You Should Negotiate a Signed Release Rather Than Back out of Contract
Q. My wife and I signed a contract to purchase some vacant property. We put down about $20,000 and were scheduled to close at the end of June. There was no financing contingency and all the other contingencies built into the contract have been met.
A far more attractive offer has now presented itself. This property is somewhat similar to the property we signed the contract on but the price is $5,000 less per acre. This new property also has fewer low areas. We would love to cancel the old contract and make an offer on the new property.
Losing $20,000 would hurt, but we would far make up for it in the difference in cost between the two properties. Is there anything else I should be thinking about? Is it just a matter of "We want out and you can keep the deposit?"
A. You are considering breaching your contract, which is an act that should not be taken lightly. I strongly recommend you consult with a real estate attorney before taking any action.
Without looking at the contract, one issue you must consider is damages. Most contracts provide that in the event of a breach or default, the non-defaulting party may pursue any and all remedies available to him or her. One of those remedies in any breach of contract action is the loss the non-defaulting party suffers as a result of the breach.
For example, you enter into a contract to buy parcel A for $200,000. You change your mind and fail to honor your obligations under the contract, without legal justification. The seller then sells the property to another party for $150,000. So long as the seller acted in good faith in the subsequent sale, seller could claim damages of $50,000 in his breach of contract action against you. In addition, many contracts also will provide that in the event the non-defaulting party is successful in the litigation, his or her attorneys fees and court costs will be paid by the defaulting party.
One strategy might be to contact the seller and attempt to negotiate a settlement. Offer the seller some amount of money in exchange for his releasing you from the contract. …