Few things can make a realtor more nervous than the words, “I want out of my contract.”

When you’ve worked to find the right property for your client, gotten everyone on the same page, and drawn up what you believed was the optimal deal, you and your buyer both stand to lose time, revenue, earnest money, legal fees, and (in some cases) rapport with the other party.

Additionally, if the contract in question hasn’t been set up for this situation, you could face a rocky road.

But there are times when you can get out ahead of contractual issues by employing a little bit of forethought, paying close attention to your contingency schedule, and making sure your contract is structured to fit the actual circumstances of the deal.

In such cases, there are ways to navigate the complicated and sometimes painful process of pulling out of a contract. Here are some ideas to help you come out on top!

1. Structure your contract for success from the beginning.

The standard contracts provided by real estate agencies and brokerages are usually well-constructed. But there are times when the standard contingencies won’t fit with the situation.

Don’t be afraid to lengthen the contingency periods if you think the client will have any difficulty meeting the time frames outlined in the contract.

Potential problems include:

• Known structural issues (foundation cracks, sewer problems, distressed roof): extend the contingency beyond the standard 10-day period.
• Potential title issues (a divorce, a will in probate, a third-party dispute): extend the title or survey contingency beyond the standard 25-day period.
• Lack of a firm financing commitment: give significant time for the buyer and the lender to work out the loan in the financing contingency.
• Measurable changes or adaptions to the property: be sure they have enough time to find out if their fence, swimming people, outbuilding, perimeter fencing, or other property modification will be allowed by the municipality or HOA.

Don’t be afraid to add a rider or extend a contingency. You can always rely on your managing broker or your real estate attorney to help you get the correct wording into your contract.

2. Pay close attention to your contingency deadlines.

Whatever due diligence you have agreed to, an agent on his or her game will diligently track the specified deadlines.

When you give your client a task list, hold them accountable. Help them understand the only way they can not only negotiate most effectively, but back out of the deal in case of a problem, is to meet the deadlines outlined in their contract.

It’s tempting for both agents and buyers to think the contingency deadlines are suggestions. They’re not! In fact, they can be used against you. The seller has every right to hold you to your agreement.

If you go through the trouble of getting the due diligence periods right, don’t waste the opportunity by losing track.

Don’t allow a contingency deadline to expire before the work is done!

3. If you have to pull out of the deal ….

• First, provide the appropriate notice to all parties. Consult with your managing broker or attorney so you have backup in case of trouble.
• Second, make sure to overcommunicate and overdistribute your notice of termination. Follow up with email, phone call, or both so no one can say, “You didn’t tell me!”
• The brokerage’s standard termination form will be the safest route to communicating a termination, but there are cases when it isn’t sufficient. Sometimes you’ll need to add verbiage to the form, and there won’t always be enough space. Find a way to get the proper wording to the other party, even if it means adding a sheet of paper.

Also, know that there are many ways to communicate a termination. A properly-worded email can be as legally binding and just as sufficient. Regardless, check with trusted advisors before hitting “send.”

• If you’re in trouble and you don’t see an escape hatch, talk to legal counsel. A competent real estate lawyer has the training and may be able to help.

4. Don’t forget the power of human decency.

If you’ve followed all the contingency periods, talked to your managing broker, consulted with legal counsel, and still can’t find a solution, try a diplomatic approach.

Ask yourself: Have I created goodwill with all parties involved? If the answer is yes (and hopefully it is), appeal to their sense of decency and flexibility. We have seen many instances when a party could rightfully and legally enforce a contract but decide to allow the other party to back out regardless.

In situations where there is good rapport all around, a simple statement like, “My client just can’t afford it” is surprisingly effective.

5. Look for other possible points of influence.

When all else fails, there may be a few ways to leverage the situation in your favor.

• Has the other party perpetrated deceit, concealment, or fraud?

Perhaps they failed to disclose a material fact, like a septic system that needed to be replaced, an incoming bill from the city, or a leaky basement.

If you have reason to believe the other party has been dishonest, even though you may not have sufficient evidence, you may be able to press the issue and see if they’ll agree to terminate.

• Use the current market to your advantage.

How badly does the other party need this transaction to close?

If the market is hot, the seller may be able to turn around and sell the property quickly, maybe even using the current contract to negotiate a higher competitive offer.

• Use earnest money as leverage. Let them know they’ll receive the buyer’s portion of the funds held in escrow, and see if they’ll take it in exchange for letting you terminate the agreement.

Don’t go through this alone!

If you’re a real estate professional, buyer, or seller working through a contract dispute, ask some members of your team for help. Your managing broker, real estate lawyer, lender, and title company can help you build a case and create a plan.

At True Title, we have the depth of knowledge to help you with all of your real estate transactions. We’ll either help you find answers to your questions or direct you to someone in our network of professionals who can help!

If you have questions about getting out of a contract, give us a call.