Although buyers may sign contracts to close on a real estate purchase, they might later wish to back out for various reasons. Their financing might fall through, they might discover significant issues with the property, or they might get cold feet over such a large purchase. But does Pennsylvania real estate law allow a buyer to cancel a purchase contract?
The Basics of Real Estate Contracts in Pennsylvania
A real estate contract, also known as a purchase and sale agreement, represents a binding commitment between a buyer and seller to close on a property transaction. Real estate contracts typically contain various conditions that the parties must satisfy before they can close. The contract may also impose deadlines for satisfying closing conditions or closing the transaction.
Common Legal Grounds for Cancellation
Some of the most common reasons why buyers may seek to cancel a real estate purchase agreement include:
- Inspection Contingency – A buyer may insist on a home inspection and negotiate the right to cancel the contract if the inspection reveals specific issues with the property, such as foundation or structural problems, or unpermitted additions or renovation work.
- Financing Contingency – A real estate contract may give a buyer the right to cancel the deal if they cannot secure mortgage financing despite their best efforts.
- Appraisal Contingency – Buyers may have the right to back out of a purchase agreement if an appraisal values the property for less than the purchase price or another designated figure, which can cause mortgage financing to fall through or disqualify a buyer from certain types of financing, such as VA loans.
- Home Sale Contingency – A buyer may negotiate a closing contingency that requires them to have sold a property they currently own before closing on the present transaction, as the buyer may use the funds from that sale to purchase the new property. The buyer may have the right to cancel the contract if they fail to sell their present property by a specific deadline.
- Title Issues – Purchase contracts may permit a buyer to cancel if a title inspection reveals issues like breaks in the chain of title, undisclosed covenants or easements, or another party’s superior title to the property.
Real estate contracts typically require parties to exercise their right to cancel due to a failure of a contingency or another designated issue with the sale by a specific deadline or before the original closing date.
What Happens if the Buyer Doesn’t Have a Valid Reason to Cancel?
In some cases, buyers may have second thoughts about a property purchase and may seek any excuse to cancel the transaction. However, when a buyer does not have a valid basis to cancel the purchase contract, the seller may hold the buyer in breach of contract. A seller may pursue various remedies, such as keeping the earnest money deposit and seeking compensation for consequential damages, including additional selling costs or lost sale price when the seller ultimately finds another buyer at a lower price. In certain circumstances, a seller may also seek an order of specific performance from a court, which would require a buyer to close on the parties’ deal.
Contact a Real Estate Lawyer Today
Whether you want to cancel a contract to buy that you’ve signed or the buyer of your property has sought to cancel your purchase agreement or indicated they want to do so, you need experienced legal counsel to protect your rights and interests. Contact Gusty Sunseri & Associates, P.C., today for a free, confidential consultation with a real estate attorney to learn more about a buyer’s ability to cancel a real estate purchase agreement in Pennsylvania.