What is the difference between terminating and releasing a contract?

Termination is generally the unilateral act of a party declaring the contract at an end. For example, the buyer terminates upon being refused a loan, or because the seller refuses to make agreed-upon repairs. A termination of this sort does not rely upon the agreement of the other party. Please also keep in mind that termination may work to end the contract, but it does not release the parties from liability (i.e., they still may sue each other if one party feels the other party has defaulted on the contract).

A release is a mutual act of the parties by which one or more of the parties are released from obligations under the contract pursuant to whatever agreements the parties have reached. For example, Firm A can release sellers from a listing and sellers agree to pay Firm A’s advertising expenses. Or sellers can release buyers if buyers forfeit the deposit. Remember, both buyer and seller must sign the release for it to be effective.

The point to remember is that just sending a release to the other side does not usually constitute the act of termination. If your client wants to terminate, do so unambiguously. Virginia REALTORS® offers a Notice of Termination of Contract (Form 660) for download on our website

And if you send a termination letter it is a good idea to send a release as well.

The buyer has breached the purchase contract with the seller. With my seller’s permission, should I inform the buyer that we are terminating the contract?

If the seller terminates the contract, she might release the buyer from his obligation for damages due to his breach.

If the buyer breaches or repudiates the contract — refusing or failing to close — and the buyer does not have a reason to do so under the contract, the seller should declare a default but not terminate.

Also, at a minimum, the seller’s attorney should send a letter stating that the non-defaulting party is “ready, willing and able to close”. The non-defaulting party can also demonstrate her ability to close. For instance, if the buyer is in default, the seller can sign the deed and other closing documents and have her attorney send them to the buyer’s attorney demonstrating she is ready, willing and able to close.

The seller can then remarket the property and hold the buyer responsible for resulting damages, if any.

Avoid a discussion with your client about the difference between termination and default. The best thing you can do for your client in this situation is to suggest in writing that before you send the termination notice the seller should consult her attorney to determine if she is entitled to any damages and how to proceed. If the client refuses to consult her attorney, and directs you to send the termination notice, then follow your client’s direction.

How does short sale contract ratification occur?

A number of disciplinary cases before the Real Estate Board involve confusion over when ratification occurs in a short sale contract and when the Earnest Money Deposit (EMD) must be deposited. A discussion of this confusion follows, but remember that the EMD must deposited within five business banking days following ratification unless otherwise agreed to in writing by the parties – whether it is a short sale contract or not.

In the typical purchase contract, full execution and ratification usually occur upon acceptance of the last offer by the other side, by signing and notifying the other side of acceptance – the same is true of short sales. Despite this fact, one of the most common questions we receive concerning short sales is “I understand you maintain that short sale contracts are not ratified until lenders have approved them. Is this true?” The answer is absolutely not. Short sale contracts are typically ratified but with seller’s obligations contingent on lender approval. This contingency is a title contingency that benefits the seller and no more defeats the existence of a ratified contract than does a buyer financing contingency, which also calls for lender approval.

In summary, the short sale contract is considered ratified when fully executed and delivered by and to all parties, just as if it were any other contract. The contingency for removal of the lien does not affect whether it’s ratified or not. The only exception to this would be to include language in the contract stating that the contract is not considered ratified until lender approval is received.

My seller has a ratified contract on a short sale and is waiting on bank approval. Another buyer submits an offer - what do I do?

First and foremost, you must present all offers to your seller, even if you already have a ratified contract. The seller and listing agent should also know the short sale lender’s policy for subsequent contracts. Some lenders will only review one contract at a time and others will want to review subsequent contracts as well. If the lender only wants one contract at a time, you can keep the second offer as a backup contract by adding language to that effect and having all parties sign off. If, however, the lender wants to review subsequent contracts the seller may ratify and submit multiple ratified contracts to the lender – AS LONG AS EACH CONTRACT INCLUDES LANGUAGE STATING THAT IT IS SUBJECT TO LENDER APPROVAL THE LENDER WILL ONLY ACCEPT ONE. Again, make sure any subsequent contracts are contingent on lien-holder approval!

Is an EMD necessary for contract formation?

No. The failure of a buyer to deliver an EMD does not mean there is no contract. It means that buyer is in default, and seller will have all rights against the defaulting buyer.

The mutual promises in the contract are ample consideration to form a binding agreement.

**Please note that the scenario above refers to the Virginia REALTORS® contract. Other contracts in use in Virginia may require the EMD for ratification.

An inspection report revealed defects that the owner would not repair, and the buyer backed out of the contract. The seller and listing agent are now giving copies of the report to prospective buyers. The first buyer wants to prevent them from doing so. May he?

The question is whether the report is proprietary to the first buyer. Even if it is, the buyer gave it to the listing agent and seller, who probably can now use it to comply with any disclosure obligations. But whether it’s proprietary to the buyer or not, a buyer who doesn’t want it used by the seller in the future should make that a part of the contract, or at least condition his turning the report over on the seller’s agreement not to use it in the future.

