What Happens When a Buyer Backs Out of a Real Estate Deal?

What exactly would happen if a buyer backs out of a real estate deal? This is a common scenario that a seller and buyer may face during the process of a transaction. Ultimately, when a buyer backs out after signing a contract of purchase, the resulting consequences can complicate circumstances for both parties. 

 

Home Purchase Agreement

With that being said, it is very important for the buyer and seller to have a clear understanding of the purchase agreement and its conditions. 

Generally, sellers will require a deposit from the buyers in a real estate transaction. If the buyer decides to back out of the transaction after agreeing to and signing the purchase agreement and its conditions, the seller is entitled to keep the purchase deposit.

As the seller, you can sue buyers for the loss in the value of your property on resale.

 

Backing Out of A Real Estate Deal

There are legal ways in which a party can back out of the deal. However, these are only applicable if certain contingencies are in place. In a contract of purchase and sale, these contingencies are called “subjects”. These refer to circumstances and requirements that both sellers and buyers can draft into the contract as a prerequisite to the agreement becoming legally binding. Once a subject is removed, the contract becomes binding and any subsequent attempts to back out of the deal from either the seller or buyer’s side after subject removal constitutes a breach of contract. 

 

Seller | Two Common Contingencies

As a seller, there are two common subjects that can be put into a contract to protect yourself in the event that you would like to back out of the sale. 

  • Replacement Property

The seller has the choice to only sell their property within a specific period of time, on the condition that they find a suitable replacement property. 

  • Rentback 

Another option for sellers to consider is a rentback, which ensures that the seller receives the money for the sale, while allowing the sellers to remain in the property for an additional time. Rentbacks are generally short term and occur when the seller is waiting for another property transaction to be fulfilled.

Note: It is also important to keep in mind that with rentbacks, the seller can no longer alter the property without the permission or approval from the new buyer. 

As a seller, if you are waiting on a different property, you can use this time to prepare and plan for any renovation during the relocation process, without having to rush.

 

Buyer | Three Common Subjects

It is also important for sellers to be aware of the buyers’ subjects during the process of purchasing a property.

The following may protect buyers from losing their earnest money if they do decide to back out on a real estate deal. 

  • Inspection

This subject allows buyers the opportunity to inspect and bring up any issues with the property. Buyers may conduct standard inspections to ensure that the property meets their expectations.

  • Price Evaluation

This allows the buyer an option to negotiate or back out of a real estate deal if the appraised value is lower than what both parties agreed on.

  • Financing

In some cases, the buyer is also able to back out if they are unable to receive a loan for the purposes of financing the property. 

 

How Can You Avoid The Risks As A Seller?

As a seller, it is important that you protect yourself from the risks that may come up when a buyer backs out of a real estate deal. Talk to one of our experienced real estate lawyers, and we’ll provide you with proper guidance in making your transaction seamless.

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