The Colorado Contract to Buy/Sell is very buyer friendly. The contract allows the buyer to do their due diligence in regards to reviewing title and HOA documents, conducting inspections, getting an appraisal, getting a survey if desired, and securing a loan (if they are financing the purchase). If objection deadlines are in place for each of these items in the contract, the Buyer has a right to Terminate (with written notice) and receive their earnest money. Let’s look at the wording directly from the contract.
25.1. Right to Terminate. If a party has a right to terminate, as provided in this Contract (Right to Terminate), the termination is effective upon the other party’s receipt of a written notice to terminate (Notice to Terminate), provided such written notice was received on or before the applicable deadline specified in this Contract. If the Notice to Terminate is not received on or before the specified deadline, the party with the Right to Terminate accepts the specified matter, document or condition as satisfactory and waives the Right to Terminate under such provision.
25.2. Effect of Termination. In the event this Contract is terminated, all Earnest Money received hereunder will be returned and the parties are relieved of all obligations hereunder, subject to §§ 10.4, 22, 23 and 24.
That being said, Buyers need to be aware that they can’t decide not to buy the property at any time because they’ve changed their minds. Without a rightful Termination the Buyer will be in Default. There are two ways to write up the “consequences” for a Buyer who defaults on the contract. 99.9% of the time Buyers go with Liquidated Damages. This means the Seller’s only recourse it to keep the Buyers’s earnest money. Below are the two options per the contract.
21.1. If Buyer is in Default:
21.1.1. Specific Performance. Seller may elect to treat this Contract as canceled, in which case all Earnest Money (whether or not paid by Buyer) will be paid to Seller and retained by Seller; and Seller may recover such damages as may be proper; or Seller may elect to treat this Contract as being in full force and effect and Seller has the right to specific performance or damages, or both.
21.1.2. Liquidated Damages, Applicable. This § 21.1.2 applies unless the box in § 21.1.1 is checked. All Earnest Money (whether or not paid by Buyer) will be paid to Seller, and retained by Seller. Both parties will thereafter be released from all obligations hereunder. It is agreed that the Earnest Money specified in § 4.1 is LIQUIDATED DAMAGES, and not a penalty, which amount the parties agree is fair and reasonable and (except as provided in §§ 10.4, 22, 23 and 24), said payment of Earnest Money is SELLER’S ONLY REMEDY for Buyer’s failure to perform the obligations of this Contract. Seller expressly waives the remedies of specific performance and additional damages.
It’s rare that a seller is in Default, but if they are:
21.2. If Seller is in Default: Buyer may elect to treat this Contract as canceled, in which case all Earnest Money received hereunder will be returned and Buyer may recover such damages as may be proper, or Buyer may elect to treat this Contract as being in full force and effect and Buyer has the right to specific performance or damages, or both.
The takeaway from all this is that the Contract to Buy Sell is a legal contract and should be taken very seriously. Most importantly all parties also agree to act in good faith.
29. GOOD FAITH. Buyer and Seller acknowledge that each party has an obligation to act in good faith including, but not limited to, exercising the rights and obligations set forth in the provisions of Financing Conditions and Obligations (§ 5), Title Insurance, Record Title and Off-Record Title (§ 8), Current Survey Review (§ 9) and Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (§ 10).
In every transaction it is important to keep the lines of communication open and treat all parties with respect and good faith.