What Is a Retract?
To retract means to withdraw a bid, offer, or statement before any relevant party acts on the information provided. For example, it'scommon practice in real estate transactions to provide a deposit showing the buyer's intention to complete the transaction. This deposit is sometimes referred to as earnest money. If the buyer decides to retract the offer on the property, they may also be required to forfeit the deposit.
Key Takeaways
- To retract means to withdraw a bid, offer, or statement before any relevant party acts on the information provided.
- Retractions can occur in many different industries; they are particularly common in business deals and in real estate.
- Some laws protect against any financial losses that may be experienced by one party if the other party retracts their contract, bid, or settlement. For example, the Miller Act requires contractors on some government construction contracts to post bonds as a way of guaranteeing the performance of their contractual duties.
How a Retract Works
A retract–also referred to as a retraction–may happen because the bidder or seller seesnew opportunities or unforeseen challenges, such as a job transfer, loss of income, or a better deal.
Retracts may occur in many different industries. A business may offer to buy another business but then retract the offer before the parties discuss the terms. In a situation like this, a retraction may have legal or financial consequences for the business that performs the retraction. A contractor may bid on a project but then retract its bid. This act can also have legal repercussions. Finally, a stock trader may also post a bid and/or offer and then retract it.
Examples of Retracts
Bid, performance, and payment bonds are required for most public construction projects. In the past, the federal government faced high failure rates among private firms performing public construction projects. Many contractors were insolvent when the jobs were awarded or became insolvent before finishing the project. When the government was left with unfinished projects, taxpayers were forced to cover the additional costs of completing the project. Since government property is not subject to a mechanic’s lien if a contractor failed to complete a project for the federal government, it meant that laborers, material suppliers, and subcontractors often went unpaid.
In 1894, the U.S. Congress passed the Heard Act, authorizing the use of corporate surety bonds for securing privately-performed federal construction contracts. The Heard Act was replaced in 1935 by the Miller Act, which currently requires performance and payment bonds on federal construction projects. The Miller Act requires contractors on some government construction contracts to post bonds as a way of guaranteeing the performance of their contractual duties and the payment of their subcontractors and material suppliers.
Since most U.S. public construction is performed by private sector firms, the work is typically given to the lowest bidder. A bid bond is often used to prevent firms from retracting their bids, assuring the government that the successful bidder performs according to the contract’s terms and conditions at the agreed-upon cost within the time allotted. If the lowest bidder fails to honor its commitments, the owner is protected up to the amount of the bid bond–typically the difference between the low bid and next-highest responsive bid.
Retracts can also occur at some point during the course of a real estate transaction. During the contingency period, after a contract is signed and earnest money is secured, all contract requirements must be met for the buyer and seller to move forward with the transaction. For example, the home may be appraised and inspected, and the buyer must secure appropriate financing (which is sometimes contingent on the appraisal or inspection).
The home purchase is not complete if, for example, the home inspector finds the roof needs replacing or another issue arises (assuming the sales contract was subject to an inspection condition). The buyer may retract their bid with a full return of earnest money; the seller may proceed to find a new buyer.
If a buyer retracts a bid outside the contingency period for reasons outside the clauses in the contract, this usually results in the seller keeping the buyer’s earnest money to cover damages incurred from not completing the transaction.
