When can a buyer get out of a contract?

so_transplantMay 7, 2008

State of ownership: Virginia

We sold our home to a buyer and went through all stages of the process (contract ratification, home inspection, appraisal). Now that there are no opportunties for the buyer to back out, they want to cancel the contract. The reason given was divorce, but no supporting documents were supplied. If the reason is truthful, I feel badly for them, but such issues do not arise overnight.

The home has been off the market for a month during which we had several interested parties who wanted to submit a contract but we had to decline because we had a ratified contract. In short, we honored our contract while they opted to back out after the financing was approved, inspection passed, appraisal was above asking price, and all contingencies were met. All of which provided much easier ways to get out of the purchase.

I would be less angry had the buyer agent shown a little consideration. Instead, he chose to act as though we would certainly release the contract and refund the earnest deposit. I am certain that he would not do so if he was in our situation.

I see the contract as completely binding at this stage but I wonder what the buyers can do. Please advise. Do they just say tough, sue me? Obviously, we can keep the earnest deposit, but that doesn't mitigate our damages. Our damages include work done to meet their demands, time off the market, probable loss of income from the sale, and most likely increased cash outlay for our next home due to the extra time required to resolve this matter or find a new buyer.

How common is this sort of thing? Shouldn't the buying agent have told his clients that such a breach is no longer an option? Please advise based on your experiences. We have a good agent and have spoken to an attorney, but more information is always a good thing.

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bdpeck-charlotte

I would release them from the contract but not the earnest money. That money is a good faith deposit, and they want to break that faith. You can't get anymore money from them, but don't let them walk with the money either.

    Bookmark   May 7, 2008 at 8:29AM
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kathyg_in_mi

"How common is this sort of thing?" Very commmon!
It happened to us, only we gave back earnest money. In your case I would keep it. I know how much it hurts and wish you well in finding a new buyer.
Good karma, Kathy G in MI

    Bookmark   May 7, 2008 at 9:20AM
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richard_f

The purpose of the deposit is to compensate you for your money losses if you have to put the house back on the market. If you made improvements on the home to ready it for sale, that's certainly not lost, and if prices are going up in your area (based on your comments about paying more for your next home), then you should be able to get more from your next buyer.

Keep the money and move on. It's not personal, it's a business transaction.

    Bookmark   May 7, 2008 at 9:26AM
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kec01

We had it happen because the buyers "just changed their minds". We let them out of the contract and we kept the earnest money. We had a lawyer advise us through the process and he did tell us that one option would be that we could use the courts to force the sale. We didn't opt for that choice but we made sure that the potential buyers squirmed alot during the few days until this was resolved.

To me, this type of situation is a prime example of having as much earnest money as possible if you are a seller.

    Bookmark   May 7, 2008 at 9:28AM
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so_transplant

I agree you very much: we will let the flip-floppy buyers squirm, keep the money, and have learned that the amount of earnest money is very important. We may also sue for the damages though.

We wish to move to an area with the top schools, so those homes will increase in price faster than ours. Therefore, the change in home prices won't be a wash.

Throughout the transaction, I felt like a lemon--their agent was squeezing us for every bit of juice he could get. In fact, he was rude and unreasonable about it. Some of the demands that we conceeded to include cleaning the ducts. No it wasn't necessary. Plus, this occurred a week before the flip-floppys backed out, so shame on them for asking for something when they knew they make back out of the deal.

I suspect that the flip-floppys found a house they like better. Given the shady style of their agent, I would not be surprised if they were advised to lie and state divorce as the reason. There are no loopholes remaining, and it seems like people generally will let you out of a deal if you say your divorcing.

I was reared in a strict home where rules were expected to be followed. To do otherwise, would give a bad indication of your character. As a result, I have a hard time understanding how people could ignore the rules of the contract and go back on their word.

    Bookmark   May 7, 2008 at 9:45AM
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xamsx

so_transplant get a good real estate attorney to advise you. If you suspect the "found a house they like better" and are lying about divorcing, the attorney will find out. You can sue for specific performance. However, if you lose your house will be off the market that much longer.

