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How Sellers Can Recover When the Homebuyer Backs Out

Selling a home can be stressful and the closer you get to finishing the deal, the brighter the light at the end of the tunnel. If the buyer backs out suddenly, however, that’ll put a major wrinkle in your plans to move or purchase another property. You’ll have to act quickly if you want to protect yourself. Here’s what you can do if your homebuyer backs out and your home sale falls through.

Find out now: How much house can I afford?

1. Give Your Contract a Closer Look

If you have a contract in place with your buyer, now’s a good time to go over it with a fine-tooth comb. You’ll need to find out whether it includes any clauses about the actions you can take when the buyer fails to hold up his or her end of the bargain.

If you’re having trouble making sense of it, you can get your agent to review it with you. The laws regarding home buying and breach of contract vary from state to state, so you may want to consider consulting a real estate attorney for a second opinion.

2. Determine Who Gets the Earnest Money

How Sellers Can Recover When the Homebuyer Backs Out

As part of the home buying process, the buyer is usually expected to put up a cash deposit. That’s meant to be a sign of good faith that indicates that they plan to buy the home. This money is held in escrow and your contract should specify what happens to the money if the deal is voided.

Typically, if the buyer decides to walk away after the due diligence period has already ended, you get to pocket the earnest money deposit. But that’s not always the case. You’ll need to check your purchase agreement to see whether the buyer would be allowed to keep the cash under certain circumstances.

Related Article: 4 Mistakes That Could Cost You Your Earnest Money

3. Consider Suing the Buyer

Taking the buyer to court can be costly and time-consuming. And if your contract specifies that keeping the earnest money deposit is the equivalent of liquidated damages, it’s not an avenue you can pursue. However, if the sales agreement doesn’t limit your ability to sue the buyer once the contract is breached, there are a couple of good reasons to consider doing so.

First, you could file a lawsuit to recover damages associated with having to sell the home at a lower price than what the original buyer offered. This may be something you’d want to look into if you can find a replacement buyer relatively quickly.

Second, you could sue on the grounds of specific performance. In this scenario, you’d ask a judge to require the buyer to comply with your contract instead of forcing the buyer to pay monetary damages.

Proving specific performance can be difficult and you must be able to show that the contract is reasonable and enforceable, that the buyer was in breach of contract and that there’s no other legal remedy to correct the situation. The buyer must also have the financing needed to complete the sale. Otherwise, a judge probably won’t uphold your request.

Related Article: All About Real Estate Purchase Agreements

The Bottom Line

How Sellers Can Recover When the Homebuyer Backs Out

Having a buyer back out can be extremely stressful, especially if you’ve already packed up your things and found a new place to call home. At that point, you’ll have to decide whether to leave the home on the market, attempt to rent it out or call off the sale for the time being. Suing for damages or trying to force a sale may seem extreme, but it could be worth considering.

Photo credit: ©iStock.com/Martin Dimitrov, ©iStock.com/Nikolodion, ©iStock.com/Justin Horrocks

Rebecca Lake Rebecca Lake has been writing about the nuts and bolts of personal finance for nearly a decade. She is an expert in investing, retirement and home buying topics. Her work has been featured on The Huffington Post, Business Insider, CBS News, U.S. News & World Report and Investopedia. As a homeschooling mom of two, she's always looking for ways to make the most of every dollar.
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