Buying a home is one of the biggest milestones in your life, and also likely one of your biggest financial commitments. It's also one of the most final: Once you sign a real estate contract, you are legally obligated to honor the agreement. With one exception, most states do not allow a grace period for getting out of home contracts.
Grace Period in New Jersey
New Jersey is the only state in the United States that allows a three-day grace period for either the buyer or the seller to back out of a home contract. New Jersey calls this grace period a "review period." The three-day review period is three business days and begins from the moment the contract, signed by the seller, is delivered to the buyer. During these three days, the buyer or seller can back out of the contract for any reason.
Right of Rescission
Many people confuse the right of rescission, which is part of the Truth in Lending Act established by the Federal Trade Commission, as being a grace period for canceling home contracts. The right of rescission is the right to cancel a home equity loan or refinancing deal for a home already owned. A home owner can cancel the home equity or refinancing contract for any reason within three business days after signing the contract. The right of rescission does not apply to contracts pertaining to the sale or purchase or a house.
Ask to Back Out
There is nothing to stop you from telling the other party in a real estate transaction that you would like to back out of the contract. Be honest about your reasons. Despite obtaining financing, perhaps you have doubts about whether you can truly afford this property or you suddenly got an unexpected job offer in another city. If you're the seller of the home, maybe you've simply had second thoughts about relocating your family. It can be worthwhile to explain your situation to the other party. You may be pleasantly surprised by the response.
Almost all real estate contracts contain contingencies, which provides both parties a legitimate reason to back out of a deal. The most common contingency involves the house inspection. If the house fails its inspection, a buyer may back out of the deal or ask to restructure the deal. Another common contingency is financing. If the buyer fails to obtain adequate financing, the transaction can fall through. If all contingencies have been met and you still want to back out of a real estate contract, be aware that you can be held in breach of contract.
Breach of Contract
Keep in mind that a home contract is a legally binding document, like any other contract you sign. From the moment you sign your name, you agree to honor the contract. If you find that the other party has misrepresented the property or if you find any fault or discrepancies in the contract, the other party can be held in breach of contract. However, if you back out of the contract simply because of a change of heart rather than for legitimate reasons such as a failed inspection, you will be in breach of contract. Depending on the terms of your agreement, you will likely forfeit your downpayment if you are the buyer. If you are the seller, the buyer can take you to civil court for breach of contract.
- North Central New Jersey Real Estate: New Jersey State Residential Contract Sample (Opens in PDF)
- New Jersey State Bar Foundation: Consumer’s Guide to New Jersey Law (Opens in PDF)
- Bankrate.com: Rights of Rescission
- FDIC: Law, Regulations and Related Acts
- Lawyers.com: Breach of Contract
- Bigger Pockets: Real Estate Contract Contingencies
- Digital Vision./Photodisc/Getty Images
- How to Get Married With Little Money
- How to Take Funds Out of a 401(k) Due to Heavy Debt
- How to Sort Out Debt
- Can a Trustee Be Removed From a Trust?
- I Need Help in Restoring My Credit
- How Can I Get Out of Debt and Get the House I Desire?
- How to Live Wealthy When You're Poor
- How to Legally Protect Yourself From Your Spouse's Debt
- Can I Get Out of Closing on a House Without Losing Money?
- How to Buy Auctioned Homes With Cheap Prices