As the seller of a home, you have very few ways to back out of a signed, sealed, and delivered purchase contract. Once both parties sign the contract, it becomes legally binding. While buyers often have contingencies that give them a way out of the sale under certain circumstances, sellers don’t have that same luxury.
Does this mean that sellers can get out of a contract? There are ways, you just have to know how to go about them.
The One Contingency That Favors Sellers
There is one contingency that buyers can put in place that actually favors the seller. It’s the financing contingency. Buyers that need mortgage financing to buy the home make the purchase contingent on their ability to secure financing. Typically, buyers get 30 days to get a ‘clear to close’ on their mortgage. If they can’t secure the ‘clear to close’ in that time, they can back out of the contract without losing their earnest money.
The coin flips both ways, though. Sometimes a buyer may not want to back out of the contract, especially if they know they are close to getting a clear approval from their mortgage company. The seller, on the other hand, may want to cancel the deal, though. This happens when a seller knows there are other potential buyers waiting in the wings or when the seller just gets too nervous to wait for your financing. In this case, the seller could cancel the contract because of a lack of financing and move onto another buyer willing to bid on the home.
The Inspection Contingency May Help Too
One other contingency that may help sellers, but it’s not always the case, is the inspection contingency. This contingency gives buyers a way out of the contract if the inspector finds major things wrong with the home. Actually, the buyer has two choices – walk away from the sale or ask the seller to fix the issues. Typically, sellers don’t want to put any more money into the home, which could leave them with the ability to walk away from the sale.
While sellers don’t want to lose a bid on a home, the inspection contingency could be helpful again, if there are bidders waiting in the wings. Many buyers won’t bid on a home that is ‘under contract,’ but will still watch closely to see if it falls through.
If the contract does end, new bidders can compete for the home. Of course, there is always the risk that the new bidders will ask for the same issues that the inspector found to be fixed or ask for a credit for the cost of the repairs, assuming it will pass an appraisal for financing purposes.
Paying to Back out of a Contract
If you don’t have an ‘easy way out’ like discussed above, you may face financial consequences of backing out of a contract as the seller. This doesn’t mean that you can’t back out; you just need to be aware of what it might cost you.
First, you’ll probably have to return the earnest money, as it’s only fair. You may also have to cover any damages the buyer incurs, such as any costs the buyer paid for the inspection or appraisal; any costs the buyer incurs to find temporary housing; any legal costs the buyer incurs.
The Seller Contingencies
In some cases, sellers do put their own contingencies on a purchase contract. While it’s not common, there are ways you can protect yourself if your attorney thinks it’s a good idea. A few of the most common seller contingencies include:
- Inability to get signatures from other family members that have a stake in the home (common with inherited homes)
- The seller’s inability to find another place to live
- Unique circumstances, such as health concerns, that cause the seller to be unable to follow through on the sale
It’s best if you talk to an attorney about your ability to back out of a sale. In general, the buyer has the say in backing out while the seller must adhere to the contract or face financial consequences. Your attorney may have ways that you can get out of the contract though, if you find that it is necessary to do so.