Canceling A Real Estate Contract In Massachusetts

by | Feb 23, 2024

Can a seller or buyer back out of a contract? Wanting to back out of a contract isn’t uncommon. If you feel buyer’s remorse or have changed plans, you must know your options and the laws around canceling a real estate contract.

It’s possible to cancel a real estate contract, but it may not come without consequences.

Here are the facts you need to know:

  • When a buyer or seller signs a real estate contract, they’ve committed to a legally binding agreement.
  • Laws around real estate contracts tend to favor buyers, who’ll face minimal consequences if they cancel during the contingency period.
  • Sellers could face consequences like releasing the earnest deposit with interest, reimbursing out-of-pocket expenses, or even paying judgment debt if the buyer sued them.

Luckily, the real estate world is full of very understanding people who don’t relish in other people’s misfortune. If you have a legitimate reason for canceling your contract, talk with your realtor and an attorney, and don’t hide material facts from the buyer.

How Massachusetts Real Estate Contracts Work

Massachusetts is a two-contract state, meaning two parties create separate contracts for the same transaction. Sometimes, one contract may be used to defraud another regarding the terms of the parties’ actual agreement. 

One of those contracts is an offer-to-purchase agreement. You must know that this is a binding contract. You must perform to expectations or face consequences. However, offer-to-purchase agreements are far easier to get out of, as after a seller accepts an offer, both parties will sign a purchase agreement.

This legally binding contract sets out the sale price, closing date, and other terms of the sale. 

What Are The Contingencies?

Most real estate contracts have contingencies. These clauses dictate the specific situations where a buyer or seller can back out of the contract without losing anything.

Contingency clauses in real estate have timeframes starting when the buyer and seller sign a contract lasting 30 to 60 days. The property will remain contingent until the contingencies are met and the buyer closes on the property or backs out.

If the buyer backs out of the contract during the contingency period, they’re entitled to receive their earnest money deposit. If they want to back out after this period, the seller can keep their earnest money deposit and even sue for damages. Most real estate contracts limit the seller’s damages to the deposit amount. Moreover, most sellers would rather move on than drag out lengthy litigation for a few extra pennies.

Let’s look at some of the common contingencies for sellers and buyers:

Buyer Contingencies

  • Inspection Contingency: This allows the buyer to have the property inspected by a professional within a specified time frame. The buyer can renegotiate the terms, request repairs, or back out of the contract if significant defects are found. If you don’t like the inspection results, you can back out. I’m not 100% sure about Massachusetts, but you don’t have to share the inspection results with your agent or the seller in most states.
  • Financing Contingency: This contingency gives the buyer a certain period to secure financing or a mortgage loan to purchase the property. If the buyer cannot obtain financing within the specified time, they can cancel the contract without penalty.
  • Appraisal Contingency: This ensures that the property is appraised at a value equal to or greater than the purchase price. If the appraisal is lower than the agreed-upon price, the buyer can renegotiate the price or terminate the contract.
  • Title Contingency: This allows the buyer to review the property’s title to ensure it is clear of any liens, encumbrances, or legal issues. If title issues are discovered, the buyer can require the seller to resolve them or opt to cancel the contract.
  • Home Sale Contingency: This is used when the buyer needs to sell their current home before purchasing a new one. The contract is contingent on successfully selling the buyer’s existing property within a specified time frame. If the buyer’s home does not sell, they can withdraw from the contract without penalty.
  • Attorney Review Clause: The attorney review clause allows Realtors to prepare residential real estate contracts and allows the buyer and seller to sign the contract, but allows each party the right to have an attorney review the contract within three business days after it is signed, and to disapprove the contract or to make changes to it.