Regardless of any confidentiality agreement between the buyer and seller, a listing agent would have to disclose material adverse facts pertaining to the physical condition of the property contained in the report to prospective purchasers.

Also, best practice is for the seller to only make the required disclosures revealed by the report and not hand over the entire report to the next buyer.

Can we sell mobile homes if we are selling the land beneath them?

If the mobile home is no longer mobile, that is, it’s no longer a motor vehicle but is affixed to the real estate and being taxed as real estate (not personal property), you can sell it with your real estate license. However, if it’s still a vehicle (not affixed and not taxed as real estate), you must have a license from the Manufactured Housing Board to sell it, whether you’re selling the land it sits on or not.

So the land doesn’t matter, although most of the time if it’s affixed and taxed as real estate you are also selling the land. But selling the land is not enough to make legal the sale of a vehicle sitting on it.

If a buyer wants to keep his identity confidential, how might he craft the purchase contract?

He can do several things:

(1) Set up an entity (LLC, corporation, trust, partnership) and purchase in that name. The person appointed and authorized to act for the company can then sign the contract for the purchasing entity.

(2) Have a third party enter into the contract with a right to assign the contract to the ultimate purchaser. That signatory should be very careful since he will (or might) have contract liability. The assignment agreement should be carefully drafted to contain the appropriate indemnities to protect the purchaser.

However you do this, the assistance of counsel is much encouraged.

May a real estate contract be signed electronically? What if one or more of the parties does not initial allowing electronic signatures?

Virginia REALTORS® receives a fair number of legal hotline calls about the electronic signatures paragraph, which is found in many of its standard forms. Virginia has adopted the Uniform Electronic Transactions Act (UETA), which standardizes electronic transactions laws across the U.S. The law only applies to transactions between parties who have agreed to conduct transactions by electronic means. UETA states that to determine whether the parties have agreed to conduct the transaction electronically, you must look at the context and surrounding circumstances, including the parties’ conduct. This means that if your client accepts a document electronically or with an electronic signature, they have demonstrated their agreement to conduct that transaction electronically. In other words, if the parties are using electronic signatures, then they have consented to conducting the transaction by electronic means.

If the parties’ actions can indicate they agree to electronic signatures, why does Virginia REALTORS® include the paragraph and require initials? The law says that an agreement to conduct a transaction electronically may not be contained in a standard form contract, like Virginia REALTORS®’, unless that term is conspicuously displayed (bold) and separately consented to (initialed).

So long as the parties are otherwise performing under the contract, failing to initial the electronic signatures paragraph will not invalidate the contract, prohibit the parties from conducting the transaction electronically, or require parties to go back and initial the paragraph at a later date. To reduce your risk, get all parties to initial the paragraph, but missing initials won’t derail the transaction.

A buyer received a counteroffer and verbally accepted it, and that acceptance was communicated to the seller. The buyer later signed the counteroffer and gave it to her agent to deliver to the seller. Before the signed contract could be delivered, the buyer changed her mind and instructed her agent not to deliver it. The seller wants to enforce the contract. Is there a valid contract? Is it enforceable?

Yes to both questions. The buyer formed a contract when he verbally accepted the counteroffer. However, in Virginia, the law requires contracts for the sale of real property to be in writing and signed. A contract cannot be enforced against a party who has not signed a written contract. Once the buyer signed the counteroffer, the already-valid contract became enforceable under the law. The buyer’s effort to withdraw acceptance, by stopping delivery of the contract, came too late because the valid contract had become enforceable.

You should review your contract regarding acceptance. Some contracts specifically state that withdrawal can occur until a signed contract is physically delivered to the other party.

This scenario is a difficult one and an attorney should be consulted if it occurs.

Buyer makes a written offer through the listing agent; seller ultimately verbally agrees to all terms. Due to seller’s travel and listing agent's busy schedule, it takes time to get everything signed and delivered. During this delay, another, better offer shows up and the seller accepts and calls the first agent and says sorry! Does the first buyer have any recourse?

Assuming the seller never signed a written contract or something containing all the essential terms of the contract, the requirements for an enforceable contract against the seller have not been met here. So under the facts given, the first buyer is probably out of luck.

May real estate licensees write real estate purchase contracts?

Drafting contracts for others is the practice of law in Virginia, and it is therefore generally restricted to licensed attorneys. However, real estate licensees may do it if it’s incidental to a real estate transaction in which the licensee is involved, and the licensee does not receive a separate fee for it (See Va. Code § 54.1-2101.1.)

A prospective buyer of a residence received a Residential Property Disclosure Statement at the time the offer was being drafted. The offer was made and accepted that same day. Later that night, the buyer checked the sex offender website and found that a sex offender lives in the neighborhood. Buyer now wants out of the contract. Is there a three-day rescission right here?

No. The buyer would have a termination right if the disclosure had not been delivered until after contract ratification, but because it was given in a timely way, there is no termination right.