By Raylene Lewis, REALTOR® | NextHome Realty Solutions BCS | TREC License #0487208
When termination papers arrive, a seller’s first question is usually some version of “Can they do that?” Closely followed by “Who gets the earnest money?”
The answer starts with the contract.
Did the buyer use a contractual right to terminate – or did the buyer simply refuse or fail to perform?
Those are very different situations.
A buyer who properly terminates under a right provided in the contract is not in the same position as a buyer who simply decides not to close. The reason for the termination, the contract terms, and the applicable deadlines determine what happens next for the seller, the contract, and the earnest money.
That is where Raylene starts.
She reviews the buyer's stated reason for terminating against the contract and any addenda, along with the deadlines and requirements attached to that particular right.
Depending on the transaction, a buyer may have a contractual right to terminate during the option period, because of certain financing or appraisal provisions, because of title or property-document issues, after a casualty loss, or under another provision of the contract or an addendum.
If the buyer properly exercised one of those rights, a valid termination is not the same thing as a buyer default.
The seller may be frustrated. The timing may be terrible. The termination may create very real financial problems.
But the contract still controls what happens next.
That is a different conversation.
If the buyer refuses or fails to perform when the contract does not give the buyer a right to terminate, the buyer may be in default.
At that point, the seller may have remedies under the contract. That is also where the line between a REALTOR® explaining the contract and an attorney advising a seller about enforcing legal rights becomes important.
Raylene can help the seller understand the reason given for the termination, how it lines up with the contract, and what practical options are available.
If the parties disagree about whether the buyer had a right to terminate or what either party is legally entitled to receive, the situation can move beyond real estate-agent territory.
No.
This is one of the biggest misunderstandings sellers have when a contract terminates.
It is easy to think: They backed out. They wasted my time. I should get their earnest money.
But earnest money is not automatically awarded to the seller because a transaction fell apart.
First, the buyer's reason for terminating has to be evaluated against the contract.
If the buyer properly exercised a contractual right that provides for the return of earnest money, the earnest money goes back to the buyer under the contract.
If the buyer failed to perform and may be in default, the seller may have a contractual claim to the earnest money.
And even then, being entitled to the earnest money and actually getting it released are not necessarily the same step.
By the time termination papers arrive – especially only days before closing – the seller may already have completed agreed repairs, packed the house, scheduled movers, arranged the next place to live, or planned to use the proceeds from this sale to purchase another home.
Now the closing they were counting on is gone.
They may suddenly be facing additional carrying costs, moving changes, more repairs, another mortgage payment, or the expense of preparing the house to sell again.
The earnest money can feel especially important when those unexpected expenses are sitting directly in front of the seller.
Those consequences do not determine who is entitled to the earnest money. The contract does.
But they explain why the question can become much more significant than simply, "Who gets the deposit?"
Most of the time, the parties eventually reach a meeting of the minds and both sign a release telling the title company how the earnest money should be distributed.
Sometimes they do not.
A release and a formal demand are not the same thing.
If the parties cannot agree and one party begins the contract's formal written demand process, the other party has an opportunity to object. If the title company receives an objection, the dispute is not magically settled just because someone believes the contract is on their side.
When a mutually acceptable resolution cannot be reached, the situation has generally moved beyond real estate-agent territory.
The agents can help the parties work toward a resolution.
They cannot decide the parties' legal rights for them.
Getting the home back in front of buyers can be a challenge, but a terminated contract does not automatically make the property difficult to sell.
The reason for the termination matters.
If the contract ended for a reason unrelated to the condition of the property or something the seller did, Raylene has found that an honest explanation is usually the most effective marketing.
Agents and buyers may see that the property returned to the market, and many of them will ask: "What happened?"
If there is a straightforward answer, give them one.
It takes more finesse when the previous buyer terminated because inspections or another property issue uncovered something significant.
That is not the time for a mysterious "Back on market! Buyer got cold feet!" if that is not what actually happened.
The seller may have new information to evaluate, repairs to consider, disclosure obligations to address, and a new marketing story to tell.
Those repairs should not disappear when the first buyer does.
When work has been completed, Raylene makes sure the information about those repairs is available to future buyers.
That might mean creating a clear list of completed work, providing invoices or other available documentation, or, when the seller received an inspection report, identifying which reported items were addressed.
The next buyer is likely to want to know what happened.
Being able to explain what was found, what was repaired, and what documentation exists is much more useful than asking a new buyer to simply trust that everything is fine now.
One transaction Raylene handled shows just how late a valid termination can happen.
On the day the property was supposed to close, significant water damage was discovered at the home.
Under the casualty-loss provision of the contract, the seller was required to restore the property to its previous condition by the Closing Date.
There were approximately two hours left before closing.
There was no realistic way to remediate the damage and restore the property within that amount of time.
Because the property could not be restored by closing due to circumstances beyond the seller's control, the buyer had a contractual right to terminate. The buyer exercised that right and received the earnest money back.
For the seller, the consequences were immediate. Instead of receiving the proceeds from the sale that day, the seller had to address the damage, complete the remediation and repairs, absorb the delay, and wait until the property was ready to return to the market.
Once the work was completed, Raylene made sure the repairs and improvements were part of the information available to future buyers.
And the terminated contract was not the end of the story.
A later buyer saw value in the work that had been completed and ultimately offered more for the home than the original contract price.
That does not mean every terminated transaction ends with a higher offer.
It does show why a property coming back on the market does not automatically mean something is permanently wrong with it.
The first buyer had a contractual right to terminate and used it. The seller then dealt with the underlying problem, documented what had been done, and gave the next buyer enough information to evaluate the home on its current condition.
Start with the contract, not the assumption that the buyer must be in default.
Determine why the buyer terminated, whether the contract gave the buyer that right, what the termination means for the earnest money, and whether anything about the property needs to be addressed before it returns to the market.
Sometimes the buyer had a valid contractual exit.
Sometimes there is a genuine disagreement about the earnest money.
Sometimes the buyer may have failed to perform and the seller needs legal advice about the remedies available.
A buyer exercising a contractual right to terminate and a buyer failing to perform are not the same thing.
Everything that happens next starts there.
Need help working through a buyer termination? Raylene Lewis can help a seller sort out what the contract says, what the termination means for the earnest money, and how to position the property for what comes next.
