Reviewed by Sep 30, 2020| Updated on
Retract means a request, offer, or statement to be withdrawn before any other party acts on the information given. For instance, offering a deposit, known as earnest money, is common practice in real estate transactions, which indicates the buyer’s intention to complete the transaction.
When the buyer wishes to withdraw the bid on the house, he will also demand that the deposit be forfeited. Withdrawal may occur because the bidder sees new opportunities or unexpected obstacles, such as a work move or income loss.
Most public building projects include bids, performance, and payment bonds.
In the USA, the federal government has, in the past, faced high failure rates among private firms undertaking public construction projects. After the tenders were obtained but before the project could be finished, the companies became insolvent. When the government left the project incomplete, taxpayers covered the additional costs. Since government property cannot be subject to a mechanic’s lien, labourers, material suppliers and subcontractors were usually left unpaid. The lien secures the workmen payments before anyone else in the event of a liquidation.
Congress passed the Heard Act in 1894, allowing the use of corporate security bonds to protect federal building contracts which were privately executed. The Miller Act replaced the Heard Act in 1935, which currently includes performance and payment bonds on federal building projects.
Because private sector companies perform most U.S. public building, usually the job is offered to the lowest bidder. A bid bond is also used to discourage companies from withdrawing their bids. These assure the government that the successful bidder executes at the agreed-upon cost within the allotted duration as per the terms and conditions of the contract.
When the lowest bidder fails to meet its obligations, the owner will be compensated up to the value of the bid contract, usually the difference between the low bid and the next highest bid.
In the contingency time, all contract conditions must be fulfilled for the buyer and seller to go forward with the deal after a contract is signed and earnest money is collected. The home must be priced for a fixed price, for instance, and the buyer must obtain sufficient financing.
The home purchase is not complete if the inspector discovers, for instance, that the roof needs are being repaired or some problem occurs. With a complete return of earnest money, the buyer can withdraw his bid; the seller can move on to find a new buyer.
If an offer is withdrawn during the contingency period, the seller will most likely retain the buyer’s earnest money to cover losses incurred due to failure to complete the transaction.