Good luck

    Bookmark   May 7, 2008 at 9:55AM
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kec01

Your damages could also include keeping their earnest money, if you choose to go that route. Talk to a lawyer before you do anything. Please talk to a lawyer.

    Bookmark   May 7, 2008 at 10:14AM
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theroselvr

so_transplant, glad to see you made it over here.

As I think I said in your other post at the other place, we haven't closed yet either. Thankfully, they just got married, so if anyone would divorce it would be us! lol

Selling is so stressful. We're supposed to close the last week of May which is a holiday. Try getting a mover then. We either have to move the closing forward or back. Our buyers were on their honeymoon, should have gotten back last night. We're still waiting to hear from them on a few things the inspection turned up. Hopefully they will either say forget it or settle on a dollar amount that isn't outrageous.

    Bookmark   May 7, 2008 at 10:28AM
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dabunch

It happens a lot. It happened to us. There isn't much you can do but put in for keeping their deposit.
It doesn't cover much of anything.
As my atty said: "You can't make anyone buy your house".

I have bought & sold a lot of RE over they years-in good times & in bad times. However, I have never seen the amount of backing out that I have seen in the past couple of years. It's like the buyers are getting away with everything. It's a one-sided contract.

I actually suggested that we need stronger laws protecting the sellers. People cannot play with your lives. I would like to see a LAW- 5% deposit non-refundable if buyer backs out.

    Bookmark   May 7, 2008 at 10:54AM
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krysib

I think buyers now-a-days don't realize a contract is binding. We had the same thing happen...only it was just "cold feet".

Take the earnest money and run. Don't waste anymore of your time. If you think they are lying to get a different house, have your lawyer investigate and take legal action. Best of luck!!

    Bookmark   May 7, 2008 at 11:23AM
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sweet_tea

I'd also make them pay you for the money you spent on the duct cleaning and other items that they requested and also for the 1 month mortgage payment that you held the home off market for them. Also the earnest money to you to make up for the additional months that it will be on the market due to them backing out. Also your realtor should sue them for the lost commission. I had a friend that was a buyer and was going to back out. His realtor threatened to sue him for the lost commission. He closed the deal.

I'd play hardball pronto. Maybe they will decide to buy due to this - else you get compensation which you deserve. They likely will settle quicky rather than go to court. Likely you get a negotiation on a agreed upon figure even before you have to file suit.

    Bookmark   May 7, 2008 at 12:26PM
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patser

Also, keep in mind that TECHNICALLY, your realtor's responsibility is to bring you a qualified buyer. Your realtor did that. If your realtor wants to play tough, he/she could probably TECHNICALLY demand that you pay the commission. I've not heard of that happening, but we did have had that conversation with our realtor when our buyers changed their minds 3 days before closing.

Once you get a lawyer to consult, he'll probably advise that for $XXXXX, you will let the buyer out of the deal. Get the lawyer asap.

    Bookmark   May 7, 2008 at 3:57PM
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marys1000

I agree with Sweet Tea - people do this sort of thing because no one holds them accountable. Now it isn't your job to teach them business "manners" but still.
Isn't small claims court relatively cheap? You have all the contract paperwork, all the requests for over the top fixes and bills, a timeline built in with the paperwork. I'd take their earnest deposit for time off market, let them out of the contract and then take them to small claims court for the money spent on work done.
I don't know that I'd try to get estimated losses from sales etc. the judge might think your going overboard.

    Bookmark   May 7, 2008 at 4:10PM
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theroselvr

Sweet Tea, in her other post at another real estate site, I actually mentioned that. I'd just finished reading a post from a buyer that wanted to sue the seller and someone told him he could get up to $20,000.

This was basically what the other poster was saying: (so_transplant - I'll send you a link to the post via DM there)

1. temporary storage space for 1 month till I find and move in to another home (I moved out of my previous house early this week and the truck is supposed to arrive next week)
2. temporary housing to search another property (I'm staying at a motel now)
3. house hunting expense incurred (perhaps one of #2 or #3 but not both. Not sure which is standard)
4. points to get my initial rate lock of 5.500%, where the current rate is 5.875%

As always, attorney is the first resource and I have already done that. She says I can ask for everything.

