Title Tip: How Much Does a Terminated Contract Cost?

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Sometimes contracts cancel. The reasons are as varied as the properties themselves. A terminated contract often involves several folks being out money, time and other frustrations. Before you say ‘Hasta la vista, baby’ to your deal, consider what it might cost everyone involved.

The Buyers:

Depending on how far down the road you’ve gotten with the contract, the potential buyers have likely shelled out money already. That would include a non-refundable option fee paid to the seller, cost of inspections done on the property, an appraisal, loan application fees, and more. The earnest money deposited with the title company may or may not be returned to the buyer depending on the terms of their specific contract.

The Sellers:

When a contract terminates, the cost to the seller is often harder to measure. It can be difficult to put a price on lost opportunity for another buyer to purchase the property. Current market demands and the amount of time the property is off the market while under contract are factors. Often the agent must then explain to future buyers why the contract fell through.

More tangible losses may include expenses for HOA documents ordered for that specific transaction and any repairs made for that particular buyer. Additionally, the sellers may have already started packing, hired a moving company, contracted to buy another property, etc.

The Real Estate Agents:

The agent’s biggest investment is often their unpaid time working on the transaction. Most folks underestimate the substantial amount of time a Realtor and their broker spends in getting a property into MLS and marketing it throughout the real and virtual worlds. From measuring and staging to photography and data input, there are a lot of upfront tasks and expenditures.

The additional costs of advertising and marketing usually come out of the agent’s pocket. The buyer’s agent spends their share of time and expertise searching for properties, scheduling showings and working with their clients. And agents are waiting to be paid when the sale is completed.

The Title agency:

From the time they receive the contract, the title company starts incurring expenses, which are not usually paid until the closing and funding of the transaction. Processing costs include the search of property records, tax records, deeds, plats, judgments, liens, and court records. They often incur fees from outside sources for the tax certificate, attorney document preparation, survey, obtaining payoff amounts and more. The hours spent related to researching easements, covenants, restrictions, unpaid taxes, assessments, and more are lost revenue if the contract terminates.

The Lender:

The potential buyer’s lender also bears costs when a contract terminates. The cost and effort of originating the loan can include researching and qualifying the buyer for the mortgage. The credit report, flood determination, and appraisal are just the start. Those costs may or may not be recovered from the client.

The opinions expressed are of the individual author for informational purposes only and not for legal advice. Contact an attorney for any particular issue or problem.

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Lydia Blair

Lydia Blair (formerly Lydia Player) was a successful Realtor for 10 years before jumping to the title side of the business in 2015. Prior to selling real estate, she bought, remodeled and sold homes (before house flipping was an expression). She’s been through the real estate closing process countless times as either a buyer, a seller, a Realtor, and an Escrow Officer. As an Escrow Officer for Allegiance Title at Preston Center, she likes solving problems and cutting through red tape. The most fun part of her job is handing people keys or a check.

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