Seller Contingencies

Seller contingencies in a real estate contract are less common than buyer contingencies, but they can still protect the seller’s interests. Here are five examples:

  • Buyer’s Sale Contingency: This contingency allows the seller to continue marketing their property and accept other offers until the buyer has sold their home. If the buyer fails to sell their home within a specified period, the seller can cancel the contract.
  • Kick-Out Clause: Similar to the buyer’s sale contingency, a kick-out clause gives the seller the right to “kick out” the buyer if a better offer comes along. The buyer typically has a set amount of time to remove the contingency and proceed with the purchase or risk losing the property.
  • Home Purchase Contingency: If the seller is purchasing a new home, they may include a contingency that allows them to cancel the contract if they cannot find or close on a new property within a certain timeframe.
  • Leaseback Contingency: In some cases, the seller may need to remain in the property for a period after closing. A leaseback contingency allows the seller to rent the property from the buyer for a specified time, providing the seller additional time to relocate.
  • Closing Date Flexibility: The seller may include a contingency that allows for flexibility in the closing date, particularly if they need more time to vacate the property or finalize the purchase of their new home.
  • Attorney Review Clause: The attorney review clause allows Realtors to prepare residential real estate contracts and allows the buyer and seller to sign the contract, but allows each party the right to have an attorney review the contract within three business days after it is signed, and to disapprove the contract or to make changes to it.

Can Buyers Back Out Of Contracts?

Buyers are more likely to get cold feet in a real estate transaction. If you’re within the contingency period, you can back out and get your earnest money deposit back. If not, you can ask the seller kindly to let you out of the contract. You’ll likely have to cede your earnest money without a fight in exchange for a release. Speak with an attorney to see if the seller has any other legal remedy.

Note: Make sure you and your agent are on the same page. This means knowing the deal is canceled in writing with signed cancellation documents.

Can Sellers Back Out Of Contracts?

Sellers can back out for reasons written in the contract. We shared a few (less common) seller contingencies. The truth is that a seller can back out for reasons including, but not limited to, contingencies.

Here are a few examples:

  • The buyer is in breach of the contract or is “failing to perform.” That’s legalese for them not holding up their end of the bargain. In cases like these, you can likely get out of the contract.
  • If you, the seller, can’t find a new home before closing, most contracts allow them to cancel the sale.

If you want to back out of your contract as a seller, you should discuss it with your real estate agent. If you have no way of backing out of the contract and still want out, you’ll have consequences. If the buyer disagrees, they can sue you for performance.

Don’t fret because sometimes a seller will let you out of an agreement if you agree to a few concessions.

  1. Give them back their escrow money with accumulated interest.
  2. Reimburse any out-of-pocket expenses like attorney, mortgage application, and inspection fees.

Overall, just be nice to the buyer because they have the leverage.

Advice When A Seller Backs Out

As a buyer, be patient, consider your options, and gather as much information as possible. Review your contracts and communications with the seller to ensure you have everything in writing. Courts will not enforce verbal or handshake agreements to buy or sell real estate.

Second, consult with an attorney because laws are confusing.

You can sue for damages, but still approach the seller respectfully before grabbing your pitchforks. At the end of the day, consider yourself lucky if you can get your money back plus interest with minimal wasted time.

What Happens If A Buyer Backs Out?

If a buyer backs out of a contract, never sign a release until you know all the facts. Their agent may try to get you to sign a contract cancellation so they can get their earnest money back. As a seller, just sit tight until the day after closing. Verbally hearing the buyer wants to close is not enough to terminate a contract. You must wait until after the closing date stated in the purchase and sale agreement before claiming the buyer did not perform.

The Skinny On Massachusetts Real Estate Contracts

In Massachusetts, buyers and sellers can back out of real estate contracts, but there may be consequences. Buyers have more flexibility, especially during the contingency period, and can often cancel without penalty. Seller contingencies are less common but protect the seller’s interests. If buyers back out after the contingency period, they may lose their earnest money deposit and face legal action. 

Sellers can cancel for specific reasons in the contract, such as the buyer’s failure to perform. Legal advice is recommended for both parties in case of contract cancellation.

If you’re having trouble selling your home in Massachusetts, we write about creative options on our blog.

Here are a few of them:

You can contact us anytime if you need to sell your Massachusetts home fast (and don’t have time to read blog posts). We can help you sell your home without realtors, fees, or repairs. 

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Elie Deglaoui - Author

Author

Elie Deglaoui

Elie is our office admin who handles all our day-to-day tasks and makes sure we always stay on track. He brings his love of music and sports into the office everyday to always liven up the environment. His outgoing personality makes it easy and fun for him to talk to homeowners, homebuyers, and everyone in between.

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