Cancelling a Non-Contingent Contract

As a buyer in California, the purchase agreement that you fill out, sign, and provide to a buyer is very much in your favor. There are a number of contingencies that buyers can put in place that protect them throughout the life of the transaction. However, the state of California also allows buyers to submit non-contingent contracts to purchase a home. 

These non-contingent contracts are essentially a promise that you’re going to purchase a home no matter what. These offers say that you’re not worried about home inspections, loan contingencies, appraisals, or any of the other facets of a real estate transaction that can allow a buyer to opt out of the deal. 

What happens if you, as the buyer, want to opt out of the deal after you have made a non-contingent offer on a home?  How do you go about canceling a non-contingent contract? Is there any way for you to still get out of the deal if you have a change of heart? While these questions are best suited for a real estate attorney, I can look at my personal experience as a REALTOR in the Bay Area. Understanding the process for cancelling a non-contingent contract to buy a home ensures that you’re keeping all of your options open.

The Earnest Money Deposit

In the same vein as traditional purchase contracts, these non-contingent contracts also include an earnest money deposit. This deposit is essentially a way of telling the buyer that you are committed to completing the transaction.

Most seller’s agents request an earnest money deposit of somewhere between 1% and 3% of the price of the home. In fact, the maximum allowable amount for an earnest money deposit in California is 3%. This money does not go straight to the buyer. Instead, it is put into an escrow account with an escrow company is going to oversee the financial aspects of the transaction.

If you make the decision to pull out of a non-contingent offer to buy a home, you will need to make a decision about what to do with the earnest money deposit. The money cannot be distributed to the seller until both the seller and the buyer sign a form known as escrow instructions. However, if you don’t sign the paperwork, you also don’t just get your money back. Instead, the funds remain tied up in the escrow account until an agreement is reached. 

This puts the buyer in a precarious position. First of all, the buyer cannot just go out and find a new buyer for the home, because it is not legal to have multiple escrow deposits on the same property. When opening an escrow account, the seller has to certify that he or she is not in contract with another buyer at the time. Since the money is still tied up in the escrow account, they are still technically in contract. 

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What Can the Seller Do?

Ultimately, the seller’s best option in this case is to threaten civil litigation against you, the buyer. Take note, even if you didn’t put money into an escrow account through an earnest money deposit, you can still be held financially responsible for damages suffered by the seller. Obviously, if you are threatened with any type of civil litigation, your best option is to immediately contact an attorney. 

Your decision to opt out of the deal after signing a non-contingent offer to purchase creates other problems for the buyer. Not only can he or she not accept a new offer, but the lawsuit creates a cloud on the title of the property. No lender will offer a loan on a property that has a cloud on its title. Additionally, most cash-paying buyers won’t want to make an offer on a property that is tied up in any kind of litigation.

These issues increase the likelihood that a buyer would take legal recourse against you for cancelling the deal. However, there are still legal ways for you to get out of the contract. 

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What Can I Do to Cancel the Contract?

Virtually every seller in the state of California is required to fill out a Transfer Disclosure Agreement, also referred to as a TSD. This form covers a variety of topics about the property. Also, there are legal aspects to consider. If the form is delivered to you in person, you have three days to review the information. If the form is delivered through email or another method, you have five days to review the information.

This is where you may be able to find your out. If you’re thinking that you want to change your mind about the purchase, carefully review this form. First of all, make sure that it was filled out completely. If the buyer missed anything as minor as a single box that needed to be checked, you have the right to request a new form. If you don’t like any of the information contained in the form, you have a legal right to reject the form, thus allowing yourself a way out of the transaction.

Additionally, as of July 1, 2021, the state of California started requiring sellers to include a form that discusses the fire hazard associated with a property. Since the form is so new, many buyers and their agents fail to include it. If you did not receive a copy of this form, you have a legal right to cancel the offer that you made on the home. 

Finally, you can get out of the deal if you find out that the seller did not disclose any un-permitted improvements or additions to the home. Remember, this doesn’t just include improvements that they made to the property. If you can find any additions or improvements that a previous owners made without a permit that the seller knew about, you can cancel the offer.

Ideally, neither buyers nor sellers would look for a way out of a contract after it has been signed. However, there are some options available to you. Make sure that you’re comfortable with every detail of the property before you make an offer, including the property’s insurability, a topic which has surged to the forefront in recent months.

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About the Author
Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.