Can the Buyer Back Out of a Real Estate Contract?

Filed under: Real Estate Law

A real estate contract is legally binding, and the general expectation is that both buyer and seller will each fulfill their ends of the deal. However, there are clauses that allow buyers to back out of a real estate contract under certain conditions. It’s always a good idea for both buyer and seller to consult with a real estate attorney in San Diego, Temecula or in their local area throughout Southern California when dealing with this sort of issue, to avoid the loss of deposit money, or potentially significantly more.

Typically, the buyer has many more options for backing out of the contract than the seller in the California Association of Realtors form Residential Purchase Agreement (“RPA”), the home sale contract used in the large majority of home sales. One common contingency allows the buyer to walk away from the deal if the property fails inspection. Another states that the transaction will depend upon the buyer obtaining adequate financing for the purchase. As long as these contingencies are included in the contract – they are in the RPA – there should be no repercussions if the buyer needs to back out of the contract for those reasons. There are many such contingencies that may be included in a real estate contract; the important thing is for sellers to be aware of possible pitfalls of these clauses. Consulting with our team of real estate attorneys in Temecula, San Diego and throughout Southern California can keep sellers informed of the limitations of the contract as well as their rights.

In some cases, a buyer may try to back out of the contract for reasons clearly not allowed. For example, they may think they could get a better deal elsewhere, or they might decide they prefer another property. In these cases, sellers can sue in theory to force the sale to move forward, though such actions are extremely rare. Typically the contract provides for liquidated damages, which usually is defined to be the amount of the deposit. In California, non-refundable deposits offered as earnest money are typically not valid, but the contract typically describes the seller’s retention of the deposit as “liquidated damages” to enforce this policy. This language should be included in the contract before either party signs, and is part of the RPA if elected by the parties to the sale.

Since these cases can often involve a lot of time, stress, and money, the best course of action is to consult a real estate attorney if you have questions about specific provisions of your real estate contract. The attorney can advise the seller of his rights before a conflict occurs and offer solutions that will best protect the seller under the law.

 

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