Can A Seller Back Out Of A Purchase and Sale Contract?

It doesn't happen often, but like buyers, sellers can get cold feet. Between the work of personalizing your home and the memories you've created there, sometimes it's hard to let go. Even if you don't get cold feet, there are plenty of other reasons to change your mind about selling.

Buyer's who back out of a deal forfeit their earnest deposit money (typically 1-3% of the offer price). As a seller, if you decide to cancel after the home is under contract, you can either be legally forced to close, or sued for financial damages. Of course, the specifics depend on the terms of your sales contract.

So, Can a Seller Back Out of a Contract?

While technically the answer to this question is no, it's actually not uncommon, especially in a hot market. Selling a house is complex, time-consuming, and can be expensive. When a deal is struck and closed, there's usually a sigh of relief.

That being said, even when the seller doesn't have a clear legal right to back out, it can happen. This is generally tough for the seller. While a buyer has the benefit of contingencies that can make it easier to walk away, it's hard for a seller to do so without a penalty.

As a seller, if you're selling your home, you should not enter into any purchase and sale agreement if there is any doubt on your part. There is really little wiggle room for doubt, second thoughts, or cold feet. Buyers have ways out, the seller, not so much!

Why Would A Seller Renege on a Purchase and Sale?

Sellers may have many reasons for trying to back out of a purchase and sale agreement. While some may hold up in court, others are actionable and can result in penalties.

Among the reasons a seller may give for backing out of an agreement include:

• They get a higher offer from another buyer.
• The seller has unable to find a suitable replacement home.
• Their situation has changed, for example, a family member dies making it financially difficult to move.
• The seller has emotional ties to their home and gets cold feet.
• There is a disagreement within the seller's family about leaving the house.
• The property appraises for significantly more than the buyer's accepted offer.

Both sellers and buyers should understand that any offers, counteroffers, and acceptances should be in writing and signed by both parties agreeing to the contract.

Typically, when a seller accepts the buyer's signed offer, or counteroffer and communicates that acceptance to the buyer, or the buyer's representative it is considered a binding agreement. Until that time, there is no obligation on behalf of the owner to sell. An oral agreement is typically not binding. A contract for selling real property must be in writing and signed by both parties.

There are some instances when a seller can back out of an agreement without consequence. Here are a few examples:

• If you only have a verbal agreement. Based on the statute of frauds, any contract to purchase real property must be in writing. This statute is enforceable in most states.
• If the contract is not signed by BOTH parties.
• If you have included a new home contingency into the purchase and sale. This contingency allows the seller to back out if they can not find a new home to meet their needs. This would be written into the original contract with the buyer.
• During the attorney review period. In most states, there is a 3 to 5-day period during which a seller can cancel based on their attorney's review of the signed contract. In some states, this review period is mandatory.
• If the buyer agrees to the cancellation. If the buyer is sympathetic to your reason (for example, the death of a family member) they can let you out of the agreement without suing.
• By capitalizing on the buyer's contingencies. Buyers often put multiple contingencies into their offers like a home inspection or appraisal contingency. Refusing to negotiate after the findings of these reports can derail the deal.

The Potential Costs of Backing Out of a Purchase and Sale

A home seller that backs out of a purchase and sale can be sued for breach of contract. A judge could find the seller at fault and may order the seller to sign over the deed and complete the sale. A seller that loses in court is often ordered to pay the buyer's legal fees along with their own and there could be a harsh penalty.

The seller may also be ordered to:

• Return the buyer's good faith deposit with interest.
• Pay the buyer back for all inspections and appraisal fees
• Pay for lost equity the buyer may have realized
• Pay any other reasonable expenses
• Reimburse the listing agent for the lost commission and all marketing costs.

A seller that wants to walk away and avoid a court fight could offer to pay the buyer enough to make them whole and hope they agree to cancel the contract.

Generally, a seller can not cancel without cause. Your attorney should look at any purchase and sale agreement and make sure that there are protective measures included to protect the seller in the event of a change of heart.

The bottom line in this instance is to think through the purchase and sale before taking any action. If there is a potential for a change of heart, do not sign any agreement unless and until you are sure. Think about your initial reasons for selling your home. Chances are these reasons will hold up and perhaps is just a temporary bought of remorse that will fade with time, or when the check clears!