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February 24th, 2020

Can a Seller Back Out of a Contract?

{Full Video Transcript}

Hey there, it’s Bethany with Fidelis Property Group. Have you ever wondered if the seller of a home can back out of a contract? You might be surprised to hear the answer – stay tuned to hear more!

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We’ve helped tons of buyers and sellers in the Alexandria and northern Virginia area and one of the things our buyers frequently ask us is, is there any way for the seller to back out of the deal?

And the answer is, sadly, that yes, a seller can back out, it’s completely possible. And the critical question related to that is, what legal mechanism are they using to back out? And the reason that’s so important is because a real estate purchase is a leagal agreement, so there are only certain ways that either party, buyer or seller, can void that agreement. So let’s dive into that now. Before we get started, I do want to preface this by saying that real estate law is different in every single state, and the examples I’m going to use here are specifically from the contracts used in Northern Virginia where we do business. Some of the same principles will likely apply in other states, but the bottom line is that you need to check your own specific contract to understand what opportunities either party has to hit the eject button. 

So, how can a seller back out of a contract? There are a couple approaches here.

Method #1: The Direct Approach

The first is the direct approach and by that I mean, they specifically invoke a clause or a contingency in the contract to allow them to withdraw or declare the contract void. For example, in Northern Virginia there is a clause to allow a seller time to go select another home that they’re going to move into once they sell their current home. This clause allows the seller a certain period of time, which the seller and buyer negotiate up front, to go find another home and conduct whatever due diligence they deem necessary within that time frame. Before that time frame ends, the seller has the right to void the contract.

So if the seller doesn’t find a home or just changes their mind about selling, this clause gives them a direct way out – sorry buyer, the contract is void and everyone moves on. Since the clause explicitly allows for this and the buyer and seller agreed to the terms up front, it’s perfectly legal – no one is in “default” that is, no one has violated the terms of the deal, the buyer would get their good faith or earnest money back and unfortunately they’d be back searching for another home.

Method #2: The Indirect Approach

The second way a seller can get out of a contract is what I call the indirect approach, and by that I mean that they basically play hardball with a buyer in order to get the buyer to void the contract. This is a little bit like when you were in 6th grade and you were super mean to your boyfriend or girlfriend at the time to try to get him to break up with you. C’mon, you know you did it. But for example, the seller might refuse to repair anything in the buyer’s home inspection request list, and as a result, the buyer invokes their own right to void contract because they just can’t comfortably live in the home without having those things fixed first.

Did the seller actually back out in this case? No, but they behaved in a way to turn their buyer off so that the buyer would do it instead. You most often see this behavior when a seller has a ratified contract, but then they also have a ratified backup contract that’s even better than the ratified contract. So if the seller really doesn’t care that their buyer walks away because they have a better deal waiting in the wings, you might see this behavior going on. If you’re a buyer in this scenario, then you’ll most likely know it’s going on because the seller’s agent is usually empowered to disclose that they have a backup offer. So at that point, you’ll just have to decide if you love the home and are willing to accept it despite the seller not wanting to negotiate any further.

Method #3: The “Better Call Saul”

The third way that a seller can back out of a contract is what I call the Better Call Saul strategy which is to say that the seller just backs out, without any legal justification to do so, and they just refuse to sign the papers and sell the house. And it’s called the Better Call Saul method because, you guessed it, it’s not legal!

If you as a seller back out of the deal without cause, then your buyer can actually sue you to compel the sale. This is called suing for specific performance, because the seller did not perform as they agreed to in their contract with the bueyr. Now, as a buyer, you’d have to make the call as to whether you want to take the time and energy to haul the seller to court, or just find another house at that point. The good news is that although this scenario is most buyers’ worst nightmare, it’s very rare. Even a seller with a lot of emotional attachment to the home is unlikely to just pull chalks at the last minute, so you can probably breathe easy there.

If you’re searching for a home or looking to sell yours, I’ll link to our website below which has the most up to date search tools available and the best photos and filters to help you weed out the things you don’t want to see and focus in on your ideal home. If you have questions about the buying or selling process in Northern Virginia, leave a comment below or shoot me a message – I would love to help make your purchase or sale as easy as possible, and help you avoid pitfalls like these in the process! That’s all for this time, see you soon!

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