As a real estate agent, one of the worst things you can hear is that your client wants to terminate their contract. Although it is distressing, it is just part of the job. Because it is never fun having to notify another party that they either will not be selling their home or able to purchase a home, you may be tempted to just get the process over with as quickly as possible. But Stop! Terminating a contract is not as easy as just sending a quick email, text message, or making a quick phone call. You need to be sure to terminate the contract in the correct way - using the correct form - in order to protect your client.
According to the North Carolina Offer to Purchase and Contract, both the Buyer and Seller have the right to terminate the contract in certain instances “upon written notice” to the other party. Thankfully, the North Carolina Bar Association and the North Carolina Association of REALTORS®, Inc. have provided termination forms which cover virtually any termination situation.
Specifically, there are four termination forms to choose from when terminating the Standard Form 2-T Offer to Purchase and Contract:
1) Notice to Buyer that Seller is Exercising Their Unilateral Right to Terminate the Offer to Purchase and Contract
2) Notice to Seller that Buyer is Exercising Their Unilateral Right to Terminate the Offer to Purchase and Contract
3) Termination of Contract by Mutual Agreement Without Release of Earnest Money Deposit
4) Termination of Contract by Mutual Agreement With Release of Earnest Money Deposit
Both the Notice to Buyer and Notice to Seller are used when either the Buyer or Seller has the right through the contract to unilaterally terminate the contract. The correct reason for termination must be chosen or marked on the form. On the second page of the Notice to Buyer that Seller is Exercising Their Unilateral Right to Terminate, the Buyer and Seller must fill out and sign that Buyer and Seller agree or do not agree that the earnest money deposit can be disbursed to Buyer. Similarly, on the second page of the Notice to Seller that Buyer is Exercising Their Unilateral Right to Terminate, the Seller acknowledges that Buyer is entitled to a refund of the earnest money deposit as a result of Buyer’s termination of the contract as specified on the first page. This second page MUST be signed by the Seller in order for the escrow agent to release the earnest money deposit.
Both the Termination of Contract by Mutual Agreement With Release of Earnest Money Deposit and Without Release of Earnest Money Deposit are used when both parties agree to terminate the contract. The deciding factor for which form to use turns on whether or not the parties agree as to where the earnest money deposit is released.
At this point, you may be thinking what if I need to terminate an Offer to Purchase and Contract for new construction or vacant land. You are in luck. The North Carolina Bar Association and North Carolina Association of Realtors®, Inc., also have specific termination forms for these contracts similar to the ones discussed above.
Properly terminating a contract is just as important as properly entering into a contract, in order to ensure that you are protecting your client. And remember, if you have any questions in regards to properly terminating a contract contact your trusted real estate attorney.
Published by Cynthia Pela on February 20, 2019.