When gearing up to buy or sell a house, you may believe that the deal is over once the offer is accepted and signed. 99% of the time, you’re right. After all, a sales agreement is a legally binding contract, and there can be significant repercussions if either the buyer or seller backs out.
Once the paperwork is taken care of, you should feel confident in moving on to the next step. However, you should be prepared and have a backup plan in the rare situation that the deal falls through.
Let’s take a look at some scenarios and what to do if one party fails to live up to their end of the agreement.
Contingencies Aren’t Met
For the past two years, sellers have gotten used to receiving unconditional offers from buyers in an ultra-competitive market. However, the market has slowed down since its peak earlier this year, and conditions have become more frequent. What does this mean, and how can it cause your sale to fall through?
Let’s say you accept an offer with a condition of home inspection. If the home inspection turns up an unexpected flaw, the buyer can back out without repercussions.
You may be able to negotiate by lowering your price. Still, the buyer will be under no obligation to continue with the purchase, and their deposit will be returned to them.
Yes, the rumours are true, and the market is shifting. Here are some articles to keep you well-informed:
- How To Stand Out In A Changing Market
- Are Conditional Offers Making A Comeback?
- The Market Is Changing. Is Real Estate Still A Good Investment?
Can A Buyer Change Their Mind?
If there is a verbal agreement, but no signature, either the buyer or seller can back out without consequences. Once the paperwork is signed and the conditional period has passed, it becomes much more difficult to cancel the deal. However, sometimes things don’t go according to plan, no matter how thorough you are. A buyer can try to back out for several reasons.
- Perhaps they couldn’t get the financing they were counting on. Some buyers will make an unconditional offer to try to be competitive, only to find they can’t qualify for their loan after all.
- Or maybe they found a different home that they like better and want to back out of the contract. Legally, this isn’t allowed, but it does happen.
If a buyer breaches a contract after conditions are met, you have several recourses. You can try to renegotiate the sale under different terms if the buyer is willing.
As a last resort, you can even consider legal action to compel the buyer to meet their obligations. In any case, there’s a good chance you can keep the deposit if the buyer is in breach of the contract.
You will have to decide if legal action is worth your time and effort. In a strong seller’s market, you may be better off starting over with a new buyer. A good real estate agent or lawyer can walk you through your options to help you reach the best outcome.
What If The Seller Backs Out?
What if you’re the buyer and the seller is the one who gets cold feet? Buying a home in this market is a challenge, and it can be disheartening to find the perfect place only to have the seller withdraw from the agreement. Though rare, a seller may want to back out of the deal for several reasons:
- A sudden family emergency such as a job loss or severe illness may make moving impossible at this time.
- They may have received a higher offer for their home. Typically, the seller would be obligated to honour the sale unless they’ve negotiated an escape clause into the contract.
- The market has changed, and houses are now worth more. The seller wants to cancel your agreement and sell the home to someone else for more money.
- Perhaps they’ve changed their minds and don’t want to move at all. This happens frequently during hectic seller’s markets where the homeowner worries that they won’t be able to find a suitable house before the closing date.
Can a seller back out legally? Not usually, but they may have outlined conditions in the contract. Sellers can use contingencies to protect themselves, just like buyers can.
Are you looking to buy a home but not sure where? These neighbourhood posts will give you some food for thought?:
- Hamilton Vs Toronto: Which Should You Choose?
- 5 Things To Know About Moving To Burlington
- What To Expect When Buying A House In Waterdown
What Are Your Recourses as a Buyer?
If the seller tries to back out, the first thing you should do is call your real estate agent and lawyer for advice. You can take legal action and get the courts to force the seller to close. Otherwise, you may be able to sue the seller for the difference if you end up buying a similar property for more money. Of course, legal action is stressful and time-consuming and should only be used as a last resort.
It will save both of you a lot of time and worry if you can come to a mutually beneficial agreement outside of the courts.
Your real estate agent may help you save the deal by negotiating a longer close or different terms that work for both parties. Otherwise, you’ll likely get your deposit back. You may even find another suitable property for a similar amount of money.
In any case, it’s important for both the buyer and seller to read the contract carefully with an agent or lawyer, so you understand what you are agreeing to.
Are you planning to buy or sell a home this year? Our dedicated agents are well-versed in the Hamilton, Burlington and Dundas areas and will happily answer any of your questions. Reach out to us today.