It is quite possible that either a Seller or Buyer might change their mind about the sale/purchase of a home. While it is more common for the buyer to try to back out, there are occasions when the seller might also have a change of heart.
Reasons A Seller Might Try To Back Out:
- Could I have gotten a better deal?
- Appraisal is too low
- New job did not go through
- Emotional attachment to family home
- Unable to find suitable housing
As the Seller, you can usually back out of the sale without ramifications under the following circumstances:
Before the contract is signed: Most often, there is a real estate contract that is reviewed by attorneys prior to each party signing. During the review phase, the Seller or Buyer may terminate the sale for any reason without consequence.
The Seller included a contingency in the contract allowing them to back out, such as the need to find suitable housing.
The Seller is unwilling to lower price/make requested repairs as requested by Buyer after issues are found upon appraisal.
If the Seller insists on backing out of the deal even when they do not fall into the above categories, they will likely face serious consequences. The laws that govern real estate transactions force the Seller to honor obligations under the contract. The Seller may be brought to court to enforce the sale, which might take some time to enforce, or the Buyer can sue for money spent on temporary housing, storage, costs of inspections, lawyers and various other fees. There is also a chance the Seller’s real estate agent would sue for lost commission or expenses they incurred while taking the time to find a suitable buyer.
Reasons A Buyer Might Try to Back Out:
- Unable to secure mortgage
- Seller unwilling to make requested repairs
- Loss/Change of job situation
- Unable to sell existing home
As the Buyer, you have most likely paid earnest money once the Seller accepted your offer. This is usually 1% - 2% of the agreed upon price, and is paid to show you are serious about the purchase. If you decide to back out of the purchase after the money is paid, there are certainly scenarios in which you will be able to recoup the money. The below are contingencies that could fit this scenario if stated within the contract:
If the property does not appraise for the purchase price and a mutual agreement cannot be made, the Buyer may exit the contract.
If the inspection reveals more issues with the home that originally disclosed, such as wiring issues, cracked foundation, etc, the buyer might use the Inspection Contingency to exit the contract.
If you are unable to sell your existing home or if your sale falls though, the Home Sale Contingency can come into play allowing you to back out without penalty.
If you are purchasing a condo or a property within a home owners association (HOA), there will be HOA documents released to you for your to review. These documents will include the rules and regulations that must be followed once you own the home. Though review periods will vary by state, you may withdraw your offer on the home within the review period, also without penalty.