Broker Risk Management LLP Logo

CANCELLING THE CONTRACT – RE-SELLING THE PROPERTY

by | Apr 17, 2026 | Contracts and Forms

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

CANCELLING THE CONTRACT – RE-SELLING THE PROPERTY 

Last week, Broker Risk Management issued a tip regarding use of the California Association of Realtor’s Cancellation of Contract form (CC).  This tip provides a more in depth discussion of handling a cancellation from the listing side.

The cancelling of a contract is a legal act and must be done carefully and in compliance with the terms of the Purchase Agreement.  Exercise special care if your brokerage is a dual agent.  Finally, it is very important to be careful if the seller wants to ratify a new contract with a new buyer after the cancellation or wants to move a back-up buyer into first position.  If there is any question whether the Seller or Buyer has a right to cancel, the agent should refer the client to a qualified California real estate attorney for advice.

If ALL parties have signed a MUTUAL cancellation of the PURCHASE AGREEMENT, not just the escrow, then it is safe to re-sell the property to a second buyer.  However, if there is no signed mutual cancellation of the contract, then you must proceed with caution and follow the procedures and recommendations outlined in this tip.

If the buyer has not agreed to the cancellation, the buyer may argue that the seller had no right to cancel, challenging the cancellation on contract grounds, or on “equitable” or non-contractual grounds (such as “substantial good faith performance,” “fraud,” interference with performance,” etc.)  Note that if the buyer wants to cancel and the liquidated damages provision is initialed by both parties, the buyer has the right to cancel, but a determination will need to be made as to whether the buyer is in default.  If the buyer is in default, the seller may have a right to keep some or all of the buyer’s deposit.  If the buyer is not in default, the buyer will likely have a right to keep the deposit.  As a reminder, the liquidated damages provision allows a buyer to cancel but predetermines the buyer’s damages to be the buyer’s deposit.  The determination of whether a buyer is in default involves a legal analysis that the parties’ attorneys should undertake; agents should not opine on whether either party is in default.

In the instance where the seller has cancelled using the CAR Cancellation of Contract form (“CC”) checking the box for Seller cancelling, there exists the possibility that the buyer may object, challenging the right of the seller to cancel and threatening to file a suit for Specific Performance (asking the court to deliver title to buyer,) and to record a lis pendens, which prevents the seller from selling the property to another buyer.  Such allegations must be taken seriously and seller must be referred to their attorney for advice.

NOTE:  A lis pendens (literally, a “notice of pending action”) can only be recorded against a property if the party who filed a suit is making a claim to title or possession, such as a suit for specific performance.

However, often after the CC is delivered to buyer, there is no immediate response from buyer, or buyer refuses to sign the cancellation in an effort to recover the deposit.  Many times, the seller wants to sell to a second buyer, or move a backup buyer into first position.  In this scenario, a seller can re-sell the property to the second buyer, but must do so carefully taking into consideration the following:

  1. The seller should be advised to discuss the cancellation with their qualified California real estate attorney. Also, the seller should be made aware that, until there is a mutual signed cancellation of the contract, that first buyer may change their mind and try to come back alleging a right to buy the property.
  2. While a seller can re-sell the property and open a new escrow, the new escrow cannot be with the same escrow company. No escrow company can open two escrows on the same property at the same time for two different buyers.  However, agents should not move escrow companies simply to bypass the first escrow in an effort to sell the property as that could lead to claims of fraud and non-disclosure by the first escrow company.
  3. If the seller receives a new offer on the property that the seller seeks to accept, the listing agent needs to ensure the seller can deliver title at the close of escrow to that second buyer. Occasionally, the first buyer (or their attorney) will switch their claim for the deposit to a claim that they have a valid purchase contract and now claim a right under the purchase agreement to buy the property.  If a lis pendens were then recorded against the property by the first buyer, seller would not be able to deliver title to buyer number two, and could be in default on their contract with buyer number two.
  4. If a mutual cancellation is not possible, and if the first buyer is merely seeking return of the deposit, and if seller wants to ratify a contract with a second buyer, then refer the seller to a qualified California real estate attorney. If the seller is proceeding with the second buyer with no cancellation of the first purchase agreement, it is strongly recommended that the following language be included in a counter-offer making the acceptance subject to receiving a cancellation from the buyer.

“Seller’s obligations in this agreement including, but not limited to, closing escrow and delivering title to buyer are specifically contingent upon seller first receiving a written, mutually agreed-upon release and cancellation of a prior purchase contract on the property from a third-party purchaser.  In the event that seller, in seller’s sole discretion, determines that it will be unlikely or impossible to obtain that release and cancellation in a timely fashion, seller will have the right, without the necessity of issuing any type of prior notice to buyer including, but not limited to a notice to perform, to notify buyer that this agreement is cancelled.  The parties understand, acknowledge and agree that in the event seller exercises this right to cancel that seller may do so without any liability to buyer and the parties shall promptly instruct escrow to release buyer’s deposit, if any, to buyer.  Seller also has the sole right to waive this condition in writing at any time with written notification to buyer that buyer is in primary position.  The parties are advised to have this provision reviewed by their own qualified California real estate attorneys prior to signing this agreement.”

PRACTICE TIPS:

  1. It is always best to obtain a mutual written cancellation of the first contract by both parties before entering into a contract with another buyer.
  2. If you are involved in a transaction where there is no mutual cancellation of the purchase agreement and seller wants to re-sell the property without a mutual cancellation of the contract, IMMEDIATELY involve your manager/broker for assistance. Failure to follow the advice in this tip could result in selling the property twice with both the first and second buyer claiming a right to purchase the property.  That situation usually results in very contentious and expensive claims and litigation.
  3. If the seller wants to assert a claim to the first buyer’s deposit, the seller has to make both a legal and a strategic decision.
    1. The legal decision is whether the seller has a right to keep the deposit, and possibly other damages if Liquidated Damages does not apply. For this determination, refer your seller to seller’s own attorney.
    2. There is also a strategic decision that a seller has to make. The existence of the first contract may affect the seller’s ability to re-sell the property since subsequent buyers may be reluctant to enter into a purchase agreement with the above clause in the purchase agreement.  A seller should consider whether this issue is worth the pursuit of the deposit.
  4. If there is a back-up buyer whom seller wants to move into first position, only do so in writing when and if:
    1. You have a signed mutually-cancelled contract and escrow from the first buyer; or,
    2. You add the clause above making seller’s obligation to sell subject to obtaining that mutual cancellation from the first buyer.
  5. Never tell a back-up buyer verbally that they are in first position.
  6. If you are in a dual agency situation, remember that you owe full fiduciary duties to both parties. That means you and all persons in your brokerage must be neutral not favoring one party over the other.  You cannot advocate or show bias in favor of, or against, either party without exposing yourself to an allegation that you have breached the fiduciary duty to the other party.

DO NOT FORWARD TO CLIENTS. Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.