One of my sellers accepted a purchase agreement for $200,000 for some land he was selling. After he accepted the offer, a back-up offer was received for $225,000 (a second offer submitted just in case the first one falls through). The seller asked me if he could cancel the first agreement and accept the higher offer. The seller cannot cancel a purchase agreement unless there is contingency clause which allows it; otherwise the buyer can pursue the seller for breach of contract if he fails to perform. The seller may choose to offer a financial incentive to entice the buyer to agree to cancel the purchase agreement.
In this case, the first offer had a special contingency whereby the buyer had the option to cancel the purchase agreement if the city didn’t approve a variance, by a certain date. Because of the contingency; I had the seller accept the second purchase agreement “subject to the cancellation of the first purchase agreement” by a specific date.
The first buyer’s variance wasn’t approved by the deadline and buyer requested an extension to allow the city more time to approve the variance. The seller declined the extension, so the buyer either had to close on the property without the variance or cancel the purchase agreement.
The buyer decided to purchase the property without the variance, so we had to cancel the back-up purchase agreement, as it had a performance deadline. The buyer was using a credit line to purchase the land and his lender stated it was a simple loan and it would be easily approved. Two weeks later the lender declined to provide financing as the city was now requiring another variance and the lender didn’t feel comfortable moving forward. The buyer demanded more time to get the variance so he could get financing but the seller declined as he wanted to move forward with the other buyer. The buyer agreed to cancel the purchase agreement if his earnest money was refunded to him. The seller agreed.
Luckily the back-up buyer was still interested in the land, so the buyer and seller signed a new purchase agreement for $225,000. The seller was happy to be able to work with the second buyer and net an additional $25,000.
It is important to work with an experienced real estate agent that can help you determine the best options for you.
Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to firstname.lastname@example.org. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.