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When Can A Seller Back Out Of A Contract?

7-Minute Read
Published on January 17, 2021
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Can a home seller back out of a contract to sell their property? The short answer is yes – under certain circumstances. In fact, it’s not uncommon for homeowners to get cold feet and want out of a real estate contract.

However, the choice to back out of a purchase agreement may come with added expense and potential legal consequences. Sellers who want out of an existing real estate contract are advised to do their homework up-front and recognize that time is of the essence if they wish to save on steep legal fees.

Can A Seller Back Out Of A Real Estate Contract?

It’s not uncommon for many homeowners who are privy to a real estate contract to wonder if a seller back out of a purchase agreement.

For example, some property owners may wish to backtrack for sentimental reasons. Others may sign a real estate contract only to determine in short order that deal terms and deadlines don’t seem as attractive as they’d initially thought at second glance. Whatever the reason for these reservations, when faced with the prospect of selling their house, a property owner may ultimately be unwilling to part with a piece of real estate. Should you find yourself in this scenario and wish to back out of a deal, though, it’s important to act swiftly and maintain compliance with the terms of your agreement to avoid legal complications.

In effect, after signing a contract, both the home buyer and seller have a 5-day attorney review period to back out of the agreement without consequences. Select contingencies might offer a way out of the agreement for a limited time period as well. Afterward, canceling a real estate contract can be an expensive, drawn out legal process – and with good reason.

After all, when buyers back out of a real estate contract, they face the potential loss of earnest money deposits paid to help secure the property, which often total 1% – 3% of the total home purchase price – no small sum. As a similar show of good faith, sellers (who do not put down an up-front deposit on these contracts) instead agree to be bound by rules and terms which provide buyers with measures of equal security on the back end.

Reasons Sellers Want To Back Out

As above, on occasion, sellers may wish to back out of a signed real estate contract – and reserve the right to do so in select instances, provided that they legally comply with the terms of the agreement.

Of course, doing so can also result in some inconvenience (and, possibly, heartbreak) for all parties involved, making it a decision that should not be undertaken lightly in any circumstance.

If you’re a home buyer, don’t take it personally if a seller wishes to back out of a real estate contract, no matter how motivated to sell the condo, apartment, or townhouse that the property owner initially seemed. After all, a purchase agreement may sound like a great deal on paper and stands to put a considerable sum of money in a seller’s pocket, there are many other factors associated with a property sale to consider.

If you’re a home seller, perhaps several hesitations have already begun to cross your mind. Common reasons among many why home sellers may wish to back out of an accepted offer on a purchase agreement include:

Emotional attachment: It’s not uncommon for sellers who’ve lived in a home for a long time, or experienced major life events while residing there, to get cold feet for sentimental reasons.

Unexpected events: A sudden illness, a job offer that falls through, or any one of a number of other unforeseen happenings can derail even the best-laid plans.

Appraisal concerns: Should a property appraisal come in under the expected offer price, a seller may not wish to lower this price, or negotiate its terms, and prefer to cancel the agreement instead.

Lack of housing: Sellers often list properties before they’ve identified and purchased a new home that meets their individual household’s needs – and may have trouble finding one in time to meet the terms of the accepted offer.

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Times A Seller Can Legally Back Out Of A Contract

A home seller who gets cold feet has several options if they wish to back out of a real estate contract after it has been signed. To avoid committing breach of contract and incurring legal penalties though, it’s important to understand the available options.

If you have any questions concerning the terms of a real estate contract, and potential legal recourses that you might pursue, be sure to direct them to a qualified legal professional such as a real estate attorney who can provide advice and insight.

Home sale contingency: If you have a new home contingency that allows you to back out of a deal if you can’t find a suitable new home for yourself or your family written into the purchase agreement, you may wish to invoke it.

Attorney review: You can back out of a signed agreement if you’re within a 5-day attorney review period that has been provided for in the contract (mandatory in some states).

Appraisal contingency: Buyers often include appraisal contingencies within home purchase contracts, which make a sale contingent on the results of a satisfactory appraisal. But if the home appraisal comes back low, and funding is denied to them by their lender (or you do not wish to adjust the sale price and the buyer is unwilling to make up the difference in cash), the contract may be rendered null and void.

