SE VA Real Estate Contract Termination & Release
- Adam Garrett
- Apr 18, 2024
- 11 min read
Updated: Jul 21
There are times with contracts in real estate where where buyer or seller feel that it would no longer be best to keep moving forward to closing. When that happens, it's important to pay very close attention to the contract details to see if that's possible without significant consequences.
What is Contract Termination?
According to Juro, "Contract termination is the process of ending a contract before the obligations within it have been fulfilled by all parties. This means that one or more parties have made the decision to conclude the contract earlier than they had originally agreed when drafting and signing it."
Termination in real estate is a unilateral document that halts a contract. It shouldn't be done without contractual grounds to do so.
What is Contract Release?
According to HGPL, "A release is a written agreement where one party releases the other party from potential liability, usually in exchange for a payment of money or some other form of consideration."
Release in real estate is a bilateral document that both buyer and seller sign. Contrary to the belief of some, a release is not always required, especially if a contract explicitly states that one party has grounds to terminate as a result.
What are Examples of Grounds for Termination? Introduction
One easy way to locate a number of grounds for termination in a contract is to do a word search in a contract template for "terminat" & in other various paperwork. If the ratified contract you haven't isn't word searchable, your agent should be able to give you a copy that is, i.e. a PDF that hasn't been filled out at all. In the case of a REIN contract, a search for "terminat" pulls up 19 examples:
Example Impacting Buyer & Seller of Default Termination:
In REIN Section 5B (Deposit) & VAR Section 3 (Deposit), it states that foreclosure shall be considered termination & absent default by purchaser, deposit shall be returned to purchaser.
Examples in SE VA Where Seller May Terminate
While contracts vary, here are some examples in SE VA when using REIN or VAR contracts where the seller may terminate without penalty. Keep in mind that the below is just a start, not a fully comprehensive list, even within these 2 contracts:
If the buyer doesn't turn in their earnest money deposit on time, the buyer/buyer's agent is obligated to promptly inform the other side, and the seller may terminate at any time while the buyer remains in breach, with the buyer explicitly not being further penalized monetarily if such termination occurs (Rein Section 2: Deposit; VAR Section 3: Deposit).
When using a mortgage, if the buyer fails to comply with all terms of loan application (Rein 6 A: Loan Application)
When using a mortgage, if purchaser does not obtain the commitment by the date designated in the contract, though there are some circumstances that trigger a delayed termination (VAR Section 4b: Financing)
If seller requests in writing at time of contract ratification, & buyer fails to provide evidence of proof of funds for down payment in excess of earnest money deposit within 7 days of request, the seller may provide written notice within 5 days following the 7 day deadline (VAR Section 4C: Financing)
Examples in SE VA Where Buyer May Terminate
While contracts vary, here are some examples in SE VA when using REIN or VAR contracts where the buyer may terminate without penalty. Keep in mind that the below is just a start, not a fully comprehensive list, even within these 2 contract types:
For purchasers using a mortgage, loan denial that is not the result of buyer's default of the agreement (REIN Section 6 B: Loan Denial; VAR Section 4: Financing)
"If any representation by Seller is materially untrue, Seller shall be deemed to be in default under the terms of this Agreement & Buyer shall have the right to terminate this Agreement, whereupon the Deposit shall be paid to Buyer, in accordance with the paragraph 5B, and Buyer shall have all of its rights as the non-defaulting party under paragraph 18. Additionally, if settlement does not occur as a result of seller's misrepresentations and Buyer incurs any expense relative to appraisal and property inspection, Seller will be deemed laible for such expense and Buyer may, in addition to its other rights under this agreement, recover such expense, including reasonable attorney's fees, from Seller (Rein Section 7 F: Representations)."
"If through no fault of Buyer settlement has not occurred by the Settlement Date, then Buyer, at Buyer's option, may terminate this agreement by wrotten notice to Seller (REIN section 8: Settlement/Possession)." Keep in mind the built in extension for REIN contracts, which is 10 days if no day # is added & that initial provision is retained. That built in provision of 10 days isn't present with VAR contracts.
Purchasers using a home inspection contingency during the home inspection contingency period in accordance with the terms of the home inspection contingency addendum.
