Yikes! The Contract on my House was Just Cancelled! Now What?

When a house offer falls through.

By Deborah Rutter

There is a lot of relief for sellers when they get an offer that’s ratified and is moving forward. For buyers, too. For the most part, when buyers put in an offer, they have great intentions to move through the process and go to closing with little drama.

But Virginia law allows for a few opportunities for buyers to not only reconsider their offer, but even rescind an offer with no penalty, no forfeiture of earnest money, and no repercussions. As a seller, it’s important to understand how those options can be exercised and when.

The first is as a result of a home inspection. If buyers choose to get an inspection and it’s made part of the contingencies in a contract, a buyer must have an inspector perform an inspection within the inspection period time-frame that is negotiated. After the inspection, a buyer, at their sole discretion, can withdraw the offer within the inspection period. A copy of the inspection report, and official notification of termination is required. A specific reason is not required. This does not apply if the buyer doesn’t get an inspection at all, or gets one, but provides notice of termination later than required by the contract inspection period.

The second is when a property is in a POA (Property Owner’s Association) also sometimes known as an HOA (Home Owner’s Association). When a property is governed by a POA, there are THREE opportunities for buyers to back out based on the information that sellers need to provide purchasers:

  1. Within three days after the date of a Contract, if on or before the date that the Purchaser signs a Contract, the Purchaser receives the association disclosure packet or is notified that the association disclosure packet is not available;
  2. Within three days after receiving the association disclosure packet, if the association disclosure packet or notice that the association disclosure packet will not be available is hand delivered, delivered by electronic means, or delivered by a commercial overnight delivery service or the United States Postal Service and a receipt obtained; or
  3. Within six days after the postmark date if the association disclosure packet or notice that the association disclosure packet will not be available is sent to the Purchaser by United States mail.

There are slightly different rules when a property is in a condo association, but they are much the same in terms of approach. Keep in mind these are voluntary withdrawals of the contract by the buyer.

The third is the buyer’s loan (if the buyer is paying cash the loan issues don’t apply, but the appraisal might). If a buyer is using a loan to purchase, and can’t get the loan for any reason, the contract can be terminated. Sometimes an annual employment contract doesn’t come through, or is available too late for an on-time closing. Other times, a buyer might lose employment, get demoted, or take a lesser-paying position, having to renegotiate terms of a loan. Any life-changes that materially impact the buyer’s creditworthiness, cash on hand, or debit to income ratio can impact the loan standing.

The fourth is the appraisal. The appraisal is part of the loan process (some cash buyers also opt for an independent third-party appraisal). If the appraisal is too low and buyers and sellers can’t come to an agreement about how to make up the difference, the loan can be terminated.

If you encounter one of these situations, the most important thing to is get the property back on the market quickly to take advantage of the market activity and secure a new buyer. If the contract was terminated through no fault of the seller or the inspection results, it’s important to note this is the agent-to-agent notes in the MLS or other communication instrument, so future showing agents understand why it was off the market, and back on again.

When a buyer exercises one of those options (voluntarily or not), it’s frustrating. Sellers are often upset and want an explanation when a contract is unexpectedly terminated, even if buyers don’t want to provide one. Sellers may have put in a contract to buy something else, have made arrangements to move already, store belongings, taken another job outside the area. It’s a hassle for everyone but it happens. The key is react quickly and purposefully to find the next lucky buyer!

Deborah Rutter is an Associate Broker at Nest Realty with passion for teaching. She knows buyers and sellers make the smartest decisions for themselves when they are armed with data and insight. She has taught first-time homebuyer education classes, and is a featured contributor on our blog. Check back for insights and advice or contact Deborah directly to discuss your buying or selling needs. 

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