You've finally gone to contract on your home, and now you're sorry you have. How can you get out of the contract?
"A seller is best-advised to be absolutely firm about wanting to sell real estate," says Joanne Fanizza, an attorney in Farmingdale, N.Y. It's indeed good advice since, as Fanizza explains, sellers face high hurdles if they want to back out of a contract to sell their home.
"I've seen situations where sellers thought, 'I'm just not going to sell.' They think the house just isn't for sale anymore. You can't do that after you're in contract," she warns.
Sellers sometimes change their minds because they're unhappy about the sale price or the cost of repairs, have lost a job, decided not to relocate to another state or are involved in a loan modification, short sale or foreclosure.
None of those excuses makes canceling a deal easy, however.
"Sellers have fewer options (than buyers), and pretty much, if the seller has seller's remorse, they kind of have to throw themselves on their sword and say, 'I am so sorry. I am so remorseful,'" Fanizza says.
Exit through contingencies
Sellers who need an out should look first to the contingencies, or conditions, that are part of the sales contract. Such contingencies as the inability to get a mortgage, a bad appraisal and problems with the home inspection generally protect the buyer, but other conditions may work in the seller's favor. For example, a home-purchase contingency could allow the seller to walk away if he or she can't find another home to buy.
If the contingencies don't offer an escape, the seller is stuck with breach of contract as the only way to not sell the home, and that's a risky strategy. Breaching a contract is almost always taken as a show of bad faith.
Court may order specific performance
What's more, the buyer might bring a lawsuit for specific performance, in which a court would order the seller to complete the sale, explains Louis Cammarosano, general manager of HomeGain, a home-sale website in Emeryville, CA.
"The buyer can say, 'All the conditions are met. I have the check here. I have the financing. I'm going to give you this check, and you are going to hand over title to the house,'" he says.
Then again, a seller may have some psychological high-ground if he or she occupies the home as a primary residence. A buyer's effort to force a seller out of his or her home might not succeed due to such "human concerns," says Jared Jacobson, an attorney in Philadelphia, PA.
The buyer also might sue to recover consequential damages, which are reasonably foreseeable costs the buyer has had to pay as a result of the seller's breach of the contract. An example would be temporary housing costs if the buyer ended up without a place to live because of the seller's actions.
If a lawsuit ensues, the seller could try to argue that the contract or portions of it were invalid or unenforceable.
"There is freedom of contract up to a point, but certain states don't allow certain provisions," Cammarosano says.
A lawsuit could be quite costly, and some contracts award attorney's fees to the winner, Fanizza notes. That means a seller who breaches a contract and loses in court might have to pay the buyer's attorney's fees as well.
Realty commission payable
Another risk is that the seller's real estate broker might insist that the seller pay the sales commission, even if the home isn't sold. That's a reasonable claim if the broker found a ready, willing and able buyer, but the seller took the home off the market.
"Most brokers or agents won't let them off the hook on that," Fanizza says. "In fairness, they did all this work: They marketed the house. They got a value you could live with, and now you want to do them out of their paycheck for it?"
Money talks, buyer walks
Some buyers will accept a seller's apology and move on to another house, but others won't be so understanding, even if the seller's excuse seems valid to the seller.
All things considered, the best option for some sellers may be to try to compensate the buyers for their lost time, effort, expense and opportunity to purchase the home.
"Money," Cammarosano observes, "solves a lot of problems."
“Seller's remorse? How to back out of a home sale contract was written by Marcie Geffner, a writer for HSH.com, the trusted mortgage resource since 1979.”