Selling a House
Option Contract in Real Estate Defined
Understanding the option contract real estate definition will better prepare you for your next purchase or selling of a property.
Can a Seller Back Out of a Real Estate Contract?
Your offer was just accepted on your dream house! But then a message from the listing agent that the owners no longer want to sell. Can a seller back out of a contract?
Madison Clifton
Mar 8, 2019
Your offer was just accepted on your dream house! You can already see yourself living there, and where you’re going to put your 24 x 36 oil painting of your Chihuahua, Chester. Right above the fireplace mantle. But then… a message from the listing agent: The owners no longer want to sell. Wait… Can a seller back out of a contract?!
Sellers Remorse
Why would a seller go through the process of getting their home listed, just to change their mind after accepting an offer? The same could be asked of people who wait until the “I do’s” to decide “I don’t”. There are a few things that can happen that may have a homeowner wondering if a seller can back out of a contract.
- A better offer came along. All Realtors have seen it. Their client accepts an offer and then BAM, the next buyer showed up late to the party but came in over asking price.
- The homeowner has something happen in their personal life that makes moving no longer necessary. Maybe their company decided not to relocate them out of state after all.
- The appraisal came back low. It turns out what the owner thought their home was worth and the fair market value report from the appraiser were very different.
- The owner can’t find a new home to move into before you’re supposed to close.
What would you do with an extra 16 hours?
Spend more time on the things that matter most.
Takesies Backsies
Now that we know what would make a seller back out of a contract, we can explore whether or not they can. In a real estate contract, the favor is usually on your side as the buyer. The contract offers the buyer several ‘outs’ during the contract period. For the seller to take back their home without consequence, it must fall under one of these five situations.
1. Before a contract is officially signed.
A verbal agreement and a handshake are not exhibits that hold up on Judge Judy, or any other court of law. Until that pen meets paper, or mouse clicks to eSign, the seller has the right to change their mind.
2. The contract is in the 5 day attorney review period.
If your contract calls for attorney review, it is sent to a lawyer to review the fine print and ensure that the contract outlines what was intended. During the review period, a proposal can be made for modifications. If the contract does not state what the seller intended, it may be cancelled.
3. If a seller contingency was not met.
Typically we see contingencies added to the contract that protect the buyer. However, the seller may have added a contingency for themselves, for example, that they have to close on a new house before they vacate the one they are selling. This is an example of why it is so crucial for everyone involved in a transaction to read the contract carefully.
4. The buyer does not stand by the contract terms.
Example, if the buyer does not obtain financing during their allocated contingency period, the seller can pull out.
5. The buyer requests repairs that the seller is not willing to take care of.
A buyers agent will help with the negotiation of repair items being countered for after an inspection. Just remember, you can request for all you want but the seller is under no obligation to agree to your terms. They are after all, requests, not demands.
When the ball is in the buyers court
If the reason for the seller backing out of a contract falls outside of the above mentioned areas, the buyer now has the upper hand. You have two options. Force the seller to uphold their end of the deal or bow out gracefully.
If the buyer chooses option two, they don’t have to walk away empty handed. The buyer can require the would-be seller to reimburse them for any expenses they have incurred during this contract, such as:
- Temporary housing costs
- Vendor fees paid out of pocket by the buyer- Inspection, property survey, etc.
- Storage fees
- Legal fees
- Earnest Money Deposit
OR, the buyer goes for option one, because the buyer does not have to let the seller back out of the contract. The buyer can choose the prize behind door number one, a brand new house! The part of the contract that allows the buyer to hold the seller to their deal is called the specific performance provision. Simply put- you signed, we signed. No mercy, tell your story walkin’.
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Agent Commissions
You thought that was the end of it? You can’t forget about the Realtors who held both the buyer and sellers hands through all this. (The agents certainly won’t forget) According to the terms of the listing agreement and the offer contract, both of which the seller signed, the buyers agent agreed to bring a ‘ready, willing and able buyer’, you, which they did.
Agents have a couple of options also. They can choose to accept reimbursement from the seller for any upfront costs and time lost while working this deal, or they are within their rights to sue for their full commission amount since they did everything they contractually agreed to and to no fault of their own, the seller backed out of the contract.
Before entering into any legal document, consult your attorney. Know your rights and remember, all is fair in love and real estate.