The home-buying process can be stressful for both buyers and sellers. As a seller, you have already gone through the arduous process of preparing your home, putting it up for sale and dealing with prospective buyers.
When a buyer finally signs the sales agreement, it can feel like you are reaching the light at the end of the tunnel. However, what happens if they back out?
Naturally, a buyer backing out this far into the deal can derail all your plans—and perhaps affect you financially, as well. That said, you might be wondering if you can keep the earnest money deposit as compensation for the time and effort wasted.
Here are some answers that might provide some clarity.
What happens when a buyer backs out after signing the contract?
Many real estate contracts include contingencies. These are conditions or actions that must be met for the contract to become binding. They protect both buyers and sellers by allowing them to back out of a deal under specific circumstances without penalties.
Common contingencies include:
- Financial contingency: Allows the buyer to cancel the contract if they cannot secure a mortgage loan
- Appraisal contingency: Lets the buyer withdraw from the purchase agreement if the property’s value is lower than the agreed-upon sale price.
- Home inspection contingency: This gives the buyer the right to have the property inspected and cancel the contract based on the findings.
Legally, a buyer can back out of the contract if contingencies are not met, even after signing. They are not defaulting on the contract. Rather, they are using contingencies to void it.
However, if both parties meet all contingencies yet the buyer still wants to back out, you may have the right to keep the deposit.
What about when the buyer backs out of escrow?
If the buyer backs out due to a valid contingency, they can usually exit the deal without penalty. A buyer can cancel escrow at any time until all contingencies are met.
However, these contingencies have deadlines, and if they cancel after the deadline, you may have the right to keep their deposit.
Can you sue the buyer?
It depends. If your contract states that keeping the deposit is equal to liquidated damages, then filing a lawsuit may be out of the question. But if your contract does not restrict your ability to take legal action for breach of contract, then a lawsuit may be a good option to recover damages.
To learn more about your legal options, consider talking to a real estate attorney first. With legal guidance, you have better chances of resolving the issue faster and finding another buyer sooner.