Whether you are a buyer or a seller, you might believe that when an offer has been accepted and signed by both parties the transaction will close and that there is nothing to worry about. Although this is almost always the case, buyers should know that sellers can still cancel the purchase contract before the close of escrow. Here are the reasons why a purchase contract may be revoked.
1. The buyer fails to remove contingencies within the deadlines
The most common reason why a contract will be terminated is the result of the non-removal of one or more of the 4 following contingencies within the deadlines specified in the California Residential Purchase Agreement:
- 3 business days maximum after acceptance of the offer, the buyer fails to pay the initial deposit (aka earnest money) into escrow;
- 21 days maximum after acceptance of the offer the buyer does not remove the loan contingency (aka the financing contingency);
- 17 days maximum after acceptance of the offer the buyer fails to remove the appraisal contingency(bank appraiser determines the price of the home);
- 17 days maximum after acceptance of the offer the buyer does not remove the condition of the property contingency (which grants the right to inspect the property at his/her own cost)
2. The deposit is not funded, for instance a check cannot be processed due to insufficient funds
3. The buyer fails to deliver the pre-approval letter from the lender within the deadlines
4. The buyer fails to deliver verification of down payment and closing costs within the deadlines
5. The buyer fails to return the signed mandatory disclosures required such as the transfer disclosure statement, the lead-based paint disclosure, the trust advisory, etc
6. The buyer fails to sign a separate liquidated damages form for the deposit
7. The buyer fails to deliver notice of FHA or VA costs or terms if applicable
8. The buyer does not close escrow on time.
You should be aware though that for all of the above-mentioned reasons, the seller will need to notify the buyer (e.g. by issuing a Notice to Perform or a Demand to Close Escrow) before cancelling the contract.
As a result, make sure to test and select a real estate agent who clearly understands and will always remain on top of these deadlines to avoid any bad surprises.