Seller's remorse? How to back out of a home sale contract
You've finally gone to contract on your home, and now you're sorry you have. How can you get out of the home sale contract?
"A seller is best-advised to be absolutely firm about wanting to sell real estate," says Joanne Fanizza, an attorney in Farmingdale, New York. Sellers can face high hurdles if they want to back out of a contract to sell their home, explains Fanizza.
"I've seen situations where sellers thought, 'I'm just not going to sell.' They think the house just isn't for sale anymore. You can't do that after you're in contract," she warns.
Sellers sometimes change their minds because they're unhappy about the sale price or the cost of repairs, have lost a job, decided not to relocate to another state or are involved in a loan modification, short sale or foreclosure. Sometimes, the presence of a higher offer can trigger seller’s remorse.
None of those excuses makes canceling a deal easy, however.
"Sellers have fewer options (than buyers who back out of purchases), and pretty much, if the seller has seller's remorse, they kind of have to throw themselves on their sword," says Fanizza.
Review your contract
Sellers who need an out should look first to the contingencies, or conditions, that are part of the sales contract. For example, the Seller Purchase Replacement Property (SPRP) allows the seller to cancel the contract if he or she can't find another home to buy.
Real estate contracts are full of deadlines and requirements for both buyer and seller. If the contingencies don't offer an escape, go through yours to see if the buyer has missed a deadline. For example, if he or she was supposed to have mortgage approval within 30 days, and it’s been 35, you may be able to cancel the contract without repercussions. Routinely, sellers get backup offers higher than the sales price, and they check every day in hopes that buyers or their agents drop the ball and allow them to accept the better offer.
Other outs can be handed to you on a silver platter: if the real estate agents fail to get necessary signatures where required. It’s not uncommon, for instance, to see a note like, “phone ok per seller, signature to follow” on the paperwork, with no actual signature.
Breaching the contract
If the contingencies don't offer an escape, the seller is stuck with breach of contract as the only way to not sell the home, and that's a risky strategy. Breaching a contract is almost always taken as a show of bad faith, and your buyer has several remedies available. Your contract may even force you, as the party committing the breach, to pay the buyer’s attorney fees and court costs if he or she is forced to drag you to court.
Your buyer may sue for specific performance, which allows a court to order you to convey the property to the buyer according to the terms of the contract. This remedy is built on the understanding that real estate is unique and personal and a breach may not be easily remedied by a monetary award.
The buyer also might sue to recover consequential damages, which are reasonably foreseeable costs the buyer has had to pay as a result of the seller's breach of the contract. These can range from the cost of temporary housing, storing the buyer’s belongings, restaurant meals and other living expenses, but can go much further.
For example, if you know that the buyer is planning to fix and flip your home, you can in some courts be liable for lost profits. The same is true if the house was supposed to be rental property. If you back out because you realized that you underpriced the house, expect the buyer to sue for lost profits.
Realtor commission payable
Your agreement with your real estate brokerage – your “other contract” -- is likely to require you to pay the office its commission even if you stop the sale because it did its job to your satisfaction (or you wouldn’t have accepted the buyer’s offer).
"Most brokers or agents won't let [sellers] off the hook on that," Fanizza says. "In fairness, they did all this work: They marketed the house. They got a value you could live with, and now you want to do them out of their paycheck for it?"
Money talks, buyer walks
Some buyers will accept a seller's apology and move on to another house, but others won't be so understanding, even if the seller's excuse seems valid.
All things considered, the best option for some sellers may be to try to compensate the buyers for their lost time, effort, expense and opportunity to purchase the home.
Money tends to solve a lot of problems.
Gina Pogol contributed to this article.
More help from HSH.com
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today with a quarter-point change in the federal funds rate, but no changes to other monetary policy tools.
Home price recovery index: Which metros have improved the most, least?Have home prices in your area fully recovered from the declines suffered during the Great Recession, or are they still struggling to make it back to the peak it reached before the crisis?
The salary you must earn to buy a home in 27 metrosHere’s how much salary you would need to earn in order to afford the median-priced home in your metro area.
Home buyer programs by state | 2017HSH.com has compiled a list of home buyer programs in each state in order to inform borrowers of what assistance might be available to them in their local area.
10 metros where a home costs about $1,000/monthHSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.