put up something more significant, however, it is probably worth at least consulting an attorney so that you can identify your options.
Typically, every PSA contains one or more contingencies. Common contingencies include financing, inspection, and title. If one or more of these contingencies remain open (i.e. neither waived nor satisfied), then you may have an easy way out. If some of these contingencies at least arguably were not satisfied (e.g. a letter from the lender indicating that you did not qualify for financing, but which does not satisfy the specific requirements as spelled out in the PSA), then you at least have a position from which you can negotiate.
There may be other factors that give you some leverage over negotiations for the return of your earnest money. For example, I helped clients who rescinded a PSA for a newly constructed home. Their agent was the “designated buyer’s agent” for the development. This agent provided remarkably poor representation. Even though my clients had a weak argument, at best, that they were entitled to the earnest money, they had a fairly good claim against their agent. So, in my demand letter, I pointed out that, if the matter went to court, my clients would assert claims against this agent and would explore the relationship between that agent and the developer. Apparently, the developer decided that this was not a battle worth fighting, and it returned all of the earnest money, a substantial sum.
Ultimately, a call or letter from an attorney carries signficantly more weight than from the buyer or the buyer’s agent. If you want out of a contract and you want to avoid liability for doing so, it’s probably worthwhile to consult an attorney.
This post does not constitute legal advice or counsel. Consult an attorney about the particular facts of your situation.