It is common for homeowners to get cold feet and want out of a real estate deal. The reasons are diverse, ranging from unearthing a better offer to the one you already accepted, a change of circumstances making an anticipated move no longer applicable, to developing seller’s remorse out of sentimental attachments to the home.
The short answer to whether you can cancel a contract to sell your house is yes, you can, but only if the conditions allow you to. Even then, you should be wary of potential expenses and far-reaching legal consequences.
This article explores legal ways to cancel a house sale contract with minimal damage to your finances. Stick around for the processes as well as the limitations.
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Backing out of a real estate contract after it has been signed is not as simple as taking your house off the market. The canceling process is complex, sometimes expensive and will most likely be drawn out. There is a good reason for this.
Cancelation inconveniences the buyer and might devastate their plans and finances. They may have already sold their home or are serving a written notice to vacate from their current residence. They might be relocating for a new job opportunity which forced the movement. They will also have strained their savings covering costs like home inspection and appraisal fees.
That being said, you might have legitimate reasons to cancel the contract, and you should know how to go about it within the law. There are a number of approaches you can use.
You can include protective clauses in the purchase agreement, which give you avenues to back out of it. However, given the nature of the transaction, most contingencies are inserted in the written contract for the benefit of the home buyer rather than the home seller.
Below are the common types of contingencies sellers in typical real estate contracts can invoke.
They allow the home seller to back out of the deal if they cannot find a suitable home to relocate themselves or their families. These contingencies are often written into the contract if the seller is selling their primary residence and buying the replacement at the same time.
A suitable housing contingency can be applied in two ways; extending the closing date to allow more time for the home seller to find their new home or voiding the contract if you cannot find a replacement house.
While such contingencies are drafted with the buyer as the main beneficiary, they might come in handy if you change your mind about selling the house. They make the sale contingent on a positive appraisal, meaning if the house’s appraised value turns out to be lower than the accepted offer, the transaction will be nullified.
Lenders will not finance more than the prevailing value of the property at the time of application, so if the potential buyer is to be financed, they will have to come up with the shortfall out of pocket. This is not always possible, considering they will have to bear other costs associated with the home sale.
Most buyers will be more comfortable if the house is subjected to a home inspection before the deal closes. More than eighty percent of inspections discover shortcomings, some even you as the seller may not be aware of.
If the home sale is contingent on a successful home inspection, the home buyer might leave it on the table or ask for credits to undertake the required repairs or renovations. You are not obligated to accept these requests, and by not obliging them, you can end negotiations, automatically canceling the contract.
It is nice to have this provision in your written contract to provide an opportunity for your real estate attorney to go through the fine print and break down the implications of every clause in the agreement. You can back out of the agreement by citing any of these clauses that don’t sit well with you.
This period is usually between three to five days and is captured in the agreement. If you decide to back out of the agreement during this period, you will not be subjected to the adverse consequences of breaching a real estate contract.
If the home buyer is not compliant with any of their obligations under the agreement and they don’t correct the breach within the grace period allowed by the purchase agreement, you can also legally back out of the contract.
Such conditions might include securing a mortgage, facilitating an inspection, or failing to execute the documents in good time. These lapses can be used to come up with a compelling case to get out of the contract.
Get them to empathize with your circumstances such that they let you out of the deal without imposing any fees or taking you to court. This is not easy when you consider how emotionally and financially invested in the house, they will be by the time they sign the contract.
You might have to offer compensation to entice them to let it go. It is harder to convince them when they suspect you are blowing them off for a better deal.
If the home buyer significantly misrepresented themselves to affect the outcome of the agreement or you somehow establish that they are hustlers or scammers, it will be sufficient grounds for withdrawing from the contract.
This kind of prospective buyer is often extremely aggressive and prey on the elderly and owners who are selling their own houses. They get you to accept a purchase price way below the house’s market value.
Some sellers start exposing the house’s shortcomings to the buyer beyond what they are legally required to disclose in the hope that it will put them off. This is an effective tactic to repulse buyers to the extent that they will cancel the contract themselves.
The downside to this approach is that whatever you disclose to one particular buyer, you might have to disclose to all future buyers. It can be a permanent dark cloud on your house as a real estate agent will warn their clients about it going forward.
So, what happens if the buyer is fully compliant with the terms of the agreement, you can’t find a legal loophole, they are insisting on going ahead with the sale, yet you still want to cancel the contract?
They will do this by pursuing a legal action called ‘Specific Performance,’ which means they will ask a court to order you to sell the house per the terms of the signed contract.
Their chances of success are high on the grounds that you are able but unwilling to perform your role (which is conveying the house to them), and monetary compensation is inadequate to solve their predicament. You might even be ordered by the court to pay the legal fees for this case.
Sometimes, when you cannot agree on terminating a contract, the state will require both parties to attend mediation sessions as a prerequisite for arbitration in court. This might save on legal fees, but the process is time-consuming and tedious.
The buyer only needs to prove that you terminated the contract for unsound reasons as they seek compensation for losing the house and a refund for every dime spent throughout the transaction, including the legal fees for the lawsuit. You will be hard-pressed to defend your position with no tangible legal strategy.
The buyer might opt to file what is legally referred to as a ‘Lis Pendens’ against the house. This makes it difficult to sell the house to anyone else. It is a public warning to all prospective buyers that the ownership of the property is under dispute, and the ruling might go either way.
Buying such a house involves taking over the weight of the case, and you might lose it if the complainant wins
If you were using a real estate agent for the sale, you most likely signed an agreement with them around the time you signed the purchase agreement. They have pending commissions you already committed to despite the deal falling through.
The real estate agent will also have incurred expenses at this point of the transaction, which can motivate them to sue you.
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