Can the Seller Back Out of Contract Before Closing?

Updated May 10, 2019

It seems like we hear horror stories about this more and more frequently. Sellers with dollar signs in their eyes list their home, eager to make a bunch of money and purchase their dream home.

They get a fantastic offer and then realize they don’t actually want to sell and slam on the brakes. Full of panic and horror, they try to get out of the sale before it goes to closing. Can the seller back out of contract before closing?

This is why you need a Clever Partner Agent on your side, there to negotiate on your behalf in case a deal goes sour.

Reasons a Seller Would Back Out

In truth, there are not many sellers out there who list their home just so they can back out of the sale. Most of the sellers have a legitimate reason for backing out, and it’s usually a good one.

The Appraisal Came Back Low

One of the biggest reasons a seller may have for wanting out of the sale is the appraisal coming back too low. In a seller’s market, when house prices are climbing and potential buyers are outbidding other potential buyers, it’s easy to see that number climb and think it’s going to be smooth sailing. Sellers often forget that the amount the buyer offers is not a reflection of what the bank will actually approve. The bank is not going to loan more money than the home is worth. When all is said and done and the appraisal comes back for less than the offer price, the seller doesn’t have many options.

They Can’t Find a House

As soon as a seller receives a great offer, they might take that as their invitation to go find their own home. When they begin their search with what they thought was more than enough money to buy, they may find themselves at a loss for a house. In a seller’s market when the prices are high and inventory is low, even a fixer-upper goes for a high price. If the seller finds themselves in a bind and can’t find a house, they have few options left. They can have their real estate agent put the sale contingent upon the seller finding a home, and they should be able to back out of the contract without a problem. If there is no such contingency, however, they may get their home back, but they will probably end up having to pay a price for it.

Change in Life Circumstances

Another reason a seller may want to back out is because of some unexpected life event. This could be the sudden loss of a job or a death in the family that makes it financially difficult for them to move. It could also be the reason for the move (such as a job opportunity) is no longer available. In situations that are out of the seller’s control, most buyers will be pretty understanding. However understanding a buyer may be, they will most likely still want compensation for spending money on the appraisal and inspection.

Consequences to Backing Out of Contract Before Closing

Remember that a contract is legally binding. Which means if you break your end of the deal, you could be taken to court and be required to compensate any damages caused by your actions. These consequences could mean simply refunding the earnest money or could mean compensating the buyer for storage and living expenses brought on by them expecting to have a house to live in.

Avoiding Fees When Backing Out of a Contract

If you’re waffling on the sale of your home, take a minute to consider the reasons you had for listing your home for sale. If those reasons are still valid then you may need to decide if they are still worth pursuing. A great way to avoid the fees involved in backing out of a contract is to not back out of the contract. If a preference is the only thing holding you back from holding up your end of the bargain, sit down and seriously weigh out the pros and cons. If you still want to back out at this point, there are some ways you might be able to do it without serious consequences.

Write a Letter to the Buyer

It doesn’t hurt to try and write a letter to the buyer. In your letter, try to be as diplomatic and factual as possible. If selling the house brings unforeseen financial hardship, you could propose an extension of the sale (if the hardship is temporary), or talk to them about having an option to buy, if you decide to sell at some future date. This just might give them the incentive they need to walk away peaceably.

Have Contingencies Written

Having doubts may be normal, but it is your responsibility to make promises that you know you can keep. If you are doubting your choice to sell before a contract has been written up, have your real estate agent put contingencies in the contract. Some options of contingencies include the sale contingent upon you finding a house to buy, or a job goes through. Covering your bases in advance helps not only your integrity but is also in the best interest of your wallet.

It may seem like an unjust situation when you legally still own your house but have to pay a fine in order not to sell it. It is always a good idea to consider these things before you sign the contracts. As soon as you sign your name, you agree to the terms, and there may be very little you can do to get out of it.

Want a real estate agent who knows contracts like the back of their hands? You need a top local agent from Clever. At Clever, we work with the best real estate agents in your area to provide you with the level of service you need for just a flat fee of $3,000 or 1% of the listing price over $350,000. Call us today at 1-833-2-CLEVER or fill out our online form to get started.