Real estate transactions are complex, with multiple components, especially in the State of Florida. What happens if, in the midst of your new home purchase, you decide conditions have become unfavorable and you want to back out of the deal? Can you back out of a closing contract in Florida? And if so, how can you do so while protecting yourself from financial penalties?
The short answer is, it all depends. Generally, there are some situations when you may back out of a real estate contract in Florida, providing certain conditions are met. If you find yourself in that predicament your best bet is to have your Fla real estate lawyer help you navigate the complex process. However, here is what you can expect.
When Can I Back Out of a Real Estate Contract?
In general, there are two sets of circumstances where you can back out of your real estate closing contract. One, you can change your mind after issuing an offer if you do so before the purchase agreement is signed. Once the contract is signed by both parties, however, it is legally binding and you usually can’t get out of it without losing money. The second circumstance in which you can change your mind, is when, after the contract has been signed, you discover that an expected detail of the deal had been disabused, and you had a relevant contingency clause written into your contract pertaining to the discovery.
To protect the seller, buyers are typically required to put up “earnest money.” This usually amounts to 1% to 3% of the home’s purchase price and shows the seller that the buyer is serious about going through with the home purchase. When the sale is completed, this money goes toward the buyer’s down payment or the closing costs. The earnest money payment is designed to compensate the seller if the buyer backs out, where the seller would be legally allowed to keep the money.
Adding Contingencies to Your Real Estate Contract
However, the buyer can forestall an unexpected and costly snafu should he or she feel the need to walk away from deal that has gone bad by having a Fla closing attorney write contingencies into the contract, that, if the deal becomes noncompliant, can then be used to make the contract null and void, even after it has been signed.
Contingencies are additional conditions that must be met for the transaction can be completed. One common real estate contingency is a positive home inspection. By placing this contingency in the contract, the buyer can back out if the home inspection finds any serious issues. You can also ask the seller to address the issues or renegotiate the purchase price. If they refuse you can walk away from and keep your earnest money.
Other common contingencies that allow you as the buyer to back out include, the home you are trying to purchase has an appraisal that comes in too low, or your current home listing fails to close within the time frame specified in a contingency, which would be used if your financing depends on the sale of the home ou are living in.
Keep in mind, if you try to back out for any reason not stipulated in a contingency clause, you stand to lose your earnest money. On a $400,000 home, that amount to between $4,000 and $12,000. In some cases, that expense might be the lesser of two evils when compared to the cost to repair the deficiency. Your Fla real estate lawyer can help you decide what is best for you, and help you mitigate any financial penalties.
Including an earnest money contingency can protect you as well. For example, you can have your Fla closing attorney write a clause into the purchase agreement stating that the seller is limited to keeping the earnest money as damages if the buyer backs out and that they agree not to sue you. This would protect you from further liability long after you’ve backed out of the deal. In Florida, a party has five years to file a legal claim for a breach of contract. That’s a long time for someone to consider coming after you for reneging on a real estate deal.
If you’re considering backing out of a Florida real estate contract, a consultation with a board-certified Fla real estate lawyer is your best protection against any unforeseen consequences of a real estate deal that has gone south.
Contact Florida Bar Board-Certified Attorneys David E. Klein, Esq. and Guy Rabideau at Rabideauklein.com. They have the expertise and experience you need to ensure that your interests are protected throughout your real estate transactions in the Town of Palm Beach, across the Palm Beaches and throughout Florida. Contact Rabideau Klein today to discuss the legal implications of your Florida property transactions.