Home Sellers Accept Deal, Then Say No Deal!

What to do if the seller backs out.

This does happen; fortunately, not too often. The situation is more likely to occur in a “sellers market”. Sometimes the sellers want to back out for a legitimate reason like job transfers falling through, an illness, loss of job, divorce etc. In these circumstances, the best thing to do is agree to cancel the contract, especially if the sellers are willing to reimburse you for out of pocket expenses such as appraisal fees, home inspection costs and so on.

On the other hand, some sellers and their agents are manipulative and greedy and they just want to renege on the deal so they can accept a more favorable offer and make more money. If you find that the sellers want out because they have a better offer, there are things you can do to make them stick to the contract. Of course, this depends on you really wanting the house and being willing to force the issue.

You, the homebuyer, have spent weeks, or longer, looking at houses and you finally found one that meets your needs. You write an offer for full price because you really want it to be accepted and you think the house was under priced to begin with. You, or your agent, present the offer to the sellers and they accept it, as written, with the contingencies you have included (appraisal, finance, home inspection etc.). Your earnest money is deposited in an escrow account and the contract is ratified. You go ahead and order the inspection and apply for your loan. Three days later the inspector goes to the house and the sellers refuse to let him in, telling the inspector that they have changed their mind. What can you do?

Obviously, you can hire an attorney who specializes in real estate law and put the matter in his hands. However, if you don’t want to go to the expense and trouble of that route at first, all is not lost as you can bring pressure to bear through your Realtor®. Even if you don’t have a Realtor®, and you are buying from a FSBO, you can still apply pressure if you have used the correct format in your offer/contract. Providing you have a properly executed contract, the sellers can’t unilaterally cancel the transaction. For them to be able to do so, you would have to be in breach of some of the terms agreed upon. You must be very careful if you are continuing with unwilling sellers to make absolutely certain that you do not let anything slide or you could end up losing the house. Be aware that these sellers are unlikely to agree to any repairs of defects found during your home inspection and you will have to decide if you can accept things as they are. (If there is a major construction flaw then you would want to cancel anyway.)

O.K., you want to put pressure on these greedy sellers to perform. If the sellers are represented by a Realtor®, not just an agent, you will have a better chance of success. Realtors® must abide by a strict code of ethics and what the sellers are trying to do is definitely unethical. If the Realtor® endorses what their sellers are doing then he can be brought in front of the ethics committee at the Board of Realtors® and fined and/or have his membership in the Board revoked. The Realtors®, agent or you, should explain to the sellers that if they fail to complete the sale as agreed, then it will be extremely difficult for them to close a sale with anyone else.

The second offer/contract is not valid as the first contract is still in effect. The sellers have agreed to perform in a certain way to bring this sale to a close, and if they don’t (e.g. try to close a sale with some other buyer) then they are leaving themselves open to a legal demand for “specific performance”. In other words, the buyer can file a lawsuit to force the issue.

It should be explained to the sellers that any lawsuit filed will have the result of recording a “lis pendens” (lawsuit pending) against their property and they will not be able to obtain Title Insurance until the “lis pendens” is removed. If they can’t obtain Title Insurance, they will not be able to transfer title to a new owner if any lending institution is involved in the sale. No loan, no sale! If this warning to the sellers has no effect and they continue to act as if the first contract is cancelled, then go ahead, talk to an attorney and file a “lis pendens”.

Another thing that can be done is to make sure the new prospective buyers are aware of the circumstance. If the sellers, or their agent, have told the buyers, or their agent, that the prior contract has been cancelled, then the new buyers would not know that they will be unable to close on the house. If the new buyers are represented by a reputable agent or Realtor®, then they will most probably withdraw their offer.

The above scenario is actually what happened to one of my buyers during a hot sellers market. What transpired was another agent brought in a higher offer with no financing contingency AFTER the seller had accepted the first offer. The seller then accepted the new offer and said he was cancelling the original contract. The seller was listed with a rather unscrupulous agent who went along with this after the seller promised him a bonus.

This article is not intended to be legal advice. For legal advice always consult the appropriate licensed professional.

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