When your buyer signs a sales contract to purchase one of your properties, once both signatures are inked and consideration given, it’s an official contract. A legal document. Sales contracts will vary a bit from state to state but most all contain similar language regarding who is supposed to do whathow to cancel a contract and by when.

The buyer places an earnest money deposit with a third party and the process begins. The buyer however still has time to withdraw the offer and still get the earnest money deposit back. Here are three legitimate reasons your buyers can back out without penalty.

Option Clause.  In some areas, an option clause is common. For a small fee, say $200, the buyers can back out of a contract for any reason whatsoever, usually within a 5-10 day time frame. Even if the wind changes direction or another home came up that looked better to them, an option clause is a “get out of jail free” card. Or least get out for the amount of the option fee.

Sale Contingency.  Buyers who can’t qualify for a new mortgage to buy your property without the proceeds from the sale of their current home is another typical reason buyers have to cancel. The contingency clause will be written into the sales contract and all sales contracts address this contingency. In strong markets, most sellers opt to refuse any contingency to first sell the buyer’s existing property.

Appraisal Issues.  The sales contract will state whether the buyers are obtaining a mortgage or paying cash. If obtaining a mortgage, the lender will establish a loan amount based upon the lower of the sales price or appraised value. If the appraisal comes in much lower than the agreed upon price, the buyers are typically allowed to make a counter offer or walk from the transaction altogether and still receive their earnest money back.

There are other performance issues that allow both a buyer and seller to cancel a contract after it’s been signed and will be noted in the contract. Most often, the reason for cancellation is a simple “no harm, no foul” situation where new information was discovered after the signing or one of the contingencies could not be met.