How to Terminate a Real Estate Contract in Texas: A Guide for Buyers

Home Buying MarkAnthony Ball June 10, 2024

Navigating the process of terminating a real estate contract can be challenging. However, the Texas One to Four Family Residential Contract (Resale) offers several provisions that allow buyers to legally terminate the agreement under certain conditions. First, it's important to mention the option period is your "get out of jail" free card. Meaning you can terminate the contract for any reason through that time period which ranges anywhere between 2-10 calendar days.

 

Here’s a breakdown of the most common ways to terminate a real estate contract in Texas:

1. Seller's Disclosure Notice

One of the critical documents in a real estate transaction is the Seller’s Disclosure Notice. This notice provides buyers with detailed information about the property’s condition. If the seller fails to provide this notice within the agreed timeframe, the buyer has the right to terminate the contract.

  • Section 7B (2) of TREC Form 20-17: This section states that if the Seller’s Disclosure Notice is not provided within the specified time, the buyer can terminate the contract and receive a refund of their earnest money.

2. HOA Addendum

Properties within a Homeowners Association (HOA) come with additional rules and regulations that buyers must agree to. If the buyer is not comfortable with these rules, they can terminate the contract.

  • HOA Addendum: This addendum allows buyers to review the HOA documents, including bylaws, rules, and financial information. If the buyer finds any terms unacceptable, they can terminate the contract within the specified review period.

3. Financing Contingency

Many real estate contracts are contingent upon the buyer securing financing. If the buyer cannot obtain the necessary financing, they may terminate the contract without penalty.

  • Section 4 of TREC Form 20-17: This section outlines the financing contingency, giving the buyer the right to terminate the contract if they cannot obtain approval for their mortgage.

4. Property Condition

If the property does not meet the buyer’s expectations based on the inspections, the buyer has the right to terminate the contract.

  • Section 7D (1) of TREC Form 20-17: The buyer can request repairs or terminate the contract if the seller refuses to address significant issues found during the inspection.

5. Appraisal Contingency

The contract can also be terminated if the property does not appraise for the agreed purchase price, affecting the buyer's ability to secure financing.

  • Section 6A (8) of TREC Form 20-17: This section provides that if the property’s appraised value is lower than the sales price, the buyer can terminate the contract and recover their earnest money.

6. Title Issues

Title issues can be a deal-breaker in any real estate transaction. If there are defects in the title that cannot be resolved, the buyer can terminate the contract.

  • Section 6A (1) of TREC Form 20-17: This section allows the buyer to terminate the contract if the title company cannot provide a clear title policy.

Terminating the contract outside of a notable contract discrepancy would cause some backlash to you as the buyer:

  • Your earnest money and option fee would go to the seller.
  • The seller could sue you for "specific performance" and "make you" buy their home OR sue for damages

Understanding these provisions can help both buyers and sellers navigate the complexities of a real estate transaction. Always consult with a knowledgeable real estate professional or attorney to ensure that you are making informed decisions throughout the process.

For more detailed information, you can review the TREC Form 20-17 One to Four Family Residential Contract (Resale) and other resources available on the Texas Real Estate Commission website (TREC)​​​.


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