When 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: Can a seller back out of a contract? 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 to a 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.
Backing out of selling a house: 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 sellers want to back out of a deal doesn’t mean they can unless they do so carefully. So when are they free and clear?
Can you back out of selling your house? The 5 times when a seller can back out of a home sale
When can a seller back out of a home sale? The answer may vary. 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 for the buyers to find financing elsewhere, they can move on.
- The buyer requests repairs the seller is unwilling to do. When home buyers get a home inspection, they’ll often request that sellers 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 a sale
But aside from the above reasons, once a real estate transaction has a fully executed purchase agreement that’s past the 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 forcing the 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.
Yet that 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 sold an old home to buy the 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.
