When you enter a real estate contract, you have a due diligence period to take advantage of backing out of the contract without any consequences. But what if you break the contract after the due diligence period has expired? By design, real estate contracts aren’t supposed to be easy to break. After all, if they were, then they’d be useless as anyone would not honor the deal. Here’s what you could expect if you break contract:

If You’re a Buyer…

If you are a buyer and break the real estate contract, then you may:

All real estate contracts should have a dispute resolution process in it that will help both buyers and sellers reach an accord without going to court.

If You’re a Seller…

Whereas, if you’re a seller and you break the contract with your buyer (for example, you refuse to sell after all is said and done) then you could be subjected to the following:

  • Returning the earnest money the buyer gave you when they entered into negotiations with you
  • Be forced by the buyer to go through with the sale
  • Being sued by the buyer for breach of contract

If the buyer is keen on going through with the sale, then you can simply renegotiate the contract and go through with the sale. If the sale doesn’t go through, you could also be sued by the real estate agent for lost commission and time.

Avoiding Consequences for Breaking Contract

There are ways you can break a real estate contract without consequences. For one, never sign a contract without reading it thoroughly & without understanding.

Secondly, you can add in a contingency clause where specific criteria must be met in order for the contract to be binding. If these criteria aren’t met, then parties can back out with no consequences. A criterion could be if an inspector inspects the home and finds something wrong with it, then the contract can be cancelled. Talk to your real estate agent and an attorney about contingency clauses that are easy to understand for all parties.

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.