Various countries have different names for the official real estate sales agreement, but they mean the exact same thing: contract. In California, the contract between a house buyer and seller is referred to as a residential purchase agreement. This binding contract may have revisions during, but must be agreed upon by both parties. But even after the agreement is signed, events may direct one party to break, or attempt to break, the contract.


The most typical reason real estate contracts are broken lies within one of many contingencies, which are usually written into the initial contract. Contingencies may be dependent upon the selling of the buyer’s current home, the buyer’s ability to secure funding or a solid and positive inspection of the house. When a contingency isn’t fulfilled, the contract is generally broken without any greater than a inconvenience to either or both parties. In the case of an inspection, there can be some monetary loss for the buyer who has to decide whether to cancel the agreement, or to the seller who may be asked to make repairs.

Insurance Contingency

Insurance is now a more prevalent contingency to add to real estate contracts in light of insurance companies canceling policies in certain regions. Back in California, earthquake-prone places may be more challenging to insure, so a buyer may fit a contingency according to his capacity for a written commitment from the insurance provider. Other variables affecting insurance ability may include household mold and threat of weather events, such as flooding.


The house inspection, which is generally scheduled by and paid for by the buyer, can also warrant a broken contract. If the review is returned using a list of needed repairs, the buyer will ask the seller to reduce the purchase price of the house, make the necessary repairs or void the contract altogether. When the house was constructed before 1979, it may contain lead-based paint, which calls for an additional review to ascertain the risks. This distinct inspection may be the reason to break the contract.

Environmental Laws in California

When purchasing a house in California, homeowners are required to provide a report of ecological hazards. This gives the possible buyer with a summary of the existence of asphalt or asbestos, lead pipes, oil tanks which could possibly be underground and leaking, and many others. The seller is responsible for summarizing the cleanup, however the seller and buyer together determine who will pay for the testing or removal. In cases where a hazard is discovered, the agreement can be broken, and the buyer often can recover any expenses . Another action of nature that may affect the viability of this contract is termites and other pest issues. Lenders usually require a termite bond and review from a licensed company in California to ascertain that the property is termite-free. If pest damage is found after the contract was signed, the agreement may be canceled, provided this clause is written in the contract.

Financial Penalties

If the seller does not meet his duties set out in the contract, then the buyer may be able to violate the contract. In this case, the buyer is entitled to his deposit and any expenses directly associated with the transaction, such as the questionnaire, review and any legal fees.

Bottom Line

A real estate contract or agreement is intended to be legally binding, therefore both parties should enter into it with intentions of following through. Nullifying a contract–much in contingency situations–costs both the buyer and seller money and time and can create emotionally stressful situations whatsoever. To prevent problems, consider the contract a final step toward buying or selling the property.

See related