Selling a home is a significant decision, and sometimes circumstances change, leading a seller to reconsider. Whether it’s due to cold feet, a better offer, or personal reasons, backing out of a real estate contract can have serious legal and financial consequences. In this article, we’ll explore the reasons sellers might want to back out, the potential repercussions, and the steps involved in canceling a contract legally.
Can a Seller Back Out of a Real Estate Contract Legally?
Once the seller has signed a real estate contract, it is binding. It can lead to lawsuits, penalties, and damage to the seller’s reputation in case of breach without reason. In some situations, however, the seller may back out of the contract without the worst case.
Reasons Sellers Want to Back Out
1. Cold Feet or Emotional Attachment
Sellers may develop an attachment to their house and have second thoughts about selling.
2. A Better Offer
A seller presented with a better offer after he has accepted a first offer may be tempted to go back on his word.
3. Change in Personal Circumstances
Personal circumstances such as loss of job, illness, or domestic crisis may prompt sellers to change their minds and not sell their home.
4. Buyer’s Failure to Meet Contract Terms
If the buyer does not finance, misses a deadline, or breaks the contract, the sale can be canceled by the seller.
5. Property Issues
Problems discovered by inspectors or appraisers, such as costly repairs or title issues, can cause sellers to cancel.
Legal Sanctions for Canceling
When a seller cancels a contract without justification, they can be sued:
1. Lawsuits for Breach of Contract
The seller can be held liable by the buyer for specific performance (mandating sale) or money damages.
2. Forfeiture of Earnest Money Deposit
If earnest money deposit has already been paid by the buyer, the seller is required to refund or sue.
3. Financial Fines
Sellers can be forced by buyers to pay the buyer’s fees, i.e., inspection charge, appraiser’s fee, or attorney’s fees.
4. Blows to Reputation
Backing out of the transaction will hurt the seller’s reputation, and it would become hard to bargain with sellers or real estate brokers in the future.
How to Back Out of a Real Estate Contract Legally
If the seller is ready to walk out of the transaction, then let them do so in a careful manner so that they will not find themselves in legal trouble. The procedure is as follows:
1. Read Over the Contract
Read through the contract for contingencies or clauses that allow the seller to cancel. Common contingencies include:
Financing Contingency: In the event that the buyer fails to secure a mortgage, the seller can cancel.
Inspection Contingency: If inspection reveals serious problems, the seller is at liberty to cancel.
Appraisal Contingency: If the house will not appraise for the set price, the seller may cancel.
2. Negotiate with the Buyer
In some other cases, the buyer will voluntarily cancel the contract, especially when the seller is offering compensation or will refund part of the expense.
3. Engage a Legal Right
If the buyer is not holding up his/her end of the contract (i.e., failing to meet deadlines or failing to secure financing), the seller can legally terminate the contract.
4. Engage a Real Estate Lawyer
A lawyer can go through the contract, offer legal advice, and assist in negotiation with the buyer to avoid litigation.
Alternatives to Backing Out
A seller who does not want to continue with the sale but does not want to sue can attempt the following options:
1. Ask for an Extension
Ask the buyer to offer an extension of time to complete the sale, especially if the delay is personal.
2. Rent Back the House
Sell the house but with a rent-back agreement where the seller can stay in the house for a certain duration after closing.
3. Resale the Property
If the buyer will accept to cancel the contract, the seller can resell the property and sell it to another person.
Most Frequently Asked Questions on Sellers Walking Away from Real Estate Contracts
1. Can a seller withdraw from a real estate contract after signing an offer?
As soon as the contract is signed, the seller is no longer at liberty to withdraw for a good reason or out of fear of legal retaliation.
2. If a seller revokes a contract, relief is available:
The buyer can recover on breach of contract, specific performance, or money damages.
3. Can the seller cancel when he gets an improved offer?
No, cancellation of the contract for a superior offer is contract breach and illegal.
4. Sound reasons to cancel for a seller.
Good reasons are buyer defaults, broken contingencies, or mutual agreement with the buyer.
5. Can a seller cancel during the option period?
If the contract is within an option period, the seller may cancel within it, as per the contract.
6. Do I need to go see an attorney if I want to cancel?
Yes, you are advised to go see a real estate attorney so that you understand your rights and avoid legal issues.
End Thoughts.
Cancellation of a real estate transaction is a serious move with serious legal and financial consequences. Sellers should read their contract thoroughly, explore possibilities, and hire a real estate attorney prior to an action. Sellers can make good decisions and avoid expensive mistakes by understanding what they can and should do.
If you’re navigating a complex real estate transaction or need expert guidance, consider reaching out to Elizabeth Ann Kline, a trusted real estate professional with years of experience helping clients achieve their goals.