Being creative, I can come up with $20k (5% of sales price) of explicit/implicit damages. But I'm not a mean person. I just want to see what's reasonable to ask. It seems that I can definitely ask for #1 and #2 and possibly #4.

    Bookmark   May 7, 2008 at 4:24PM
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brickeyee

If you refuse to refund the earnest money they can tie up any further sale of the house.

Since the listing broker normally holds the money in Virginia, he will NOT release it until both parties agree.

All the bad buyer has to do is record a 'lis pendans' against the property and all sales activity comes to a halt.

In almost every case the best solution is to simply cancel the contract and get the house back on the market.

    Bookmark   May 8, 2008 at 7:44PM
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feedingfrenzy

patser

That would be true only if the seller, not the buyer, were responsible for torpedoing the deal.

    Bookmark   May 9, 2008 at 10:40AM
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patser

In WI, if the buyer torpedoes the deal for a reason like changing their minds at the last minute ...after they'd been approved for the mortgage, had accepted the inspection, and all other terms were met, technically the seller would be responsible for the commission. At least that's what we learned while discussions were going on with our realtor at the last minute when the buyers got cold feet.

    Bookmark   May 9, 2008 at 12:19PM
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terrig_2007

I backed out of a contract right after the inspection. It turned up a lot of major problems, plus the sellers hadn't disclosed the leaky roofer my inspector found. I did get my earnest money back.

My DH and I let a buyer out of a contract last spring. She was a first-time buyer and the inspection wasn't perfect, so she got scared and we let her off the hook and gave her back her earnest money. She also tried to get us to pay for her inspection! We passed. We suspect this gal is still looking for a house.

    Bookmark   May 9, 2008 at 2:29PM
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brickeyee

"I backed out of a contract right after the inspection. It turned up a lot of major problems, plus the sellers hadn't disclosed the leaky roofer my inspector found. I did get my earnest money back."

You were probably in accordance with the inspection clause.
The common one I see is the inspection must be 'satisfactory' to the buyer.

    Bookmark   May 10, 2008 at 11:17AM
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marys1000

In WI, if the buyer torpedoes the deal for a reason like changing their minds at the last minute ...after they'd been approved for the mortgage, had accepted the inspection, and all other terms were met, technically the seller would be responsible for the commission. At least that's what we learned while discussions were going on with our realtor at the last minute when the buyers got cold feet.

That doesn't seem right to me. A realtor bring a buyer to the seller for commission only seems real and complete to me if the deal goes through. A couple people here have had more than 1 or even 2 or 3 deals fall apart at the last minute - are you saying that the seller owes the realtor a commission for every deal that gets close to being sold? (as in a contract is written but the deal doesn't close for whatever reason). So if you have 3 contracts fail - you would have to pay 3 commissions and still have your house for sale? That seems crazy.

    Bookmark   May 10, 2008 at 12:11PM
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feedingfrenzy

It would be crazy if it were true. I have no idea why patser's agent would have said something like that, but her/him saying it doesn't make it true.

BTW, the OP should be aware that acceptance of the earnest money upon the buyer's breech usually forecloses the seller from suing for damages because most purchase contracts specify that the earnest money is to serve as "liquidated damages" in case of breach.

In other words, the seller can't both accept the earnest money and sue for damages.

    Bookmark   May 10, 2008 at 1:09PM
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heimert

1) A divorce is *not* a reason to cancel the contract.

2) Brickeye--are you sure that would work? While, yes, they could file a lis pendens, the seller surely could say "okay, let's close within 30 days--bring your money" and force the sale. The buyer can't have it's cake and eat it too--a lis pendens is a suit to force performance of the sales contract, but they're trying to avoid it. So I just can't see that as a working strategy.

I would take the earnest money in exchange for releasing them from the contract. If the earnest money is tiny I would not waive claims for damages.

