Can a Seller back out of a Purchase Agreement without Legal Penalties?

By: Abdullah Haroon September 7, 2020

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Just like scientific calculations, there is always room for human error in real estate. While it could be on either end: seller or buyer, both parties have to bear the consequences. Anybody would decide to the best of one’s skills but still, things may go wrong at any stage.

It swings both ways as sometimes it is the seller who walks away from a deal or on other occasions, buyers are taken back for not agreeing on a clause they considered compulsory. Purchase agreements or real estate contracts are there to protect and minimize the risk for both parties.

First thing first, let us get to know when a seller may have second thoughts about a potential deal and might think to revise the decision.

The 6 times a seller can walk away before closing:

The rule of thumb is that a seller can back out at any point if the details outlined in the home purchase agreement are not met. The agreement holds a legal value and backing out of them can be complicated, and this is something that most people would like to avoid. Still, there comes a situation where the seller is not comfortable in selling at all.

Upon keen observation, we have been able to find some of the obvious reasons which may push a seller to walk away or leaves a room to safely quit.

  • The contract has not been signed and before that, a seller may walk away anytime.
  • Standards contract provides 5 days attorney’s review period which provides a window to the seller or buyer to cancel the contract without any reason.
  • The seller has planted an escape in the contract like a clause of finding a replacement home before moving out.
  • If buyers do not stick to the terms agreed upon in the agreement.
  • If buyers push the seller to do some of the repair work which he is not willing to do.
  • Any unfortunate incident which turns the life around.

Consequences of backing out from a Purchase Agreement: 

As long as the deal is not finalized, it is way easier for either party to back out but such luxury is not available once the deal is done. In case you back out after the purchase agreement, it carries some serious consequences. There could be types of consequences:

  • Legal Consequences
  • Financial Consequences


Legal Consequences:

Seller is exposed to some serious consequences in case of backing out after striking a deal. The ball remains in the buyer’s court as it depends on him if he looks to implement the deal or agrees to withdraw. Agents may also sue as they are likely to lose the commission as well.

Financial Consequences:

As the fact remains that the seller may keep the property but he got to adjust the expenses incurred by the buyer during the whole period of house-showing and legal work. Besides, the security deposit will also be returned.

To avoid those consequences, the following could be the possible remedies;

Tips to back out of a contract without legal penalties:

Sellers have fewer legal options when it comes to backing out than a buyer does. And it is even harder to walk away without any penalty. But you can never rule out the possibility of such happenings so it is always better to ink down a perfectly crafted deal.

Some of the scenarios where a seller can back out without serious repercussions are as follows:

  • The scenario where a seller can’t find a replacement home is common, there is often a clause in the agreement which makes the deal subject to a suitable replacement home. It saves the seller from any potential penalty.
  • A seller may decline the option to negotiate certain aspects of the contract, such as the home inspection. Extending it, the seller refuses to pay the repair costs which nudges the buyer to terminate the deal.
  • A relatively riskier method for a seller is to expose the built-in issues with the property which might make the buyer’s change of heart and encourage them to cancel the agreement on their terms.
  • The safest of all is any development by the seller to convince the buyers to agree to the mutual cancellation. In certain situations, buyers cancel the agreement in good faith.

In the above-mentioned situations, sellers are likely to walk away without legal consequences.

Why real estate contracts are seller’s nightmare?

In the real estate lexicon, a purchase agreement is a contract between a buyer and seller which bears the details. In the world of legally binding contracts, sellers are least in a position to back out while most of the time, loopholes work in favor of a buyer.

A well-written home purchase agreement contains clauses as when a buyer or seller can back out of a sale without legal consequences.

The most frequently asked question is if a seller can back out should they receive a better offer from another potential buyer. It becomes even more vexing when you enter into a contract on a highly desirable home. Let me remind you that you do not need to worry about such kind of scenarios. Once an offer has been accepted and a contract signed, sellers can no longer accept another offer from a different party.

Bear it in mind that such scenarios are not common but then there is always a place for exceptions. The truth is, buyers often have more to lose and big disappointments await them if the sale falls short of the agreement because of the seller.

partnership agreements

The Bottom line:

The legal document provides protection to both parties. As we have learned there are fewer legal options that can provide an escape without legal penalties.

You need to prepare a well-written document as it certainly reduces the chances to back out.