Can a Seller Back Out of a Real Estate Contract

Yes, a seller can back out of a real estate contract before closing, but it’s not as simple as just changing their mind.

There are definite conditions and implications depending on the terms of the contract and the laws in your state.

There are also implications that sellers who break the contract encounter:

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 vendor 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 that may make him unable to sell his house in the long run.

Buying a house is an exciting and nerve-wrenching exercise.  Upon a seller’s move to break the contract, it will bring a lot of complications and delays to an already lengthy home buying process.

Understanding the Real Estate Contract

This is a legally binding document that outlines the terms and conditions of the 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.

It is necessary that 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 how the buyer will finance the sale, whether through the acquisition of a mortgage loan or through other means of payment.

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 include the buyer’s ability to acquire a mortgage, home inspection, and the buyer’s satisfaction with the appraisal report results.

These contingencies give the parties a chance to renegotiate or, in some cases, have the contract cancelled 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.

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.

This may include specific performance, wherein the party in breach would be required to perform the contract according to its original terms, or compensatory damages for losses incurred by the aggrieved party.

Seller’s Right to Terminate

Review and Understand the Purchase Agreement: Before engaging in any contract, sellers have to thoroughly review and understand what is written in the purchase agreement.

This is a legally binding document indicating the obligations and responsibilities of parties involved.

Perform Obligations: This includes providing accurate and complete disclosures of the property, performance of the terms of any contingencies, and promptly 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 essential to rapidly 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: involve mediation or any other form of dispute resolution processes that usually include the help of a neutral third party who helps the parties communicate, accept compromises, and reach a consensus.

What if a Seller Refuses to Sign

The seller has the right to refuse signing closing documents, although this could cause great delays or even cancel the closing.

Refusal could be due to a variety of reasons including disagreements about terms of the sale or issues with the property.

However, if the refusal is not based on any reason, then the legal action may be necessary.

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, a great deal of penalties and legal consequences can be incurred.

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.

Monetary Compensation: Besides specific performance, the seller who breaches the contract may have to compensate the buyer for any economic losses he may incur due to the breach.

This often includes inspection fees, appraisal fees, attorney fees, and even the loss of a bargained sale price if the buyer must buy another home at a higher price.

Damages and Attorney’s Fees: If the seller breaches the contract, the buyer can claim damages from losses incurred. This could include additional costs if the buyer has to either delay or find alternative housing.

If the buyer chooses to take legal action to enforce the contract or compensate for losses, the seller is required to bear the attorney fees associated with this.

With the breach of contract before closing, a seller’s reputation within the real estate community can be negatively impacted.

Word travels, and other agents and potential buyers are 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.

Check the Contract

Read the words written 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 reputable real estate lawyer who specializes in contract law to consult with you.

They may counsel you and enlighten you about your rights and possible remedies available by law. 

Negotiate a Settlement

With the seller, negotiation may settle some issues out of court.

This may be talking to them and finding possible compromises to resolve the issue and continue with the transaction.

Specific Performance

Specific performance is a legal remedy, compelling the seller to perform his obligations in transferring the property.

However, specific performance is difficult and costly, so a legal attorney will need to be consulted to determine if pursuing this remedy is appropriate. 

Monetary Damages

This may be out-of-pocket costs such as inspection fees, appraisal fees, or any other expenses that have been incurred in the process. 

Seller’s Justification for Breach

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

Such may be attached to the property or the deal due to personal reasons.

Such sellers may suddenly feel reluctant to sell their beloved home. 

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.

Property Condition and Inspection Contingencies: During the home inspection process, some potential issues or major repairs are found by the inspector, and the seller may reconsider the sale. 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 seller may be unable to get a mortgage loan, or the seller may face appraisal issues.

If the buyer is unable to secure financing, or if the property does not appraise at the contract price, the seller may reconsider 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. 

Legal assistance is crucial to understand rights and obligations and avoid conflicts from misunderstandings.

Agree on a Settlement

Once the problem with the seller is identified and the seller has broken the contract before closing has been established, it is essential that both parties come to the table and have a frank and open discussion. 

Understand the situation : Take time to understand what the reasons are of the seller in wanting to break from the contract. 

Seek professional help: Consult with your respective real estate agents and attorneys. 

Find solutions: Consider other solutions that may suit both parties. Maybe the seller will consider a monetary settlement or will address the buyer’s issues to protect the deal.

Mediation or arbitration: Once negotiations have failed, mediation or arbitration might be the next viable solution.

Agreement of a contract: In some cases, the seller’s concerns can be addressed by amending the contract. 

Put it in writing: After a settlement is reached, it is imperative to put these resolutions in writing.

Having the paperwork may protect both parties’ rights and will enforce the contract by law.

Last Lessons Learned

The real estate process can be very complicated, and it is not uncommon for sellers to turn off in the eleventh hour of the deal.

However, there are remedies for buyers in case sellers fail to 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.