What happens when a seller decides to back out of a contract?


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I recently had a colleague who was all set to purchase a home when the seller decided to back out of the transaction. So I wanted to talk about when a seller can and can’t cancel a contract. Most sellers are motivated to close on their homes, so this doesn’t come up that often. In the rare cases where it does, it can confuse buyers.


Why would a seller back out in the first place? Predominantly, this happens when the seller has a contingency to find a replacement property, and they can’t secure their new home. The seller might also have gotten a higher offer after they went under contract with another buyer.


"Sellers can’t back out of a contract on a whim."


Similar to how buyers can’t cancel on a whim, there can be serious repercussions when a seller backs out of a transaction. They could be facing some ethical issues depending upon the wording of the contract. However, there are three ways that most sellers can get out of their contracts legitimately: 


1. If the contract hasn’t actually been signed yet, the seller can still cancel. 


2. The seller’s agent adds a contingency clause saying that the sale is contingent on the seller finding a new home they like. In that case, the seller can exit the contract for that reason. 


3. The third way to back out is if the buyer doesn’t perform. That means the buyer’s contingencies aren’t released on time, or they don’t close on time. In California, the seller has to issue a 48-hour notice to perform, after which they can cancel the contract.


Without a valid reason to cancel, the buyer can sue the seller for non-performance and force the sale. The issue is that this can take years to resolve, and most buyers don’t want to wait that long. The buyer could also sue the seller for monetary damages and reclaim any losses, such as moving expenses, inspection fees, etc. 


If you have more questions about this topic or any other real estate topic, feel free to call or email me. I would love to help.