Going through a real estate transaction can be a roller coaster of emotions. Sometimes, as a buyer, you may feel the urge to back out of a contract. It is most common to feel some form of buyer’s remorse right after you ratify a contract. It’s good to know what your options are BEFORE you submit an offer so you don’t feel trapped. I don’t remember any of my buyers actually backing out, but I’ve had many buyers come close. I’ve heard of many other buyers backing out, so it is not uncommon.
Here are 10 ways you can back out of a real estate contract as a buyer in Virginia without penalty. By this, I mean you will not lose your earnest money deposit (“EMD”) or have to pay anything to release yourself from the contract.
1. HOA docs (3 days after delivery) – If your home is in a community with a property owners’ association (aka “HOA”), you have 3 days to cancel the contract once you receive the HOA disclosure packet (bylaws, budget, etc.), more commonly referred to as “HOA docs”, or you’re notified that the HOA docs are not available. You don’t need to have any specific reason to justify canceling the contract. Some listing agents order HOA docs after ratifying. In this case, the 3 day period starts once the HOA docs are delivered to you (or your agent).
2. Condo docs (3 days after delivery) – If the property is in a community with a condo association, you also have 3 days to cancel the contract once you receive the condo resale certificate (“condo docs”). Again, you don’t need to have a justification for backing out. The 3 day period starts once the condo docs are delivered to you (or your agent).
3. Home inspection contingency – If you include a home inspection contingency in Virginia, you have the option to void a contract for a limited number of days specified in the contract. Typically, I see periods as short as 2-3 days to as long as about 10 days. It’s most common to see around 5-7 days. Remember, “days” means calendar days unless specified in the contract. Read the related post below for more details on home inspection contingency options.
4. Radon testing contingency – Radon gas comes in through the ground and can cause lung cancer with prolonged exposure at high levels. Don’t be scared. Every home will have a small amount of radon. The EPA recommends installing a radon mitigation system if radon levels exceed 4.0 picocuries/liter (pCi/L). I’d say only around 10% of homes I’ve tested have come in above 4.0. It is more common in homes with basements and foundations below grade. Homes built on slabs tend to test very low. In any event, if test results come back higher than 4.0, you can ask the Seller to install a radon mitigation/reduction system (typically around $1,000-$1,500), or you can provide a copy of the Radon Report and void the contract. I’ve had a personal purchase test above 11 pCi/L. I had a system installed for around $1,000 and re-tested and got radon levels well under 1.0 pCi/L.
5. Financing contingency – A financing contingency basically states that, if you can’t get a loan, you can back out of the contract. Keep in mind that the financing contingency addendum will specify the number of days you have to provide a loan commitment letter or a Lender Rejection letter. Also, pay attention to the two financing contingency options: Automatic Extension and Automatic Expiration . If you don’t understand the difference, ask your agent to explain these to you.
6. Appraisal contingency – An appraisal contingency basically states that, if the home appraises for less than the contract price , you have the option to void the contract. The lender will only lend money based on the appraised value of the home, as the home is collateral if you stop paying on the mortgage. In the event of a low appraisal, the Buyer typically has to bring additional cash to close to cover the appraisal gap. But slow down! There are other options. Depending on the market, you can negotiate with the Seller to lower the price to the appraised price or to meet somewhere in between the contract price and the appraised value. Again, ask your agent about options.
7. Well and Well Water inspection contingency – Wells and well water are not too common in northern Virginia suburbs, but it is very common in rural areas or areas with larger lots. I’ve sold some homes on 5+ acre lots and have dealt with well inspections. If the results of a Well Inspection are unsatisfactory to Buyer, the Buyer can either propose remedies or void the contract.
8. Septic inspection contingency – Septic inspections are just about as common as well inspections. Again, they are more common in areas with larger lots. If the septic inspection report indicated any recommended repairs, maintenance, or replacement, Buyer can propose remedies or void the contract.
9. Mutual agreement – Sometimes, you can ask a Seller to release you from a contract. Obviously, most Sellers will say no without some sort of financial compensation. However, with extenuating circumstances, a Seller may be kind enough to release you without penalty. Don’t rely on this.
10. Technicality – I’ll include this on the list, but most of the time this will not work. If there is a missing signature or form, or there is something in the contract, you may be able to negotiate your way out legally. I would not recommend or rely on this, but I’ll include it in the list because it’s been done before.
Remember, you are only protected with these contingencies or options to back out IF your contract contains these protections. If your home is not in an HOA or you don’t include a specific contingency, you won’t be protected. Talk to your agent about the risks you take by waiving a contingency or multiple contingencies. In competitive situations, it may be necessary to waive contingencies to win. Make sure you understand the risks.
I am a real estate agent licensed in Virginia. If you live in another state, please consult your local real estate agent for specific advice. Please feel free to reach out to me at realtordannylee@gmail.com with any general questions.
