Last updated on June 10th, 2024 at 06:31 am
Yes, a seller can back out of a real estate contract before closing, but it’s not as simple as just changing their mind.
Each state does have its own laws if the seller doesn’t show up or decides that he or she no longer wants to sell their home;
If the buyer also agrees to cancel the sale of the home, then the buyer will be refunded their EMD by the title company.
Legal action: The buyer may sue the seller for all the costs that were incurred by them, such as the cost of searching for another home and closing costs.
Specific performance: In some cases, the court may order the seller to complete the sale according to the terms of the contract.
Reputational harm: The seller’s reputation may be harmed if he tries to break the contract.
Other realtors will learn of the situation and may choose not to represent the seller.
Understanding the Real Estate Contract
This is a binding document that governs the terms of sale and protects the interests of all parties involved.
Who’s Involved: The contract should clearly identify who is involved in the contract, including the buyer, seller, and any other persons who will have a vested interest in the subject of the sale.
All parties be clearly identified so that there will be no confusion or disputes in the future.
Purchase Price and Financing: The contract should clearly indicate the price at which the property will be sold.
It should also indicate if the buyer will get a loan from a mortgage company or pay for the property in cash.
Contingencies: Contingencies protect both the buyer and seller in case unforeseen circumstances crop up, hence leading to the failure of the sale.
The most common types of contingencies include the mortgage loan, home inspection, and the appraisal report.
These contingencies give the parties a chance to renegotiate or, in some cases, cancel the contract if the contingency is not met.
Closing Date: The contract should indicate the date that has been agreed upon and at which the date of the transfer of ownership of the property from the seller to the buyer happens.
Legal Rights and Remedies: The contract should specify the rights and remedies available legally to both parties in case of a breach of contract or default.
Seller’s Right to Terminate
Review and Understand the Purchase Agreement: Before signing any contract, sellers have should review and understand the language written in the purchase agreement.
This is a legally binding document indicating the obligations and responsibilities of all parties involved.
Perform Obligations: This includes providing accurate and complete disclosures of the property, performance of the terms of any contingencies, and answering buyer questions and requests.
Keep Lines of Communication Open: At all times during home selling, keep open and transparent lines of communication with the buyer and their agent.
It’s important to respond to any concerns or issues that a buyer may raise and provide timely updates on the completion of repairs, inspections, or any other relevant issues.
Mediation or Alternative Dispute Resolution: Involving a mediator or any other form of dispute resolution processes that usually include the help of a neutral third party helps the parties communicate, accept compromises, and reach an agreement.
What if a Seller Refuses to Sign
The seller has the right to refuse signing closing documents, this will usually cause delays or potentially cancel the sale process.
Refusal could be due to a variety of reasons including disagreements about terms of the sale or issues with the property.
If the sellers refuse to sign, legal action may be necessary.
This will be the buyer’s responsibility.
A title company cannot force the sale of the property.
The title company cannot proceed without signatures from all parties.
You should know that 86% of sellers willingly sign closing documents without hesitation.
Only 0.03% of sellers cite financial reasons as their reason for refusing to sign closing documents.
Consequences for the Seller
When a seller breaches a contract before closing, penalties and legal consequences can follow.
Specific Performance: Under specific performance, the buyer can file a legal action and force the seller to proceed with the sale as outlined in the contract.
This means that even if a seller changes his mind, the seller may still be obligated to sell the property to the buyer.
Specific performance is a common remedy sought for cases where the property is unique or where monetary compensation is not enough to help the aggrieved party retrieve damages caused by the breach.
However, specific performance is difficult and costly, so an attorney will need to be consulted to determine if pursuing this remedy is appropriate.
Monetary Compensation: Besides specific performance, the seller who breaches the contract may have to compensate the buyer for any economic losses they may incur due to the breach.
This often includes inspection fees, appraisal fees, attorney fees, and additional monies if the buyer must buy another home at a higher price.
If the buyer chooses to take legal action to enforce the contract or compensate for losses, the seller may be required to bear the attorney fees associated with this.
Word travels, and other agents and potential buyers may be reluctant to deal with a seller that has a track record of breach of contract.
Buyer’s Options and Remedies
Given that the seller breached the real estate contract before closing, the buyer should understand options and remedies that are available to them.
Check the Contract
Understand the written words in the purchase agreement with the seller.
Check if there are any specific performance clauses, contingencies, and seller default provisions.
Consult a Lawyer
Seek the assistance of a smart real estate lawyer who specializes in contract law to consult with you.
They will counsel you and tell you your rights and possible remedies available by law.
Negotiate a Settlement
You may try and negotiate with the seller.
Maybe there is some sort of compromise.
Do they need more time to find a place and move out?
Do they want more money.
A little investigation can go a long way.
Seller’ Justification cancelling the sale
Understanding the seller’s justifications for breach can bring a great deal of insight into how this can be avoided and kept on track with the closing process.
Cold Feet and Emotional Attachment
Cold feet can occur when a seller suddenly has strong feelings for their home and just can’t bear to let it go.
Such sellers may suddenly be reluctant to sell their home for reasons only they can understand.
Higher Offers or Shift in Market
In a hot real estate market, it might be that the seller has received higher offers from other prospective buyers after accepting an offer.
The seller might find this tempting and decide to breach and take the higher offer.
Legal Reasons Sellers Can Cancel a Sale
Property Condition and Inspection Contingencies: During the home inspection process, some potential issues or major repairs are found by the inspector.
If the seller feels that the cost of repairs needed is too high to justify going through with the sale, the seller may walk away.
Financing and Appraisal Issues: Sometimes, the buyer may be unable to get a mortgage loan, or the home may not appraise for the amount the buyer agreed to in the sale.
If the buyer is unable to secure financing, or if the property does not appraise at the contract price, the seller may cancel the deal.
Legal Ambiguities and Misunderstandings: Sometimes, the seller misunderstands or misinterprets one or more aspects of the contract terms, or the seller may find ambiguity in whether certain obligations are required by law.
That is another reason why all parties should consider hiring a realtor to help them throughout the process.
Final Thoughts
The real estate process can be very complicated, and it is not uncommon for sellers to back out in the eleventh hour of the deal.
However, there are remedies for buyers in case sellers fail too close, and there are penalty for the sellers in case they fail to sign.
Sometimes it might be easier for the buyer to find another home to buy.
Having contingencies in place will protect both parties and also ensure a smooth closing.
If you are a seller and want a cash offer for your home, there are many investors who can buy and close on your home in days.