Home inspection contingency: Prospective homeowners looking to buy a piece of property also commonly make their offers contingent on a successful home inspection. If these inspection reports contain findings that are unacceptable, buyers may request that sellers issue credits to deal with cited issues or address these concerns by making repairs. Should you refuse to do so as a property owner, and the buyer be unwilling to accept these terms, it could end negotiations and, in turn, the deal itself.

Buyer agreement: A sympathetic buyer who understands and empathizes with your situation may be willing to let you out of the deal without penalty.

Breach of contract: Should a buyer not comply with the terms of the purchase agreement and fail to correct this breach of contract within the time limits of any mandated cure period (aka grace period), you may also back out of the agreement.

Full disclosure: Sellers who wish to back out of a real estate contract may also inform buyers regarding additional concerns than those legally required during the disclosure process in hopes of dissuading buyers. Be careful if you choose to go this route though: Anything disclosed to a single buyer may be legally required to be disclosed to future buyers as well.

Consequences Of Canceling A Contract Outright

Tempting as it may be to pull the trigger and back out of a contract when you’ve decided to end a deal, it’s wiser to pause, take a step back, and consider alternate legal recourses. That’s because while buyers may only forfeit the earnest money that they’ve put down as a deposit on a home purchase by backing out of a purchase agreement, sellers face added potential consequences. Sample concerns here include:

Suit for specific performance: A seller who breaches contract may be sued and taken to court by the buyer in hopes of obtaining a court order requiring the seller, as a breaching party, to go forward with the agreement and complete the sale. If such an award is granted, the seller would be paid as agreed and title transferred to the buyer, even against the seller’s wishes.

Damages: A buyer who feels that they have been subjected to unreasonable and unwarranted expenses as a result of a seller backing out of a purchase agreement may also sue for damages. Monetary damages may be awarded for a number of commonly incurred costs including, but not limited to, expenses such as storage costs, temporary housing costs, lost deposits, legal fees and more.

Agent sues for compensation: If you’re a home seller who’s hired the services of a listing real estate agent, and suddenly and unexpectedly back out of a deal, you may also find yourself in breach of contract with your listing agent. This listing agent, who puts in legwork to find buyers and promote your home for sale (and expects to be paid at sale via commission) may sue you for payment of this commission as well.

FAQS

Backing out of a real estate deal isn’t always a simple and straightforward process. Frequently asked questions here may also include:

Can A Seller Back Out Of An Accepted Offer?

Accepting an offer on your home occurs when a contract is made in signed writing. Home sellers can back out of the terms of these agreements in select instances (and for a limited time period), subject to the individual rules, terms and contingencies defined in the document.

Can A Seller Back Out Of A Purchase Agreement?

A home seller can also back out of a purchase agreement in specific circumstances. Again, terms and conditions associated with any given deal will vary, but allow for certain instances in which a property owner can back out of the arrangement, provided legal terms are adhered to.

Best Ways To Minimize Risk?

A home seller wishing to back out of a real estate contract is advised to consult with an attorney and review all potential legal resources available to them before canceling the deal. They may also wish to speak with the prospective buyer to assuage any concerns that have sprung to mind since signing – or see if the buyer is sympathetic and willing to release them from the contract. If a home seller desires to end an agreement, and finds themselves in potential breach of contract, don’t forget either … It may also be advisable to offer the buyer a set amount of monetary damages as compensation for their troubles in lieu of costly legal proceedings.

The Bottom Line: Next Steps

If you’re a home seller who’s uncertain if you’re ready to back out of a deal, take time to step back, review your options, and consider whether a conversation with the potential buyer or a qualified legal professional is in order. If you’re one who’s ready to move forward with canceling a purchase agreement, be sure to consult with a qualified attorney and refamiliarize yourself with the terms and conditions of the real estate contract to which you’re privy before formally beginning the process. Backing out of a legal agreement is not something that should be undertaken lightly in any circumstance. But home sellers often can and do reserve the ability to back out of a contract if they get cold feet … provided certain terms and conditions are adhered to.

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