You may need to know how to terminate a Purchase & Sale Agreement. There are many legitimate reasons a buyer may choose to terminate a transaction. For example, if a loan is not approved and your purchase is contingent upon financing, you will need to know how to terminate the transaction. If your home inspection report requires it, you will need to know how to terminate. And if the septic inspection fails, or the well inspection fails, or the appraisal comes in too low, you will need to know how to terminate.

how to terminate

How to Terminate v. Rescission

There is a great deal of confusion in the real estate industry across the U.S., and it often results in buyers using a contract rescission instead of the proper notice of termination. When a purchase and sale agreement (PSA) is terminated, two things must happen. First, the contract must be properly terminated, and second the escrow company must receive written instructions approved by both parties in order to release the earnest money and deduct any title cancellation fee. A rescission and a termination are two different contract options. They are completely different legal concepts with different purposes.

How to Terminate Correctly

A more detailed analysis of how to terminate a transaction is found in this five page downloadable document. Here’s an example.

If a buyer needs to terminate based on the home inspection, there is a very specific procedure. When a buyer issues a Form 35R (Inspection Response) to a seller stating that he is terminating the contract, that is clearly a termination. Using a Rescission Form 51 is not appropriate and NOT authorized in the contract. The Form 35R terminates the contract under the terms of the Form 21 and the Form 35R in para I. The notice affirms the buyer’s contractual right to return of the earnest money. This notice only requires the buyer’s signature to terminate, but both parties must also sign instructions to the escrow company addressing the return of the earnest money to the buyer, and the payment of any title cancellation fee.

You can see how important it is that your Realtor has the knowledge and experience to deal with contract issues like termination. This is more detail than I usually share in a blog article on this site, but since this subject is so important, I wanted to make sure buyers as well as other Realtors would know how to terminate a transaction. Terminating a contract may not happen very often for a buyer like you, but when it is necessary, you definitely want to have a Realtor who can guide you through the process properly. Knowing how to terminate is just one of many important aspects of buying.

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