Purchasers using a home owner's association or condo association contingency during the HOA/Condo contingency period in accordance with the terms of the law/contract.
Examples in SE VA Where Buyer or Seller May Terminate
While contracts vary, here are some examples in SE VA when using REIN or VAR contracts where the buyer or seller may terminate without penalty. Keep in mind that the below is just a start, not a fully comprehensive list, even within these 2 contract types:
Examples if Buyer & Seller Don't Come to Terms:
With the default language in REIN contracts for HUD, FHA, VA, and conventional financing, & with cash purchases contingent on appraisal, if an appraisal occurs, and it's low, and no up front provision has been made regarding an appraisal gap, & buyer and seller aren't able to agree, the buyer has the option to walk (REIN Section 11: VA/FHA/Conventional Financing or Cash Contingency). With VAR contracts, that protection isn't built into the contract for conventional loans, though I always recommend including that, even if a gap provision is included. It is built in for HUD/FHA or VA loans (VAR section 5: VA/FHA Loan).
If the inspections/repairs contractual caps are included in the contract (even if $0), they are exceeded, and buyer and seller aren't able to agree on a remedy, i.e. seller paying or buying doing an escrow holdback (REIN Section 13: Inspections/Repairs Treatments/Cap; VAR Section 13: Wood Infestation Inspection & Report, VAR Section 17: Seller's & Purchaser's Option)
Who Keeps the Earnest Money if I Terminate?
In SE VA, typically those buyers who have clear contractual grounds to terminate will be able to keep their earnest money deposit. That's not always the case with contracts elsewhere. Even in SE VA, there are some contracts that aren't typical that may require release of deposit if you don't close for whatever reason, i.e. some auction contracts that don't allow any contingencies & that may require a large earnest money deposit (i.e. 10% of the sales price).
When a buyer does not have contractual grounds to terminate, or if the buyer cannot purchase due to being in a significant breach of contract that is one of those laid out explicitly in the contract, typically the seller will keep the EMD in full. In rare cases, i.e. if the buyer had an unusually large EMD (i.e. 10%), the buyer may fight to retain a portion of that EMD if they walk without the contractual grounds to do so.
In SE VA, typically a due diligence fee isn't present during the time of the inspection period, though it's certainly a possibility to add to an offer to enhance it at time of offer, and some other areas have due diligence fees by default language.
How Much Liability is There for Termination When I Don't Have Contractual Grounds to Terminate? That's Highly Dependent on the Contract, But May Exceed the EMD in Some Cases.
The answer to that question highly depends on the contract, and in some cases, how the contract is structured.
In SE Virginia under typical contractual circumstances, a buyer or seller terminating a contract without the grounds to do so could be in for a heavy amount of damages that go beyond the earnest money deposit (EMD) such as the other side's legal fees, the commission of the other agent (& even their own agent, though I wouldn't recommend that for agents & don't foresee any circumstances where I'd ever attempt that unless my brokerage compelled me to, which I don't suspect they would do), & more if the EMD alone won't cover the seller's damages (& it often won't when the EMD is 1% or less). A seller may even go after (typically with an attorney) the difference in contract price between the contract that they have with a buyer and the contract that they eventually get with another buyer, which can exceed a few percent of the initial contract price alone (& I've seen it happen). The earnest money deposit is not the limit of that liability for the buyer unless the seller signs a release that waives further responsibility (though that form may be redacted, as I have done for sellers in the past, with that redaction being much more viable than an initial offer redaction of liability, even though the other side is unlikely to sign it with that redaction), which they are not required to do in a number of circumstances when the buyer seeks to terminate.
Contracts vary depending on location, and a buyer's liability may be limited in those cases by default or by option to exclusively the earnest money deposit. For instance, I've seen another contract with the Pennsylvania Association of Realtors in section 26 "Default, Termination & Return of Deposits" with an optional box to check that states the following:
"(G) Seller is limited to retaining those sums paid by buyer, including deposit monies, as liquidated damages."
"(H) If Seller retains all sums paid by Buyer, including deposit monies as liquidated damages pursuant to paragraph 26(F) or (G), Buyer and Seller are released from further liability or obligation and this Agreement is VOID."
