Backing out of a contract after an Agreement of Purchase & Sale has been signed, is quite risky for the seller. Learn about some of the challenges and risks here.
Risks of Backing Out of a Contract
A home sales undertaking is a complicated process that involves a lot of steps, but once the buyer and seller sign the contract, the transaction is “in contract.” Once this is done, funds are deposited into an account that is overseen by a third party and both the buyer and seller are firm on their positions.
Yet, situations do occur where the seller suddenly has second thoughts about selling their home. Owing to various reasons like either an emotional attachment, a higher bid coming in at the last minute, or for a host of other reasons, sellers do occasionally want to try and back out of the real estate transaction. The questions they face are – can the seller back out of a contract, and if so, what are the risks of making this move?
A signed Agreement of Purchase & Sale is a legally binding document. So, if a seller wants to back out after the contract is signed, they stand the risk of being exposed to certain legal ramifications. This, of course, depends on the buyer. For instance, if the buyer sympathizes with the seller’s situation, they might choose to let the seller pull out of the contract and keep their house. On the other hand, the buyer can also choose to enforce the agreement, in which case, a court can order the completion of the sale, despite the seller wanting to back out.
A seller is also at risk of being sued by their own listing agent for expenses already incurred like marketing expenses and even their lost commission. Although most agents will gladly accept their expenses being reimbursed and thus move on, this is never a guarantee that an agent won’t sue the seller for breaking what is considered an exclusive right to sell contract.
The good thing to note is that in most cases, sellers who choose to withdraw from selling their homes usually get to keep their homes. But in doing so, they are usually required to pay the buyer for any “inconveniences” they might have caused the buyer as a result. These costs are in addition to returning the initial deposit and they can include such things as:
- The buyer’s temporary housing costs
- The buyer’s inspection and survey fees
- The buyer’s storage costs
- Lost deposits
- Legal costs
- And more
When it comes to backing out of a home sales contract, a seller’s best chance at avoiding legal problems is to simply pay the buyer what is needed to make them whole.
Is there an out?
Some home sales contracts feature provisions that provide a contractual out for the seller if for some reason they decide not to sell. These conditions usually include situations such as the seller not being able to find an adequate replacement home or failing to gain required sales approval for the property from other family members.
Whatever the stipulations are, they need to be clearly specified in the sales contract. So, if you are thinking of withdrawing from the sale of your home, it pays to read over your contract first to see if you have a legal contractual out before you notify the buyer of your decision.