Can Sellers Ever Back Out of a Real Estate Contract?

Filed under: Real Estate Law

Once a real estate contract is signed, it’s uncommon for either party to back out. After all, quite a lot of time and effort have been expended by both parties. But occasionally, unforeseen events can happen. Most typically it is the buyer who backs out, pursuant to one of the buyer’s contingencies in the contract. As you approach closing day, however, you might wonder if a seller can ever back out of a real estate contract. Or, if you’re the seller, you might be having second thoughts.

Backing out raises a lot of questions. The primary concern when a seller attempts to back out of a contract usually involves the purchase price. Did another buyer come along and offer to pay more for the property? This is often the first assumption. If true, it can cause trouble for the sellers. Yes, it is illegal to back out of a real estate contract simply because a better offer came along. However, there are a few situations in which a seller can cancel their agreement:

For this article, we are assuming that the parties are using the standard California Association of Realtors® contract forms, which are the standard in the overwhelming majority of California home resales.

The contract isn’t actually signed yet. You might have reached a verbal agreement, but until a contract is signed it will be difficult to hold the sellers to it.

The buyers fail to uphold part of the agreement. The buyers might be required to secure a mortgage within a particular time period. If they fail to do so, the seller can cancel the contract. The seller, however, must have followed the appropriate procedure laid out in the contract for notifying the buyer of buyer’s failure to perform under the contract and the notice period must have passed before seller can cancel.

The seller is unwilling to perform certain repairs. If the buyer obtains a home inspection, they might then request that certain repairs be performed by the seller before proceeding with the sale. The seller can refuse, forcing the buyer to choose between purchasing the home as-is, or canceling the transaction.

A certain contingency within the contract is not met. Sellers can protect their own interests by planting contingencies within the contract. For example, the agreement might state that they are able to obtain suitable housing before proceeding with the sale. If this contingency can’t be met, the seller can back out of the contract without negative consequences, as long as their actions are done with the “good faith” required under the purchase agreement.

In the event that a seller breaks a real estate contract, the would-be buyer has the right to enforce certain legal reparations. This might depend upon their monetary ability and patience, as forcing the sale to continue can require quite a bit of time. Often the remedy revolves around compensating their losses, including attorney fees and costs, as well as forcing the sale.

It is wise to consult with a real estate attorney if issues arise during a real estate transaction, in order to protect your interests, and imperative if you are a seller intending to break a purchase agreement. We can help you identify weaknesses in a contract, or proceed with the appropriate legal action in the event either buyer or seller backs out of the deal.

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