What happens if seller pulls out of sale?

Buying a home is one of the most important financial decisions a person can make. After months of searching, making offers, and going through negotiations, finally getting an accepted offer can feel like a huge relief. However, if the seller decides to pull out of the sale even after accepting an offer, it can leave the buyer confused, frustrated, and scrambling to figure out next steps. This article will examine what recourse a buyer has if the seller backs out, what the buyer is entitled to, and steps the buyer can take to protect themselves.

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Can a seller back out after accepting an offer?

In most cases, once both parties have signed the purchase agreement, they are legally bound to complete the sale. However, there are some circumstances where the seller is allowed to walk away:

The purchase agreement contains a contingency clause that allows the seller to back out, such as if they are unable to find suitable new housing.
The buyer does not fulfill any contingencies laid out in the contract, such as being unable to obtain financing.
There is an inspection contingency and the inspection uncovers significant undisclosed problems.

The seller receives and accepts a higher offer on the home.

If the seller simply changes their mind and tries to walk away without one of these contingencies being triggered, they are breaching the contract. The buyer may be able to sue them for damages or force them to complete the sale.

What is the buyer entitled to if the seller pulls out?

A buyer’s options depend on the circumstances and the laws in their state. Here are some things the buyer may be entitled to if the seller wrongfully backs out of a sale:

Earnest money: The earnest money deposit is usually forfeited if the seller defaults on the contract. The buyer can use these funds to cover expenses incurred during the sale.
Damages: The buyer can sue the seller for damages incurred as a result of their breach. This can include inspection costs, appraisal fees, legal fees and any costs associated with securing financing.
Specific performance: The buyer may be able to file a lawsuit compelling the seller to go through with the sale.

Escrow extension: If the closing date passes, the buyer may be able to extend the closing date to give them more time to sort out the issue.

If the seller had a valid reason to back out, such as an inspection revealing undisclosed defects, the buyer is unlikely to recover any costs. The earnest money is usually returned to the buyer in these cases.

Steps buyers can take to protect themselves

There are a few proactive steps buyers can take during the offer and contingency period to protect themselves in case a seller tries to back out down the line:

Keep copies of all signed contracts and addendums.
Get any promises from the seller in writing, such as agreements to make repairs.
Maintain detailed records of expenses incurred, like inspection reports.

Build in contingency periods for financing, appraisal, inspection etc. This gives the buyer an “out” as well if issues arise.
Don’t waive contingencies unless you are comfortable with the risk.
Consult a real estate attorney for help crafting a solid purchase agreement.

Communicate regularly with your real estate agent for updates on the seller’s plans.

Can the buyer back out as well?

Just as the seller can decide to pull out of the deal even after signing the contract, the buyer may also want to walk away under certain circumstances. Here are some cases where the buyer can legally back out:

The home inspection identifies significant problems not previously disclosed by the seller, such as structural issues, mold, or pest infestation.

The appraisal comes back lower than the agreed upon price, and the seller won’t renegotiate.
The buyer’s financing falls through even after making a good faith effort to secure a loan.
There are title issues that can’t be resolved, such as an unknown lien on the property.

The seller makes unreasonable demands about the closing date or contract terms.
The buyer learns new information about the property that changes their mind, such as planned construction nearby.

If the buyer backs out for a justified reason, their earnest money deposit is usually returned. However, if the buyer simply has a change of heart with no contingency to support it, they may forfeit the deposit. The seller could also sue the buyer for breach of contract.

Steps the buyer can take if the seller pulls out

Here are some proactive steps a buyer can take if they find themselves in a situation where the seller backs out of a purchase agreement:

Review the purchase agreement terms and understand both parties’ rights and responsibilities under the contract.
Communicate with your real estate agent for their perspective on why the seller may be trying to walk away.

Consult a real estate attorney to discuss your options and local laws regarding breached purchase agreements.
Send official written notice to the seller that you consider their actions to be a breach of contract.
Present the seller with options such as renegotiating the price or closing date if you are open to compromise.

File a lawsuit for specific performance or monetary damages if you wish to take legal action.
Contact your lender and explore whether the closing date can be extended if needed.
Ask about having your earnest money deposit returned according to the purchase agreement terms.

Start looking at backup options and other properties on the market in case the deal falls through.

With patience and a calm, strategic approach, many buyers are able to get the seller back on track or recoup their losses. However, if it becomes clear the seller has no intention of closing, legal action may be necessary.

What are the risks of suing a seller for backing out?

Some buyers in breach of contract situations decide to sue the seller for damages or specific performance. While this is certainly an option, there are also risks to be aware of:

Lawsuits are expensive – Attorney fees, court costs, and other legal expenses add up quickly.
It takes significant time and effort – Buyers are often eager to get into a new home and may not want delays.
The outcome is uncertain – There is no guarantee a judge will rule in the buyer’s favor.

The seller may file a counterclaim – They may allege the buyer breached the contract first.
It may prolong finding a new home – The time and energy spent on a lawsuit can distract from house hunting.
The seller may refuse to negotiate – Lawsuits often eliminate goodwill and willingness to compromise.

Specific performance is hard to obtain – Courts are often reluctant to force a seller to complete a sale.
The seller may be judgment proof – Even if the buyer wins, the seller may lack assets to pay damages.

Weighing the potential benefits against the costs and risks involved is key when deciding whether to file a lawsuit over a breached real estate contract. Some buyers decide the best course of action is just moving on and finding a new home.

How can buyers avoid sellers backing out in the future?

For buyers who have been burned by sellers backing out of agreements, there are some things they can do to help avoid similar situations in future home purchases:

Work with reputable, experienced real estate agents who will represent your interests.
Do thorough research on recent sales by the listing agent to look for any negative patterns.

Interview the sellers and try to get a sense of their motivations for selling.
Add contingencies for financing, inspection and appraisal whenever possible.
Hire a real estate attorney to review contracts before signing.

Keep communication open with sellers throughout the process to flag any issues proactively.
Build timelines into the purchase agreement to prevent long closing delays.
Don’t waive contingencies or release deposit funds until the sale has closed.

Be cautious when sellers try to circumvent the standard purchase process.
Back up other offers as needed in case your primary contract falls through unexpectedly.

Taking preventative measures can help buyers avoid the frustration of last-minute cancellations. However, there are still cases where even the most careful buyers end up blindsided. Having skilled professionals, solid documentation, and legal remedies available can make navigating these setbacks much more manageable.

Conclusion

Backing out of a signed real estate contract can leave buyers in the lurch and derail plans to get into a new home. While there are limited cases where sellers can legally change their mind, unwarranted withdrawals often constitute a full breach of contract. Understanding the remedies available and taking proactive steps to protect their interests allows buyers to maximize their chances of either salvaging the original deal or recovering losses. The ideal outcome is completing the home purchase as planned, but buyers who know their options give themselves much greater peace of mind and control if sellers get cold feet down the road.