    Bookmark   May 12, 2008 at 10:22AM
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susana_2006

A couple of years ago while selling a home in east LA, I had two contracts fall out of escrow. Both were past the mortgage and inspection point. My realtor did not ask for or indicate in any way that he expected me to pay his commission. He said that in Calif., the buyer was extremely well protected and that it would almost be impossible for the seller to keep the earnest money. Since the deals were in escrow, I was required to sign a release of escrow. On the second one, I was quite slow in doing this (after all my property had been tied up for 60 days & I was extremely lucky to sell it a few months later -- and I mean extremely lucky now that we know what has happened in this LA market).
Good luck
Susan

    Bookmark   May 12, 2008 at 1:27PM
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c9pilot

I just found out yesterday that around here (FL), a buyer may be responsible for commissions that were due to any REAs involved if they back out at the last minute with no contractual reason.

    Bookmark   May 12, 2008 at 3:53PM
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stir_fryi

My neighbor had a buyer back out (near last minute) because they claimed the house did not appraise for the purchase price.

But... they were not required to show any proof of this (since they paid for the appraisal).

    Bookmark   May 12, 2008 at 8:55PM
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patser

"It would be crazy if it were true. I have no idea why patser's agent would have said something like that, but her/him saying it doesn't make it true" - at the time, we didn't focus on researching the law regarding the listing agreement we signed with our realtor, as we were too busy working with said lawyer figuring out what to do about the buyer that walked. However, our lawyer did advise us to get it into writing with the realtor that a commission wouldn't be due. That's as far as we took it at the time.

I'd caution that just because someone on a website in a different says it's crazy doesn't mean it's not true. The realtor's obligation was to find a qualified buyer and IN OUR CASE, the realtor did find a qualified buyer. As I mentioned in my first post, in caps, the comment was that TECHNICALLY a commission would be due. In reality, we didn't pay it and the house stayed on the market with the same realtor.

    Bookmark   May 13, 2008 at 5:29AM
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feedingfrenzy

OK, so it was the lawyer, not the realtor, who thought it fit to raise this issue. I can hardly believe that your lawyer really thought this would be a problem for you because, after all, interpreting the contract in such a strained way could lead to you being responsible for multiple commissions, as marys1000 astutely pointed out above, which would be ridiculous. But lawyers do exist who advise clients to get releases from every possibility their overly creative minds can come up with under the general operating premise of "what harm can it do?"
Your realtor didn't find you "a qualified buyer" technically or any other way because the party you call a "buyer" refused in the end to buy your house and, thus, became the party responsible for breaching the contract. The only way you could have been legally responsible for paying a seller's commission under those circumstances would be if your contract had unambiguously said so. In that case, you would have been a fool to sign it, wouldn't you?

Sellers left in the lurch by their "buyers" have many things to worry about but paying their own agent's commission certainly isn't one of them.

    Bookmark   May 13, 2008 at 10:02AM
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patser

feedingfrenzy, go ahead and twist what I said. I know what happened, I related it, and I'm done hashing it over so that you can be right.

    Bookmark   May 13, 2008 at 10:51AM
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richard_f

In New York, the agent has to find a buyer who is "ready, willing and able" to buy the house in order to earn the commission. If they back out at the last minute, they fail on at least one of the elements.

    Bookmark   May 13, 2008 at 11:13AM
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feedingfrenzy

patser

No need to get offensive. You are the one who told the OP that s/he might be responsible for the commission, which happens to be untrue. That you personally believe it is perfectly fine by me, but I sure hope no one else does.

I've been in practice for many years and have learned a few things along the way, one of them being that some plain common sense is needed when interpreting contract language. Not surprisingly, not everyone in my profession has it.

I like New York's "ready, willing and able" language. That's so clear that even the most creative legal mind shouldn't be able to distort it.

    Bookmark   May 13, 2008 at 12:07PM
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so_transplant

Update: We ratified another contract last night. We may come out around $2,000 above the previous offer as long as the new buyers don't demand money or changes to the house after the home inspection. While the new buyers are more mature and presumably better decision makers, they seem to have a "take their ball and leave" approach to negotiation. I'm very nervous, so wish me luck and keep your fingers crossed. :)

    Bookmark   May 14, 2008 at 7:12AM
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so_transplant

Second update: We also signed the release and kept the earnest money--$4,000.

    Bookmark   May 14, 2008 at 8:07AM
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feedingfrenzy

Good. I'm glad things are moving forward.

    Bookmark   May 14, 2008 at 9:48AM
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