There are certain circumstances where you are compelled to cancel a real estate contract. A huge financial loss, sudden unemployment, relocation, illness – the reason could be anything. Unfortunately, many people assume that they can cancel a contract without consequences. This is a myth. The truth is, other than the earnest money, you will lose more than you have ever imagined. Therefore, you want to read the agreement again and again to make sure that you are canceling for an allowable reason.
Legally speaking, you are responsible for all damages because of breach of contract. The extent of damage is determined by the agreement terms, in most ideal cases, it is the forfeiture of earnest money. But what if the seller has signed a Higher Offer LLC contract to buy another home and is relying on your closing? What if the seller sells the house for a lower price in the future? The worst thing that can happen here is, you may have to pay up the difference.
The only way to not encounter scenarios like the above is to review the contract to make sure that you are losing earnest money only, and your reason is valid according to the agreement. Track the language on the agreement and make a note of it when writing correspondence to involved parties. Check the mentioning of the earnest money and see if you are losing more than that. Losing that money is sad enough but it is far better than getting a lawsuit notice from the seller. The court and lawyer cost to fight the situation will run easily into thousands of dollars. With a jury trial, you can easily lose close to a significant portion of the value of the house itself.
So, what do you do to proceed with the cancellation of the contract? Do you send the notice immediately? To know this, check the time limit on the agreement. If there is no mention of this, you still must give notice within a reasonable period, say a week. If the contract says notice is effective only when it is mailed through certified mail, do so. There is a big difference between sending it certified versus having it delivered overnight. Overnight delivery may be faster, but it is of no use when the receiver doesn’t have to send acknowledgement in return. What if the receiver is on vacation at the time the notice is sent? Nevertheless, you can send it through multiple ways and ensure that the seller received the message, so he or she can take proper action. Certified mail can be slow, so an email or fax explaining the situation beforehand is the right move. Do not write lengthy letters that shows your emotions or state of mind. Be polite and as professional as possible when giving your reason for canceling the contract. Better yet, get the help of a real estate agent who is experienced in dealing with similar situations.