Both buyers and sellers need to pay careful attention to the contingencies written into real estate contracts. These contingencies will dictate the legal obligations of both parties if one were to back out of the contract before the sale is completed. Therefore, it is always a good idea to review all real estate contracts with an attorney to be aware of what legal responsibilities are expected from both the buyer and seller.
Pulling Out of a Sale
Once the earnest money has been put down and the real estate contract has been signed, the clock starts ticking down to closing day. But with each passing day, there is always a chance that either the buyer or seller might back out of the sale. The reasons for doing this could be anything from:
- The seller does not think the buyer will follow through with the deal and does not want to risk keeping the house off the market
- While unethical, another buyer has offered more money to the seller
- Either the buyer or seller has decided they do not want to move
- The buyer cannot obtain financing or make the required down payment
- Significant problems, such as termite, mold or foundation damage are found during a home
Before panicking, the party who wants to fulfill his contractual obligations could work with his realtor and real estate attorney to clear up any issues that may have caused the other party to back out of the deal.
What are the Possible Legal Remedies?
If the buyer and seller are unable to resolve their issues, both will need to turn to the legal remedies that are specified in their real estate contract’s contingency clauses. For example, if a home inspector finds that the roof is leaking in the home, a contingency may allow the buyer several options. The options might include withdrawing from the contract without a penalty, requesting that a credit be made at closing for repairs, or asking the seller to make repairs. If the seller will not agree on a credit or fails to make repairs, the buyer can cancel the contract and receive their earnest money back.
Even if all contingencies have been met, a buyer might still back out before closing. If a buyer backs out, the seller may be able to retain the earnest money payment after closing escrow with the assistance of a real estate attorney.