DEFINITION of 'Retract'
Retract means withdrawing a bid, offer or statement before any relevant party acts on the information provided. For example, it is common practice in real estate transactions to provide a deposit, known as earnest money, showing the buyer's intention to complete the transaction. If the buyer decides to retract the offer on the property, he may also be required to forfeit the deposit.
BREAKING DOWN 'Retract'
Retracting a Construction Bid
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 covered the additional costs. Since government property is not subject to a mechanic’s lien, laborers, material suppliers and subcontractors often went unpaid.
In 1894, 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.
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 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.
Retracting a Real Estate Bid
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 must be appraised for a set amount, and the buyer must secure appropriate financing. The home purchase is not complete if, for example, the inspector finds the roof needs replacing or another issue arises. The buyer may retract his bid with a full return of earnest money; the seller may proceed to find a new buyer. Retracting a bid outside the contingency period results in the seller most likely keeping the buyer’s earnest money to cover damages incurred through not completing the transaction.