A home purchase is likely the largest financial commitment — to date — in a person’s life, especially for a first-time homebuyer. At some point along the way during a home purchase, the homebuyer may wonder: what happens if I sign a real estate contract with a seller, and then I have a change of heart?
That change of heart can happen for a lot of reasons: the home inspection may reveal some defects that the buyer wouldn’t or couldn’t have seen during the initial home tour; the appraisal value may have come in low, signaling that the buyer was paying too high a price; a home that better fits the buyer’s needs may have just come on the market; or the buyer simply gets cold feet and feels this is not the right purchase for them.
The Georgia real estate contract has provisions that protect the buyer for all of these possibilities and more. Here is more information for you on how and in which scenarios you can terminate a real estate contract in Georgia if you have already signed on the dotted line.
Due Diligence Period*
The due diligence period is the negotiable period of time (usually about 10 days) in the contract that allows for the buyer to do their “due diligence” on a property. This is the period of time during which the buyer can do all of their inspections (click here to read more about inspections you may want to do on a home you are buying in Georgia), as well as negotiate with the seller for any repairs that need to be done (click here to read more about the repairs negotiation process). While this period of time is truly meant for the buyer to be conducting this due diligence, it’s also the buyer’s protected period of time during which they can terminate the contract for any reason. In other words, the buyer can, quite simply, just change his or her mind. If the buyer chooses to terminate the contract during due diligence, they must do so in writing before the due diligence period expires, in order to retain the right to claim their earnest money.
*NOTE: the due diligence period is the period of time during which you, as the buyer, need to make certain this is the home for you — this is the period of time during which you can change your mind, get cold feet, or make a play for the “better” home that has just come on the market. When the due diligence period ends, so does the right to just walk away for any reason.
Appraisal Contingency Period
The appraisal contingency protects the buyer from paying too much for a property (click here to read more about the appraisal process). Even though it’s likely that the appraisal period extends beyond the due diligence period, the buyer’s earnest money is still protected. In the event that the appraisal comes in lower than the price agreed upon by the buyer and the seller in the contract, the contingency allows for the buyer to ask the seller to reduce the price. If the seller cannot or will not reduce the price, and no other agreement can be reached by all parties, the buyer can then terminate the contract and retain the right to claim their earnest money.
Financing Contingency Period
For buyers obtaining financing (i.e., getting a mortgage loan to purchase the home), there is also a financing contingency period. During this time, the buyer works with his or her lender to complete the loan application, turn over all financial documents the lender needs (click here for a checklist of commonly-requested financial documents that your lender will likely need from you), and work toward loan approval. During the financing contingency period, the lender working to get the loan approved — the minimum benchmark during this period is reaching conditional approval (click here to read what “conditional approval” means for your mortgage loan). In the event that the lender cannot issue conditional approval during this period, the buyer can negotiate with the seller to try to extend the financing contingency period. If the seller agrees, the lender and buyer may get more time to work toward loan approval; if the seller does not agree and the lender needs to issue a loan denial letter, the buyer may retain the right to claim their earnest money, as long as the denial meets the criteria outlined in the Financing Exhibit.