Is it Possible to Redact Language to Reduce My Liability or Use a Different Contract? Yes, But I wouldn't Recommend It at Time of Offer.
In short the answer is "yes" but I wouldn't recommend it when making an offer. Contracts can vary substantially in terms of the potential liability if one party seeks to terminate the contract when they don't have the contractual grounds to do so.
Buyers typically choose the contract type used.
Sellers may have a say in contract type used, especially if it's a multiple offer situation or if the buyer's agent asks the listing agent about their preferences.
If a buyer tries to use a contract (or if a seller requests it) that reduces your liability from the typical of an area, or if you redact language to reduce your liability in the event of termination, it diminishes the strength of your offer as a buyer (or if a seller requesting it) & the other side may wonder what's next, since redacting language regarding liability or using a contract that's not typical & reduces liability regarding termination in SE VA is highly unusual.
Option to Terminate Without Penalty Due to Technicalities
There are some cases where a technicality could easily save a buyer or seller and give them grounds to terminate even if the buyer or seller wouldn't inherently mind that much about the other party being in breach regarding an issue. With that in mind, it's critical for agents to be familiar with the contract enough to express potential grounds for termination when that's available.
Example:
I once had husband & wife seller clients who wanted to sell with me and buy another home. However, during the selling process after the home was under contract, the wife found out that she was pregnant, where they didn't want to move any more. When the buyer's loan wasn't able to close on time at no fault of the seller, and the 10 day contractual period in the REIN Standard Purchase Agreement elapsed for circumstances like that, the seller then had the contractual grounds to terminate, and we did so, not putting the home back on the market. The seller didn't owe anyone anything further, neither me, the other agent, nor the buyer.
How to Lower Your Liability if You Want Out & Don't Have Contractual Grounds
The best way to handle a situation where you want out is:
Seek to resolve any disputes between you and the other side prior to getting to this point.
Get your agent's superior broker involved (or another upper level broker at their company if they are the principal broker) &/or involve the other agent's superior broker if your agent alone isn't able to secure resolution of issues.
Ask your agent if they are aware of any ways for you to get out of the contract, even if by technicality, without you incurring any penalty.
Review the contract thoroughly yourself if your agent doesn't have any solutions, just in case you have options. If in SE VA and using a VAR or REIN contract, start on your version (if Adam's client) of his Responsibilities spreadsheet, & if you're not, you can see a version of that here. Be sure to verify that the information on the spreadsheet is up to date with your contract, noting the sections mentioned on the spreadsheet to quickly get to in order to verify. Keep in mind as well that it's not fully comprehensive, so it's best as a quick start only.
Send the other side a letter if you have extenuating circumstances. In some unusual cases, (i.e. if your parent died when you were purchasing a house just to be close to them), the seller may even waive the EMD. Likewise a buyer & buyer's agent may opt to have mercy on you in extenuating circumstances.
Hire an attorney to help you get out of the situation, but keep in mind that they aren't miracle workers & typically aren't cheap. If you have prepaid legal, it's possible it won't cover an issue like this one.
Send the other side a release prior to sending a termination. By doing that, you'll have a better gauge of whether or not the EMD alone will be sufficient to cover you walking. If they agree to it, the typical language will release you of further responsibilities beyond the EMD.
Disclosure: I'm not an Attorney & Forms Change Over Time
Please keep in mind that I am a licensed real estate agent in the state of VA, not an attorney and that the below should not be construed as legal advice.
Forms mentioned change over time. It's best to compare any information above with the latest forms using the referenced paragraph numbering, labeling, and lettering I integrate above.
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About the Author: Adam Garrett - 3rd Generation REALTOR®
Adam is the 3rd generation in a line of award-winning real estate agents serving SE VA. He has served full time at Garrett Realty Partners since May 2014 when he joined the marketing department before transitioning to full-time sales to assist buyers and sellers in February 2015. He believes that an educated buyer or seller makes the best decisions, & is dedicated to helping with that both digitally & on-site physically for buyers & sellers. He's also available for referrals to real estate agents around the globe. In several capacities, his resources & direct offerings for assisting sellers & assisting buyers are either unmatched or are top 1% for the SE VA area, and in some cases, nationwide. Not stopping after closing, he also provides information for tenants, landlords, & homeowners.
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