If you are a homeowner, you may consider selling your house in the future. Selling a home is a complicated process, but it can be very rewarding. The longer you have lived in the house and made mortgage payments, the more equity you own.
As long as the property’s value has increased during your time there, selling can lead to significant profits and is a great way to earn earnest money.
Once a home seller lists their property on the market, they will receive offers. Those who list it online can start receiving offers within a few seconds. Agreeing to a transaction with a buyer is an exciting stage since it signals a potential end to the home-selling process. However, a buyer could back out of the sale for numerous reasons.
The Home Sale Process
When you sell a home, there are several steps you may take. You may hire a real estate agent to prepare your home for showings or open houses (or you could take the photos on your own). Most agents take photos to give those interested a detailed look. They’ll ensure the listing is posted on a site properly and help you with finances, such as dealing with the security deposit.
The realtor will work with buyers and other agents to invite offers for your home. There may be a negotiation period before a price is agreed between the seller and one buyer. At this point, most sellers assume the purchase is locked in, but there are a few more steps before closing documents are signed, and money is in your bank account.
Offer and Acceptance
The initial stages of a real estate transaction involve the buyer making an offer on the home. Depending on the buyer’s motivation, the offer may be lower, higher, or equal to the asking price set by the seller.
Now, the seller must decide whether to accept the offer, negotiate for a better deal, or reject the offer outright. You may weigh several offers from multiple people before accepting a buyer’s deposit. Additionally, these offers are submitted as formal documents.
If you accept an offer, it becomes a legally binding contract. You agree to sell the property to the new buyer for the amount they chose in the offer letter. For more insights on handling offers, read our guide on how long a seller has to respond to an offer.
The Purchase Agreement (Contract)
The next stage of the real estate deal is the purchase agreement. This is different from the offer acceptance. In a purchase contract, the buyer and seller agree to the terms of the sale, which could include contingencies, a closing date, and other essential details.
Most real estate contracts include several contingencies that must be met before the sale can be processed. These contingencies are specific conditions that must happen for either the buyer or the seller to complete the transaction. The types of contingencies included in a purchase contract will depend on the circumstances of the buyer and seller.
Most purchase agreements include contingencies for the buyer for backing out of the agreement. For example, a seller may say they want to keep the earnest money deposit if the buyer backs out. The seller can also sue for damages or lost money. If the seller doesn’t sell their current home as planned, they may owe late fees on a mortgage and sue for those.
When Buyers Can Back Out Legally
As a seller, you aim to sell your current home and acquire more money from the transaction. Once a buyer has made an offer that you have accepted, it is easy to assume that you are close to sealing the deal.
A buyer suddenly backing out may feel like the rug is being pulled out from under you. Sellers who have buyers back out of home sales may feel angry and want to pursue legal action due to their disappointment. However, buyers have some legal grounds for backing out of a contract.
Contingencies in the Purchase Agreement
A buyer can only back out of a contract if they meet the requirements for a contingency. These conditions ensure that the contract can be voided if certain events occur. Several types of contingencies may be included in a purchase contract for a home.
An inspection contingency is the most common contingency normally included in real estate contracts. Since the buyer typically pays for a home inspection after an offer has been accepted, they want the freedom to back out of the purchase if the home inspector finds significant issues with the property. An inspection contingency is often cited as the reason for a failed transaction.
Another common contingency is related to financing. If the buyer failed to secure the funding by a certain date, they or the seller could withdraw from the sale without being taken to court. This home sale contingency often occurs when buyers do not seek pre-approval for mortgage loans.
Buyers can also include an appraisal contingency in their agreements. Typically, this clause states that the appraisal of the home’s value must be comparable to the final price they agreed to pay in the purchase document.
Meeting Contingency Requirements
For a buyer or seller to back out of a real estate contract legally, they must meet the conditions of a specific contingency. Usually, these contingencies have specific terms and deadlines.
For example, if a financing contingency ends on July 20th, but the buyer does not back out before that date, they may have to pay a penalty. If they backed out before that date, they would not be punished.
If a party meets certain contingency conditions, they have legal grounds to terminate the contract.
When Backing Out Could Lead to a Lawsuit
Since there are ways for a buyer to legally back out of a contract, the seller must have good cause to sue them. The primary reason for suing a buyer is a breach of the contract.
Breach of Real Estate Contract
Some buyers may decide to back out of deals without valid reasons. Maybe they got cold feet or wanted a different home after signing the documents. If contingencies expire and the buyer still decides to terminate the sale, this could also be considered a breach of contract.
In these cases, sellers sue buyers because there are no legal grounds for ending the sales. If this happens during your home sale, you could pursue legal action against the buyer. You can take them to court for damages, time wasted, or money lost. Many homeowners ask to keep the earnest money deposit to cover damages.
Seller’s Legal Options
The primary strategy a seller can implement is suing for specific performance. This is a legal solution in real estate transactions involving a contract breach. The seller could legally force the buyer to complete the purchase if their case is successful. You could also sue for damages, including financial losses from the breach of contract, such as a lost earnest money deposit.
Factors Affecting a Seller’s Decision to Sue
Even if a buyer has backed out of buying your home and breached the contract, this doesn’t mean you should sue them without hesitation. There are numerous considerations you should take into account before making this decision.
Strength of the Case
Your likelihood of lawsuit success depends on the breach type and available evidence. If you want to secure damages or force the sale, you must provide proof of the breach. This will mean proving the buyer did not adhere to all the contingencies. Often, these conditions protect buyers, so the reason for backing out must have violated a specific contingency.
Financial Losses and Damages
If the buyer pulls out and has little impact on your finances, there is no need for a lawsuit. The seller should only sue if the deal falls through and causes them significant financial burdens. Otherwise, a lawsuit’s time commitment, cost, and effort are not worth the potential reward.
Legal Costs and Time Commitment
When a buyer backs out of a deal, the other party may want to sue them for financial losses. However, a lawsuit is a time-consuming process. The attorney review period, evidence-gathering stage, discovery phase, and negotiations could take months to resolve. Sellers should weigh the costs of a lawsuit with the potential benefits to decide if it is worth the trouble.
Avoiding Legal Disputes
It is much easier to avoid a legal dispute if a buyer or seller backs out of a contract. That way, you can return your house to the market and move on from the broken contract. Here are a few tips to help avoid this type of dispute.
Clear Communication and Negotiation
Open communication between yourself and the buyer is essential for smooth sailing. You should also be willing to negotiate and compromise so that the needs of both parties are addressed. Communicate clearly to resolve your issues and avoid the headache of legal action.
Working with a Real Estate Attorney
Contracts are often breached because people do not understand all the terms and conditions. Hiring an attorney is an essential step in a real estate transaction. Have your lawyer review all the documents and provide guidance to minimize the risk of disputes.
Reduce the Risk of Seller Backing Out With a Cash Home Buyer
You can never predict when a traditional buyer may decide to back out of an agreement, making you wish you could sue a buyer. At A-List Properties, we never back out of sales because we keep funds on hand to buy houses with cash.
We will buy various properties, so you don’t have to worry about making repairs, cleaning the property, or financing delays. Since our team buys houses as they are, you can also forget about needing an inspection or appraisal.
To avoid potentially flaky buyers, call us today at 972-526-7042 or complete the online form to request a cash offer.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
