Buying or Building a Home? What to Do if the Seller Cancels Your Contract.

In many parts of the country, like Colorado, the housing market is tight. People pay top dollar, often well above the asking price, to get into a home. If skyrocketing housing costs aren’t enough to make buyers skittish, the increasing trend of a cancelled contract by the home builder or seller well into the buying process just might.

So, what can you do to protect yourself from a cancelled contract if you’re ready to build or buy a home? This article offers some steps you can take to improve your chances of a better home buying outcome. We’ll also discuss what you can do if your contract is suddenly cancelled by the home builder or seller.

Get Help With Your Home Contract

Whether you’re considering buying a property or you have a cancelled contract, you can count on our Real Estate Team to guide you through the process. Set up a case assessment to go over the facts of your case and discuss your next steps. Call 303-688-0944 to schedule the meeting or click here.

How to Protect Yourself When You Build or Buy a Home

“Our firm has seen a lot of buyers where builders are happy to get that contract terminated because they can turn around and resell that home that has been built for a lot of money,” Robinson & Henry Managing Partner Don Eby told Denver’s ABC-7 about this worrisome trend.

In fact, it’s not just home builders cancelling contracts. Existing home sellers are also going to great lengths to cancel contracts.

What’s Behind the Cancelled Contract Trend

Escalating prices. In addition to increasing home sale prices in recent years, the cost of building materials went up exponentially in 2020.

Builders know they can get out of a contract and then sell a house for tens of thousands of dollars more. So, there’s really no incentive for the builder to be flexible with the buyer.

This recently happened to an Aurora man. He entered into a contract with a home builder in December 2020. In August, after he’d put money down on the house, the builder cancelled the contract.

The builder said the man no longer qualified for financing, which was through the builder’s lender.

This is not an isolated incident. Just search the topic on the Internet and you’ll find similar stories across the country. So, let’s discuss some of the ways you can reduce your chances of this happening to you.

Get Your Own Real Estate Agent

Many times, potential buyers visit a model home without their own real estate agent. That’s OK to a certain extent, particularly if you have not decided in which community you’d like to build.

However, given the current housing market, you do not want to put yourself in a situation where you feel you have to immediately act on a house without someone there to represent you.

Here’s why: home builders, especially national companies, do not always have licensed local realtors showing their model homes. And the contracts they have on hand are drafted by the builder’s attorneys who create a one-sided agreement that gives the builder all the leverage.

R&H Managing Partner Don Eby says all too often, “Buyers are excited. They see [the house] as a take it or leave it, and they sign [the contract]. And they’ve obligated themselves to the terms.”

“You can bet that the builder contract only protects the builder,” Don adds.

Existing Home Contracts 

The situation is a little different if you’re purchasing an existing home. Most of the time, the contract used for an existing home sale is the Colorado Real Estate Purchase Agreement.

Don says these standard contracts are written in such a way that provides the buyer more protections and opportunities to get out of a contract.

However, this does not mean you’re out of the woods. Sellers have been known to use shady tactics to get a contract terminated.

We Helped a Client with a Cancelled Contract

We recently helped a client recover a significant amount of money in a home sale gone wrong.

Our client had entered into a contract to buy a million-dollar house. Unfortunately, the sellers lied to our client which caused them to break the contract. That is exactly what the sellers wanted to happen. Why? They wanted out of the purchasing contract with our client so they could sell the house to someone else for $25,000 more.

We sued the home seller for damages and recovered a substantial amount of money for our client.

Get Your Own Lender

When you purchase an existing home, the buyer finances the house through a lender of their choosing. However, home builders often have their own lenders. Like purchase agreements drafted by the builder’s attorneys, lending documents created by the builder’s lender will undoubtedly favor the builder.

That’s what happened to the Aurora man we mentioned earlier. The lender said the man no longer qualified for the loan, and the builder cancelled the contract.

Read more about the Aurora buyer’s plight.

Understand the Terms of the Contract & Other Risks

These days, when a buyer finds a home they like, they’re anxious to make a move on it before someone else snatches it up.

As a result, some people are purchasing homes sight unseen with no contingencies. Simply put, a contingency allows you to walk away from the transaction and have your earnest money returned to you.

For instance, let’s say you find a house you love. However, the home inspection reveals that the roof is damaged. You can put a contingency into the contract that says that you’ll agree to buy the house if the seller repairs the hail-damaged roof.

When you have no contingencies in place, you’re exposed to all sorts of risks. You could be on the hook for countless unknown home repairs. You may have to hire a lawyer to recover your earnest money, especially if you’ve given the seller $5,000, $10,000, or $20,000.

Therefore, we strongly recommend you have an attorney review your purchasing agreement before you sign it. Doing so does not guarantee the seller or builder will negotiate the terms with you. However, it will allow you to go into the deal eyes wide open – or walk away from it altogether.

Save Your Contract When a Builder or Seller Cancels It 

It may be possible to save your cancelled contract, but it’s important to know this is not easy to accomplish.

Your leverage is greatly diminished if you did not negotiate your contract upfront and you’re already locked into it.

You may be able to save the contract by having a lawyer send a demand letter to the home builder or seller.

Get Back Your Earnest Money After a Cancelled Contract

If you think your earnest money will come back to you right away when a home builder or seller cancels a contract on you, think again.

Our attorneys have worked with home buyers who backed out of a contract when it was their right to do so, and the seller got angry and refused to return the earnest money.

Regardless of who cancels the contract, you’ll have to decide whether it’s worth your time and resources to fight for your earnest money. That largely depends on how much earnest money you put down.

For instance, it may not be worth your effort to hire an attorney for $1,000 in earnest money. But, if a seller is holding a large sum of your cash, you may benefit from talking with a lawyer about it.

We’ve had great success getting home buyers’ earnest money back after our lawyers send a demand letter on behalf of the client.

Get Help With Your Home Contract

If you have a cancelled contract or you need an attorney to review one, our Real Estate Team can help. Call 303-688-0944 to set up a 30-minute case assessment or click here to make the appointment.