“The buyer walking away from the property purchase agreement after signing poses many potential problems for both the parties involved in the transaction and the real estate agent. But knowing a bit more about the legal implications of signing a contract might help avoid trouble.”
A signed real estate contract signifies a turning point in the property sales process. At this stage, everyone expects that everything will work out as planned. However, life does happen, and sometimes things go sideways, resulting in a need for a buyer to withdraw from a purchase contract even though he has already signed it. Our real estate litigation lawyer specializes in such cases, and we realize how complicated and stressful such matters are.
However, we must note that a buyer might have reasonable grounds to cancel the agreement. This occurs because one does not know whether breaking away from the signed contract is a good idea or carries legal and financial consequences.
Importance of Signing a Real Estate Contract
A real estate contract states the terms and conditions for both parties in a real estate deal. It contains information regarding the sales price, the date of closing, earnest money deposit, funding conditions, inspections, among others.
When you sign an agreement, you commit yourself to performing the tasks listed there. Should any of the two sides fail to execute their duties in accordance with the agreement, conflict might arise between them. Comprehending your contract terms will determine whether or not you continue.
Problems that Can Cause Buyers To Pull Out of the Deal
There can be many different things that can make buyers pull out of the deal. While some issues are covered under contracts, others would amount to breaching them.
Examples of common reasons include:
- Financing approval cannot be obtained
- The house inspection uncovers significant flaws
- The appraisal comes in lower than the offer
- Financial issues arise
- Changes happen in the buyer’s personal/family life
- There are issues with titles
- Simply put, the buyer no longer wants to go ahead with the deal
Contract Contingencies Explained by Professionals
Real estate agreements are written with contingencies that act like safety nets for purchasers under specific situations. This means that a purchaser will be able to back out of the contract if particular conditions aren’t met during the process of buying a property.
A financing contingency lets buyers leave the deal if financing hasn’t been achieved despite putting all necessary efforts into acquiring funds. Inspection contingencies let buyers leave deals when significant damage or safety concerns are revealed during inspections.
Earnest Money Deposit: What Will Become of This Money?
When talking about a real estate transaction, it is essential to understand that there is money at stake, specifically earnest money deposits. In case something goes wrong, these deposits tend to become the focal point of the discussion.
Everything depends entirely upon how the terms and conditions are defined within the contract. Sometimes, the dispute may lead to the storage of funds in escrow accounts.
If the Buyer Breaks the Agreement
Breach is an event during which the buyer fails to fulfill his obligations without justification. It can be represented by refusal to proceed with the closing of the deal after contingencies expiration, delay in meeting essential deadlines, or withdrawal from the transaction without permission to do so according to the terms of the agreement.
As a result, buyers experience financial loss caused by a late sale, continued expenses associated with the property, and other factors. However, there are usually certain provisions in the agreement that allow solving the problem.
Options for Sellers after Withdrawal of the Buyer
The most common action taken by many sellers is termination of the contract and listing the property again. However, this way is often ineffective in solving the problems caused by this situation financially.
A seller continues paying:
- The mortgage
- Taxes
- Insurance
- Maintenance costs
- Utility payments
- Marketing expenses
Legal Remedies Available to Sellers
Various legal remedies might be available depending on the situation in which a seller faces a breach of contract by the buyer.
Liquidated Damages
The majority of real estate contracts include a clause for liquidated damages. This means that an established sum may be recovered from the buyer who breaches the contract.
In many cases, the earnest money deposit will play the role of liquidated damages.
This way, there won’t be a necessity for long-term court proceedings since the situation will be clear.
Monetary Damages
However, if the seller faces some losses that are larger than the amount of the earnest money deposit, then further compensation may be made.
Damages might include such factors as:
- Decrease in the market value of the property,
- Carrying costs,
- Other expenses related to the deal,
- Marketing and advertising expenses.
The seller should prove that all the damages have occurred due to the buyer’s breach.
Specific Performance
Also, in some cases, the seller can claim specific performance. This means that the court will order the buyer to perform the deal as agreed.
Court Review of Buyer Withdrawal Claims
Where cases proceed to litigation, the court will take care to analyze the facts of the sale. The court will look into the contractual language, contingencies, communications, and other acts of both parties, the buyer, and the seller.
It is the responsibility of the court to determine if the buyer acted on grounds of contractual rights or the breach of an agreement. Given that each transaction is unique, there may be considerable variance in the outcome of cases depending on their specific facts.
Actions Sellers Should Take Right Away
Should your buyer withdraw from the purchase after signing a contract, it is important for you to take some actions.
These might include:
- Analyzing the contract in detail.
- Maintaining correspondence and transactional history.
- Checking whether contingencies are still in effect.
- Recording financial damages.
- Seeking legal advice from a specialist.
- Not reaching any premature agreement.
Defending Your Interests in Real Estate Litigation
The frustration of having a buyer leave even though there is an agreement already signed can be very challenging. Luckily, many sellers have ways to defend themselves from such situations through contractual provisions and laws. Everything is contingent upon the specific terms of the contract, the reason why the buyer decided to back out, and the timing of these events. You can protect yourself by knowing your rights and working with professionals who will give you the necessary advice on how to act in each situation.
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