When a Housing Deal Falls Through
Selling a house is not a simple process, and it can become even more complicated and expensive if the deal falls through; sometimes this can be a result of buyers back out at the last minute. As a seller, here are some things you need to know about late-stage exits. Legal Ways That Buyers Back Out Buyers will make an offer on your home and when it’s accepted, a contract is signed between the two parties. At that point, the property’s status typically changes from “For Sale,” to “Under Contract.”
This tells buyers and other agents that the seller has a buyer and is in the process of closing the deal. However, a home sale or purchase is not complete until both parties have signed all necessary legal documents transferring ownership of the home at closing. Buyers often have contingency clauses written into their contracts which are legal ways of backing out of the contract at no cost to the buyer. The most common contingencies include:
• Mortgage Loan Contingency: The buyer must be able to obtain a mortgage loan for the property, usually within a specific period of time of signing the contract.
• Home Inspection Contingency: The home for sale/purchase must either pass inspection or the seller must agree to make any necessary repairs noted by the inspector.
• Sale Contingency: The home purchase depends on the buyer selling his or her property.
• Appraisal Contingency: The price of the home for sale must either meet or be less than the official appraisal price.
When Your Buyer Backs Out
If you have a contract in hand for the sale of your home, you have a few things to lose if your buyer backs out:
Interest From Other Qualified Buyers Other buyers that may have been interested in making an offer on your home will begin looking at other properties. One of those buyers may have been able to meet the terms of the contract within your desired time frame, but by then, they are already gone.
Time One of the most frustrating aspects of a housing deal falling through is that you have to find another buyer. This takes time and could also complicate your plans to purchase another home and/or your moving timeline.
Your Next Home If you are buying another home and the contract on that property was contingent on selling your current residence, you may find yourself unable to financially move forward. You may have to back out of the purchase of your next home or figure out another way to finance it if you were depending on the proceeds from your current home to purchase the next. Money You may lose money as a result of the deal falling through if you:
• Failed to include a contingency in your next home purchase contract and you need to break it
• Need to continue making the mortgage payment on your current home and make a mortgage payment on a new home or pay rent
• Have to continue paying to keep the property up to show the home when it’s put back on the market
Negotiating With Your Buyer There are steps you can take if your buyer wants to back out. First, make sure that both of the real estate agents involved are communicating and that both you and your buyer are getting copies of all changes or communications in writing. See if there are concessions you could make to keep your buyer on track to close. While you may not want to reduce the sale price of your home or lay out more money to make repairs, it may be worthwhile.
Also check if the potential losses due to a broken deal would be more costly than making desired concessions.Be sure to read your contract to determine what recourse you have as the seller. For example, is there a clause in your contract that would give you legal grounds to sue your borrower for breach of contract and obtain a set percentage of the originally agreed-upon selling price?
Warning Signs There are some warning signs that a buyer is about to back out of closing on the purchase of your home:
• Not returning papers signed, dated and completed as instructed
• Failure to make required payments to third parties
• Not returning calls
• Missing appointments
• Multiple requests for contract changes from the buyer’s agent
Protect Yourself You can protect yourself from this type of buyer by being an informed and empowered home seller. You may want to have a real estate lawyer review the contract and inquire about your recourse options, including the ability to sue your buyer if necessary.