What Can the Seller Do if the Homebuyer Backs Out?

Buyer pulling out of house sale? This article will help you understand your rights as a seller in this situation. Housing markets fluctuate, and when values start a downward trend, some homebuyers try to back out of transactions or adjust the terms. For example, imagine that a buyer wants to purchase a home that is valued at $750,000. As the closing date nears, the buyer realizes that values have dropped some and that similar homes in neighboring areas are worth about $650,000. The buyer may want to adjust the terms of the agreement or back out of the sale altogether. Fortunately, there are laws in place to protect Canadian sellers from losing a lot of money. It helps to understand when buyers can and cannot back out of sales and what sellers can do when buyers try to back out without legal reason.

buyer pulling out of house sale
buyer pulling out of house sale

Understanding When Buyers Can Back Out of a Sale

One of the most important determining factors of a seller’s rights when a buyer tries to back out of a sale is when the buyer attempts to do so. For example, a buyer may try to pull out of a sale after making an offer and before signing a purchase agreement. Buyers have more freedom at that point. After the purchase agreement is signed, there are only a few instances that allow a buyer to legally back out of a sale. By law, a purchase agreement contract is considered legally binding for both parties. These are some examples of when it may be acceptable for a buyer to pull out of a sale.

Purchase Agreement Conditions Were Not Met

Before signing a purchase agreement, the buyer and seller may agree upon some conditions. In many cases, a common condition is that the house must pass an inspection. However, if the house is sold in as-is condition, the buyer is taking on the responsibility of purchasing the home despite any problems. When there are conditions, the buyer may back out if the conditions are not met or are not delivered within the acceptable timeframe. Even when the inspection reveals some problems, that is not an automatic ticket out of the sale for the buyer. A buyer must present a valid reason to back out of the sale because of certain conditions and show why they were unacceptable enough to not continue with the sale.

Existing Liens or Damage

One of the most devastating discoveries for sellers is when there is a lien on the property. Open work permits or work orders may also give buyers the right to cancel the purchase agreement. Also, a buyer can back out of the sale legally if there has been recent and substantial damage to the property. For instance, if there was a fire, a flood or a car drove into the side of the home, those events could lead to cancellation. Any other new and significant damages that are not fully repaired put the home at risk as well.

Intentional Misrepresentation

In some cases, buyers can back out of purchase agreements when sellers purposely withhold important information. However, they must be able to show that the seller withheld the information. For example, imagine that a buyer wants to purchase a house and discovers that there was existing water damage from a previous flood. If the seller knows this, and if the buyer finds out the house sustained lasting damage, the buyer may try to back out. However, this is rare. The reason is because it is difficult to prove intentional misrepresentation. In many cases, problems that buyers may discover are ones that sellers may not have been aware of.

What Sellers Can Do When Buyers Back Out of Sales

Fortunately, real estate and the laws pertaining to it do not favor decisions that are rooted in buyer’s remorse. Buyers are protected by law to the extent that they do not have to purchase a property that is misrepresented, severely damaged or does not meet any specified conditions in the purchase agreement. Most sellers work hard to meet those conditions and ensure that they are honest about the property’s condition. Today, many buyers are also purchasing homes in as-is condition. These are a few steps sellers can take to minimize the risk of a buyer legally pulling out of a sale:

  • Talk to a lawyer to understand what issues from inspections allow buyers to back out of a sale.
  • Ensure that the home’s title is free of liens or open building permits.
  • If the home is vacant, check on it frequently to ensure that there is no new damage.
  • Be sure to communicate any past fire, flood or other significant damage and repair work to potential buyers.

So, what happens when a buyer backs out of a sale without legal reason? These are the two main steps that sellers usually take when a buyer pulls out of a sale after a purchase agreement is signed.

buyer pulling out of house sale

Sue the Buyer

Imagine that a buyer calls a seller shortly before closing and refuses to close because the house’s value has dropped some. Although the purchase agreement is legally binding, nobody can force the buyer to show up and sign papers. However, the seller can file a lawsuit against the buyer. When a buyer backs out of a deal without legal reason, the buyer is required by law to make the seller “whole.” This means that the buyer must compensate for any losses that stem from backing out of the sale. For instance, if a buyer agrees to purchase a home for $900,000 and backs out later because the home’s value drops to $700,000, the seller could sue the buyer for the difference if the seller later sells the home for $700,000. Additionally, the buyer does not get the deposit back. Buyers may also have to pay for the seller’s legal fees, mortgage carrying cost or other losses. In one court case in Ontario, buyers who backed out of a real estate deal had to pay the seller $470,000 in total damages and lost their $30,000 deposit.

Relist or Sell Off-Market

During or after the process of suing the buyer, the seller may have to scramble to figure out how to sell the home in a timely manner. This is especially stressful if the seller has already bought a different home and made plans to move. Many sellers become hesitant to accept any higher offers at that point. If the market is unsteady, it can be difficult to tell if values will drop again, stay steady or go up. Although it is uncommon for buyers to illegally back out of a sale, sellers may worry about facing the same problem again. Instead of selling to a private party, a seller may opt to sell the home to an off-market buyer or company that purchases homes in as-is condition.

Reduce Risks of a Buyer Pulling Out of House Sale

When you sell your home through real estate agents, the process can be challenging. Many sellers wind up doing several improvements. If the home’s value drops in that time, and if a buyer backs out of the sale, the aftermath can turn into a nightmare until a lawsuit settlement is received. That also takes time and causes a lot of stress. Many sellers do not know about the benefits of working with an off-market buyer. The key benefit is that the home can be sold in as-is condition, which eliminates the expenses associated with repairs people commonly perform before listing a home. Companies that buy homes do not back out of sales after signing purchase agreements. They have the resources to handle any repairs or issues they need to with homes that are sold in as-is condition after they buy them.

The HappyDoor Difference

Buyer pulling out of house sale? Whether you are dealing with a troublesome buyer or simply want to avoid the risk of it, HappyDoor is here to help. Unlike many other off-market buyers, we do not offer low prices to take advantage of sellers in difficult situations. Our offers are fair, and we commit to sales. There are no fees, you can have a flexible move-out time and you do not have to complete any repairs. We welcome you to learn more about HappyDoor’s services in Ottawa and Toronto.

References
https://blog.remax.ca/what-happens-when-a-buyer-backs-out-of-a-real-estate-deal/
https://www.ctvnews.ca/business/backing-out-of-a-real-estate-deal-isn-t-black-and-white-says-lawyer-1.3566614
https://deeded.ca/2020/01/18/buyer-wont-close/
https://www.legalline.ca/legal-answers/cancelling-an-offer-or-purchase-agreement-for-a-home/

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