I recently found an internet post asking if the seller could decide to cancel the deal at the closing table.  A long, interesting debate ensued to address this issue.  The fact is the sale of a home is a lengthy, convoluted process.  The longer the process continues, the harder it is to cancel.  Below is a list of common conditions where a seller can withdraw from a sales contract.

Safeguards are put in place to protect the buyer.  The home inspection, home appraisal, and legal disclosures are all utilized to assist the buyer in the homebuying process.  Likewise, buyers are favored by sales contracts that shield them and move the process forward.  On the other hand, sellers are routinely limited in their ability to withdraw from a sales contract.  The seller must wait for the buyer to “fail to perform” by missing a deadline or failing to make a down payment.

why do sellers change their minds?

A purchase agreement is a legally binding document.  It provides contingencies that must be performed before the sale moves forward.  Examples of contingencies are the purchaser’s requirement to get a mortgage or the house appraising for a certain amount.  A seller is always able to exit an agreement if the contingencies are not performed by the buyer.  Other common reasons why sellers may get cold feet about selling property:

• Emotional Attachment – The seller may have raised their children and hosted holiday dinners in the home over the years. Moving to a new home may ultimately be impossible for this type of seller.   
• Change of Circumstances – If the seller is relocating for a new job and that job falls through, they may decide to cancel the sale. Additionally, the illness or death of a family member may cause a change in plans.
• Home Appraisal – When the home appraises for less than the contract price, the seller may not want to accept the lower price. Conversely, if the home appraises for a higher amount, the seller may want to cancel the sale so they can get more money from a new buyer.
• Home Inspection – The home inspection may uncover new problems that must be repaired prior to sale. The owner may not be willing to make repairs or accept a lower price. 
• Home Purchase Contingency – If the seller is unable to afford a new home, they may have to stay in their existing home.
• Higher Price Offer – In a hot housing market, the seller may find a new buyer who offers more money for the property.

What Happens When the Seller Cancels the Purchase Agreement?

In case the seller decides to cancel the purchase agreement, the seller should discuss their reasons with a trusted real estate attorney.  The attorney should be able to guide the seller to the best resolution under the circumstances.  There are various options available for the seller to exit the deal.

Legal Options for a Seller to Cancel a Sales Contract

The best options would be to take advantage of the contingencies in the contract.  For instance, if there is a clause that the sale is dependent on the seller purchasing a new home, the seller could cancel the sale if a new house wasn’t obtained.

The seller can refuse to make a price adjustment or necessary home repairs for problems revealed during the home inspection.  Likewise, the seller can choose to keep the higher contracted price even if the appraisal is lower.  The purchaser must pay the difference if the bank rejects the sale price.  Both situations could cause the buyer to withdraw from the deal.

One risky choice would be for the seller to disclose extra faults with the home which would make the home less desirable to the purchaser.  This route is problematic because any additional issues would have to be disclosed to all future buyers and could jeopardize future sales.

Sales contracts must meet certain standards to be enforceable.  They must be written, signed by all parties and reviewed by attorneys at the very least.  In case the contracts are verbal or contain errors or omissions, the seller can walk away.

There is a 5-day period for the attorneys to review the purchase agreement.  The seller can back out of the contract with no penalty during this time.  This period is mandatory in most states.

Finally, the seller could ask the purchaser’s permission to void the contract in good faith.  The seller would offer to compensate the purchaser for expenses incurred and refund any earnest money paid.  Such a compromise would be beneficial to both the seller and the purchaser by settling matters outside of the court system.  The purchaser may be willing to end the deal especially if the issue was beyond the seller’s control.

Consequences for Canceling a Sales Contract

Real estate purchase agreements are civil matters.  There is no criminal liability resulting in jail time for a breach of contract.  If a purchaser breaks the contract, they will lose their earnest money and fees spent on inspections and appraisals.  Penalties incurred by the seller are significantly harsher.

Suit for Specific Performance – The purchaser may choose to file a lawsuit against the seller for breach of contract and request a court order to force the sale.  The seller would receive the sale proceeds and the title would transfer to the buyer, against the seller’s wishes.  This process is extreme, expensive and time-consuming and as a result, quite rare.

Damages – An aggrieved purchaser could initiate a lawsuit for costs associated with the sale.  Costs would include storage fees, legal fees and relocation costs.

Lis Pendens – A document filed publicly that alerts interested parties that there is a claim on the title.  This notice would make it impossible for the property to be sold to another buyer.

Agent’s Suit for Compensation – The seller’s real estate agent would have grounds to sue for the commission that was earned but not paid.  The listing agent, having spent a great deal of time marketing the property and assisting with the sales process, would be entitled to be made whole.

A final warning to sellers…

Home sellers must always include contingencies in the purchase agreement to protect them based on their particular situation.  If the seller needs extra time to handle personal matters prior to sale, that should be included in the contract.  Don’t sign a sales contract unless you are ready to sell.  A purchaser has several ways to get out of the contract, but sellers have only a few.