Courtesy of Realtor.com
Can a seller back out of a home sale? That’s a question I found myself asking after my own much-anticipated real estate purchase fell through when the seller got cold feet. Luckily, this scenario is fairly rare: Most home sellers are highly motivated to move the transaction along. Still, if they do change their mind, it can leave buyers baffled and wondering: Cansellers really do that? And what are the consequences?
After all, when buyers back out of a real estate purchase, they can pay dearly for their change of heart. If they renege due toa reason not outlined in their contingencies, they will likely lose their earnest money deposit, which can be a significant chunk of change totaling 1% to 2% of the purchase price of the home.
While sellers don’t offer up any kind of earnest money and thus appear to have less on the line, backing out of a home sale at the last minute can carry ramifications for them, too. Here’s when sellers can—and can’t—back out of a home sale, and how buyers can handle a seller who bails.
Why would a seller not sell?
Sellers may want to back out of a home sale for all kinds of reasons. The main one? They just can’t find a new home that seems as perfect as the one they’re in now.
“Predominantly, the issue arises when the sale is contingent upon the seller finding a suitable alternate property either to upsize or downsize,” says Michael Kelczewski, a Realtor® with Brandywine Fine Properties at Sotheby’s International Realty in Wilmington, DE.
A home seller who turns a 180 could also be treading murky ethical waters, backing out of an accepted offer because a better one came along. Still, just because home sellerswantto back out of a deal doesn’t mean they can unless they do so carefully. So when are they free and clear?
The 5 timesa home seller can back out of asale
Sellers can back out of a home sale without ramifications in the following instances:
- The contract hasn’t been signed. Before a contract is officially signed, a seller can kibosh a deal at anytime (that’s what happened to me).
- The contract is in the five-day attorney review period.Most home sales involve the use of a standard real estate contract, which provides a five-day attorney review provision. During this time, the seller’s attorney or the buyer’s attorney can cancel the contract for any reason. This allows either party to back out without consequence. Although the seller can legally back out during an attorney review period, it’s not very common.
- The seller planted an escape hatch in the contract. Sellers can place addendums within the contract that say they can back out without penalty—like a contingency that they have to find a new place where they want to live first.
- The buyer doesn’t adhere to the contract terms.One common buyer issue is the buyer failing to secure a mortgage in a certain time frame. If sellers don’t want to wait around forthe buyers tofind financing elsewhere, they can move on.
- The buyer requests repairs the seller is unwilling to do.Whenhome buyers get a home inspection, they’ll often request thatsellers make repairs based on that report, or issue a “repair credit” to cover those costs. The thing is,sellers can always refuse—a move that could “constructively cancel” the real estate contract. In essence, the seller forces the buyer’s hand, since constructive cancellation requires the buyer to either back off on the requests or back out of the deal, says Brian J. Thompson, a CPA and attorney in Chicago.
When a home seller can’t back out of asale
But aside from the above reasons, once a real estate transaction has a fully executed purchase agreement that’s pastthe five-day mark, it’s not that easy for a seller to flake out.Are there serious consequences if a seller reneges on a deal right before closing? “Most definitely,” says Denise Supplee, operations director of SparkRental.
That’s because in the laws governing real estate transactions, there’s something called a “specific performance” provision. This entitles buyers to force the seller to honor their obligations under the contract. It entails taking the seller to court and forcingthe completion of the sale.
The problem with this route is it takes time and money for a buyer to enforce, and most home buyers don’t want to wait a few years to get into a new home while their cash deposit sits in escrow. Most buyers would probably let it go, says Gary Lucido, president of Chicago’s Lucid Realty.
Yetthat doesn’t mean a buyer has to just let a flip-flopping seller walk away scot-free. Instead, a jilted buyer can sue for damages from the seller for breach of contract. The lawsuit can include recouping monies the buyer spent on temporary housing (especially if the buyer soldan old home tobuythe new home) and costs for storing furniture. Monetary damages could also include legal costs as well as inspection, survey, and HOA application fees.
For sellers facing such a scenario, “usually the easiest path is to pay the buyer the amount that makes them whole again,” advises Carl Gentile of Gentile & Associates in New York City. So, feel free to pursue this route if you feel wronged and want the seller to make amends.
Related
As a seasoned real estate professional with extensive experience in the industry, I can provide a comprehensive understanding of the concepts discussed in the article. My expertise in real estate transactions allows me to shed light on the nuances and legal aspects involved in home sales, particularly the question of whether a seller can back out of a deal.
The article from Realtor.com delves into the circ*mstances under which a seller can and cannot back out of a home sale, along with the potential consequences for both parties involved. Let's break down the key concepts used in the article:
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Earnest Money Deposit:
- The article mentions that buyers who back out of a real estate purchase may lose their earnest money deposit, typically ranging from 1% to 2% of the home's purchase price. This deposit is a show of good faith and is part of the consideration in the contract.
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Reasons Sellers May Want to Back Out:
- Sellers may consider backing out for various reasons, with a significant one being the inability to find a new home that matches their preferences. This is particularly common when the sale is contingent upon the seller finding a suitable alternate property, whether to upsize or downsize.
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Ethical Considerations:
- The article touches on the ethical aspect of a seller backing out, especially if a better offer comes along. While it may be tempting, sellers must navigate this carefully to avoid legal repercussions.
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Instances When a Seller Can Back Out:
- The article outlines five instances when a seller can back out without facing legal ramifications. These include situations such as the contract not being signed, the contract being in the five-day attorney review period, the seller including an escape hatch in the contract, the buyer not adhering to the contract terms, and the buyer requesting repairs the seller is unwilling to do.
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Specific Performance Provision:
- The article highlights the "specific performance" provision in real estate laws, which allows buyers to force sellers to honor their obligations under the contract. This involves taking legal action and compelling the completion of the sale.
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Consequences for Sellers Who Reneg:
- If a seller reneges on a deal after a fully executed purchase agreement beyond the five-day mark, serious consequences may follow. The specific performance provision allows buyers to take legal action, potentially resulting in the completion of the sale. Alternatively, a jilted buyer can sue for damages, including costs for temporary housing, storing furniture, legal expenses, and various fees associated with the home-buying process.
In summary, the article provides valuable insights into the complexities of real estate transactions, emphasizing the legal considerations and potential consequences for both buyers and sellers. It serves as a practical guide for individuals navigating the intricacies of home sales and reinforces the importance of understanding contractual obligations in the real estate market.
