When you sell your home, you enter into a legally binding contract with the buyer. However, there are some situations in which you may need to back out of the contract. This article will discuss the ways in which a home seller can get out of a contract, as well as the legal ramifications of doing so.
A seller can back out of a real estate contract for a number of reasons, including:
The buyer is in breach of the contract
A breach of contract occurs when a party to a valid contract fails to fulfill their portion of the agreement. In real estate, a buyer can breach a contract by:
- Not following through with a closing
- Not paying for the property
- Not taking possession of the property
- Having buyer’s remorse
- Disagreeing over closing costs
- The property not passing inspection
- Refusing to pay for services or goods received from the seller
- Missing the payment date
- The seller failing to deliver the title deed
- Their mortgage financing falling through
When a buyer breaches a real estate contract, the seller may be entitled to monetary damages. The seller may sue for extra carrying costs, a potential decrease in a subsequent sale price, and forfeiture of any deposit. The seller may also resell the house, possibly at a loss.
The buyer cannot secure funding
A buyer may not be able to secure funding for a home loan for a variety of reasons, including:
- The buyer’s mortgage may not be approved
- The buyer’s credit score may be too low
- The buyer’s debt-to-income ratio may be too high
- The buyer may not have enough money saved after paying for the down payment and closing expenses
- The buyer may have derogatory marks on their credit report, such as a foreclosure or bankruptcy
- The buyer may not meet the loan contingency deadline
- The buyer may make bad financial decisions or lose a job prior to the closing date
If the buyer cannot secure funding, they can walk away from the deal without legal repercussions and have their earnest money deposit returned. The loan contingency period is typically contracted to last 30 – 60 days
The buyer requests repairs that the seller feels are unnecessary or too expensive
A seller can cancel a real estate contract if the buyer requests repairs that the seller feels are unnecessary or too expensive. The buyer is violating their side of the contract.
The buyer cannot get a mortgage within a certain time period
It takes most people about 2-6 weeks to get approved for a mortgage. However, the time it takes to close a mortgage can vary depending on the lender and the loan.
The average time to close a conventional loan is 44 days. For a purchase transaction, it takes about 43 days, and for a refinance, it takes about 46 days.
The time it takes to get a mortgage approved depends on the lender. On average, it takes about 30 days to get a loan approved. However, during peak months, it can take lenders 45 days or more.
The buyer commits fraud
Fraud for property, also known as fraud for housing, is usually committed by borrowers. Borrowers may lie about their income, assets, or other information on a mortgage loan application to obtain a loan or more favorable terms.
The seller can cancel the sale during the attorney review period
The seller can cancel the sale during the attorney review period check in your state (in Florida is a three to five day period after both seller and buyer have signed a contract)
The seller can also add a suitable housing contingency to the contract. This contingency states that the sale is contingent upon the seller finding housing within a specified period of time.
Other ways a seller can back out of a real estate contract include:
- A cooling-off period, which is typically three business days after the contract is signed. Either party can cancel the contract without penalty during this period.
- An attorney review clause, which sets aside several days after the contract is signed for each party’s attorney to review the contract.
- A suitable housing contingency, which states the sale of a property is contingent upon the seller finding housing within a specified period of time. This contingency only applies when written into the contract.
It is important to note that backing out of a contract can have legal ramifications. If the seller breaches the contract, the buyer may be able to sue for damages. Additionally, the seller may be required to pay the buyer’s legal fees.
If you are considering backing out of a home sale contract, it is important to speak with an attorney to discuss your legal options.
If you want to take advantage of all my valuable home selling information, download my free guide and you will receive answers to all your real estate questions. It’s my pleasure to serve you in this capacity. Thank You – Linda Marotto, licensed Real Estate Broker in Florida, since 2010.
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