Canceling Home Purchase Contracts In Ohio: What You Need To Know
According to the latest statistics, homebuyers are backing out of their contracts to purchase homes at historically high rates, likely due in part to rising interest rates and a “softening” housing market. According to Redfin, in the month of August alone, more than 60,000 of these contracts were canceled.
Whether or not there will be financial repercussions for breaching a contract in this manner depends upon a number of factors, as our Columbus real estate attorneys discuss below.
Good Faith/Earnest Money Deposit
Most buyers who make offers on homes put down what’s known as a “good faith” or earnest money deposit at the time of their offer – “good faith” signifying that the buyer intends to purchase the property (often pending the results of, for example, funding or a home inspection). In Ohio, although an earnest money deposit is not legally required, it has become a customary part of the transaction, and the amount usually reflects one – two percent of the total purchase price (although it can go up to as much as 10 percent).
Where Disagreements Arise Over Contract Cancellations
Pursuant to the terms of the purchase agreement, the broker holds onto this deposit and typically distributes it to the closing or escrow agent, pending the final outcome of the purchase. In other words, if the purchase goes through, the deposit is put towards closing costs or the down payment for the home itself; If the purchase does not go through, the seller can either return the deposit to the buyer in full, or negotiations can occur between buyer and seller regarding how much of that deposit (if any) should be returned to the buyer and for what reasons (again, pursuant to the language included in the purchase agreement).
For example, one of the most common reasons that purchases do not go through is due to the outcome of the home inspection, whereby a buyer can sometimes discover a defect or other issue with the home which renders its purchase undesirable to them. Where a seller might push back on returning all or part of the deposit depends upon what the agreement included, how much the seller has already invested in meeting the demands of that particular buyer, disagreements over defects and/or what was or was not disclosed about the home prior to the deposit exchange, etc.
Language in the Purchase Agreement Matters
Reports indicate that the condition of the market is now sometimes affecting these contingency (or purchase) agreements in that some buyers are choosing to include additional contingencies in the purchase agreement which would allow them to cancel the home purchase contract for a variety of reasons (as opposed to giving into sellers, if, for example, there is competition with other buyers to purchase the home).
Other reasons leading some buyers to pull out could include the current cost of construction materials, which can simply render the process unaffordable, especially for properties that require work on the home prior to purchase, or when new homes under construction might take longer than expected to finish, causing the interest rate to increase significantly by the time construction is done and thus making the purchase more difficult – if not impossible – for the buyer, who may now be faced with an increased monthly mortgage payment for the home.
Columbus, Ohio Real Estate & Breach of Contract Attorneys
If you have any questions or concerns regarding the cancellation of a home sale contract – whether you are a buyer, seller, real estate agent, or other – contact our experienced Columbus, Ohio real estate contract attorneys at Kohl & Cook Law Firm LLC today for guidance. We are here to provide you with peace of mind.