It’s pretty well known the importance of contracts. A contract is a legal document that spells out performance requirements between all parties and what would be considered a breach, or non-performance.

In terms of real estate, the performance items are listed in the sales contract with regard to who real estate contractswill do what and by what date. And what can happen if those milestones aren’t met. When can you typically pull out of a real estate contract without penalty? And still get your earnest money deposit back?

As the buyer and seller execute a contract and the buyer sends earnest money to a third party, the clock begins to tick. Real property will exchange hands on a specific date and the buyer and seller are locked up until the closing date. Yet both the seller and the buyer have clauses that allow for either to pull out of the contract and avoid any future litigation.

The seller can cancel a contract and keep the earnest money should the buyer simply walk from the deal without reason. Otherwise, the buyer is typically required to have certain things done by a certain date besides the closing. For example, a sales contract might have a financing addendum that requires the buyer to be approved by the lender without conditions. If not, the buyer could be found in default and lose not just the house but the earnest money as well.

The buyer on the other hand can walk from a deal if after the initial inspection property issues are found that were not originally disclosed by the seller. The buyer can then ask the seller to reduce the sales price or repair the items but if the seller refuses, the buyer can cancel the contract and request the earnest money refund. If the property doesn’t appraise high enough the buyer also has an out and can ask the seller to again renegotiate or otherwise the buyer will cancel. Contracts mean business and if someone isn’t doing their part, the contract could be canceled altogether.