Indianapolis Area Real Estate Blog

How NOT to Cancel a Contract With a New Home Builder

Canceling a ContractA recent conversation with another real estate agent prompted the topic of this particular post. He was working with someone who signed a contract with a new home builder and then experienced buyer's remorse. The buyer called the builder's representative and said they wanted to cancel the contract, then stopped payment on the check they had written to the builder without the agents knowledge.

Was this a legitimate way to cancel the contract? I'm not an attorney, so my response is based on my understanding of the standard new home builder contract. New home builders may have specific differences in the language of their contract. Most of the contracts I am familiar with contain similar language to that expressed here.

Here are a few terms from builders contracts:

1. Loan Contingency - The buyer has five days to submit full loan application. If they do not, the buyer has breached the contract.

2. Purchaser's Default - In the event of default by the buyer, seller shall have the right to all rights and remedies available at law or equity or the seller shall be entitled to all monies payed by purchaser, including construction deposit and 3.0% of the total purchase price as liquidated damages.

3. Entire Agreement - This agreement constitutes the sole and entire agreement between the parties. Any understanding between the parties that is not in writing and executed by the purchaser and seller is not a part of this agreement and has no force or effect. ...............this agreement may not be changed or terminated orally, it may only be changed by a written addendum or amendment executed by both buyer and seller.

4. Notices - Except as otherwise provided, all notices or demands shall be in writing and delivered to the address herein provided, either in-person, by prepaid overnight delivery service, fax or by US Postal Service (postage paid, registered or certified, return receipt requested). 

The Statute of Frauds requires all real estate contracts be in writing with sufficient content to evidence the writing. Just as the original contract was in writing, any changes to that contract must also be in writing.

What do you think, could the buyer be obligated to perform or risk losing his earnest money and be liable for additional costs?

For the record, I don't believe the buyer's are relieved of their obligation to purchase the home. I suppose you can't force someone to buy a home and if they want out, they will walk. That decision could also cost additional penalties, if the builder wanted to pursue it. Granted, not every builder will, but they have the right to, according to their contract.


#1 By Minerva at 10/23/2011 4:06 AM

I think this is a very good explanation for those who are lost in the open and have decided to purchase a house but do not know what to do or not to do if ever they will step back with the buying process.

#2 By Costa Rica Condos at 10/25/2011 0:52 AM

As a Costa Rica Condos Expert I don't believe the buyer's are relieved of their obligation to purchase the home,and they have the right according to their contract.

#3 By Auction Properties at 10/28/2011 2:48 AM

Each state is going to have different contractual requirements. If the 'buyer's remorse' occured just a day or two after signing the contract then, in most states, that buyer would have the right to cancel and they wouldn't have had to take dramatic actions like cancelling the check. If they were a couple weeks in the transaction and the builder didn't have the check in escrow... well, shame on them. (escrow will cash the check and once cashed there is no arbitrarily cancelling the check).

All that to say... seems like the buyer had every right to cancel. I wonder why the buyer cancelled... did they just have some unanswered questions and they needed some help making sense of things? Did they feel 'forced' into the purchase? These things would cause most buyers to cancel, but if they had the proper, up front consultation, and felt like they had some time to consider their options (which makes the buyer feel like they have control) they probably would have stuck it in through the end and may have been happy homeowners by now. ;-)

#4 By House in Cape Coral at 10/28/2011 9:02 PM

For me you're right. If the buyer already signed the contract he/she should be aware also about the consequences. And in your contract there should be agreement also about the cancellation that there will be no cancellation if you already signed the contract.

#5 By Paula at 11/4/2011 7:15 PM

@Auction Properties - In this case the buyer decided they didn't like the home or area and wanted more land.

As you say, there are options if it's only been a few days; one being to deliver a written letter stating they are rescinding their offer before they have a ratified contract. Most builder contracts require a management approval of the contract. I have seen this process take a couple of weeks. Within this time period, you can rescind with written notification.

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