Q. We are in the process of selling our rental property. A buyer signed a purchase contract (using the standard form Regional Sales Contract). Several days later, we received an addendum stating that the purchaser wanted the price to be reduced by $10,000, because of two things the buyer believed devalued the property. Incidentally, these two items were specifically disclosed to the buyer before the contract was signed, and in our opinion one of the items – i.e. that the County would be installing sidewalks on the property) actually would have improved the value of the property.

We refused to reduce the price. However, our real estate agent advised us that since the purchaser was still within the time limitations of his home inspection contingency, the buyer could still negotiate the contract price. I then asked the broker: "does this mean that a buyer can come back and tell me that unless I paint the outside brick purple, the contract will be declared null and void and the purchaser will be able to back out of the contract and get his earnest money returned?" My broker answered in the affirmative?

If this is really true, what is the point of a contract and a deposit? Why not refer to the offer as a "starting point for negotiations"?

A: Your question deals with perhaps one of the most hotly debated – and litigated – issues in real estate: what is a contingency and what rights does a contract purchaser have when a contingency does not occur.

Oversimplified, a contingency means that if something does (or does not) occur, a contract may not be enforced and is not binding. There are two kinds of contingencies: a "condition precedent" and a "condition subsequent".

The former means that a condition has to happen before there is a valid contract. For example, "I will buy your house when you get clear title from the Probate Court". Until the Court gives you title, there is no contract.

A "condition subsequent" is somewhat different. We have a contract, but it is contingent on my obtaining financing within 30 days. If I do not get this financing within the time stated, the contract becomes automatically null and void and I will be able to get back my earnest money deposit.

Another contingency in this category is the "home inspection" condition. Let’s look carefully at the language contained in the Regional Sales Contract:

HOME INSPECTION: This Contract is contingent until 9 p.m. on the ____ day after the Date of Ratification... for an inspection of the property by the Purchaser... This contingency will terminate at the Deadline unless by the Deadline the Purchaser delivers to the Seller either A or B:

A: To paraphrase, here the Purchaser sends the Seller a copy of the Inspection Report, listing items the Purchaser wants the Seller to either correct or give a dollar credit at settlement. The Seller has three days in which to respond. Once there is a response, the Purchaser then has three more days in which to either accept what the Seller proposes or declare the contract void.

B: Notice declaring this Contract void.

Now let’s look at your situation. Your Purchaser has raised two objections. The first relates to problems which the home inspector has found. Under the terms of the Home Inspection Contingency, you have three days to either agree to correct these items (or give the Purchaser a monetary credit at settlement) or reject doing anything. Then the Purchaser has three days in which to accept your counterproposal or declare the contract null and void.

However, your Purchaser’s second request – i.e. reduce the sales price because the County will be installing sidewalks on the property – is not and should not be a part of the Home Inspection Contingency process. You have fully disclosed this fact to your Purchaser, before the contract was signed. Your purchaser should have taken this into consideration before he made an offer to purchase your property. Accordingly, it is my opinion that your purchaser cannot legally use the sidewalk issue as an excuse to try to get out from under the Sales Contract.

That of course is my legal opinion. But let’s look at this on a practical basis. You just signed a contract to sell your house; it has been off the market for just one week. If you do not let the Purchaser off the hook, we all know that he will try to find any excuse to give you a hard time up to the date of settlement.

Why get involved with a buyer who probably is suffering from "buyer’s remorse"? Your buyer can go to an attorney, who will strongly argue that since the Buyer has the option under paragraph B of the Home Inspection contingency to absolutely void the contract, the contract is – or should have been voided. You will probably win this legal argument in Court, since the Purchaser initially opted to use alternative A of the Contract, and cannot now try to use alternative B. But if you have to go to Court and defend yourself, the real winners will be the lawyers. And for the period of time that the case is in the Courts, you may have problems selling your house to someone else.

Thus, let’s answer your initial question: what’s the point of a contract and a deposit?

It is very important, since most people understand that once there is a binding contract – and the earnest money deposit has been given to the seller’s attorney or real estate broker – it is difficult to try to get out from under that contract. Clearly, the seller is in the driver’s seat, since a buyer would have to file suit in order to try to get the contract declared null and void.

But is this fight really necessary, especially in today’s economic climate where houses are still selling quickly, and often at inflated prices? Certainly, before a Seller should allow a buyer the right to back out of a contract, there should be some dialog between the buyer and seller. Perhaps there is a compromise position, which will allow the parties to move forward toward closing.

My definition of a settlement is where both parties walk away unhappy but nevertheless walk away. In your situation, I can see two possible avenues for settlement: