It’s a great thing when the right seller matches up with the right buyer regarding a sale over the right house. Every seller and every buyer hopes that their deal is the one that will match up perfect the first time. However, things go sideways more frequently than parties desire, and sometimes that can cause what is known as a “withdrawal.”
The unexpected is the big factor that no amount of research, MLS information, negotiation or preparation is going to account for completely. Buyers get hit with all kinds of issues and challenges, and they often work on gambles that everything will align and fall into place when needed. In fact, given how many aspects of the sales process are out of a buyer’s control, it’s amazing more sales don’t fall through than they do. In any case, when the pressure becomes too much or too impossible to solve, a home purchase cancelation becomes what seems like the only option. Unfortunately, there’s more than just a lost sale at play.
For the seller it means time lost that the house could have been on the market and bought by another buyer, potentially one who might have offered more money too. On the other hand, it could have been less if the market had taken a downturn. However, such changes don’t happen so quickly, so either way, a lost sale is often a negative for a buyer.
Reasons for a Withdrawal
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The most common and frequent reason a withdrawal occurs is the most fundamental—the buyer can’t raise the funds or the financing to follow through on the sale. It’s often the case that the buyer has scored a pre-approval by a lender who might be interested in business but then finds a big problem later on when they actually do a full review and credit report check. The loan then gets denied at the last minute, well after the buyer has already committed on starting sales agreement to lock in the price and home from other buyers.
However, when it is a buyer’s market other reasons can come into play as well; a second common play is a willingness to back out of a deal. As bad as it sounds, some buyers keep looking at the market when they are already talking to a first seller. In some cases a better home appears for what is desired, and the buyer suddenly backs out of the original deal. It’s a bad way to do business with a good seller taking an offer on a bit of good faith. Unfortunately, this sort of play occurs from time to time.
A third reason can be a tightly scrutinized sale. It’s not common for a home sale to get a review by an attorney, but some folks are willing to pay an extra fee for additional protection. In such instances the attorney may find issue with the drafted sales contract, arguing that the terms favor the seller more than the buyer. That will be room for negotiation in a regular situation, but some buyers unfamiliar or uninterested in brokering terms will get skittish and back out entirely. The lawyer’s last task could very well be to give notice that the buyer back out.
The Technicalities
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A sale withdrawal is not a simple matter of just not responding anymore on a sale. In many cases, a seller who is smart already asked and received a deposit to start the sales agreement in the first place, and a nonrefundable one at that. So backing out, the buyer is already forgoing the deposit automatically. However, a sales agreement drafting will require that a withdrawal notice be made in writing and documented.
Things get a bit harder when the sales agreement and/or deposit hasn’t yet been executed. In these situations the discussions and hold on the home for a pending sale are considered negotiations only and not really enforceable. Officially a buyer should basically have his agent or attorney draft up a basic letter stating that his offer to buy has been withdrawn. While being a bit formal, this communication ensures for everyone involved that there is clearly no contract to pursue. This also gives the seller solid grounds to go back out to the market without any worry of a buyer still pending or making reliance on an impression of a sale occurring. Leaving open this kind of ambiguity would be a legal vulnerability, albeit probably on the lower level than more likely, per most attorneys. A written offer rescission also makes sure that there’s no claim for any deposits or moneys to be collected after the fact either.
Where the sale has been contracted already, the seller definitely has the right to continue and try to enforce the sale regardless, even holding the buyer responsible for related damages as well. Keep in mind, the legal basis is a contract, so there are not tort-style punitive damages to gain. At best, a court will only enforce a contract, award real damages for real losses, and award compensatory damages for costs paid expecting the contract to follow through. Long story short, a seller is very likely to come out on the short end with attorney’s fees and legal costs just to pursue a case. No surprise, letting the sale go with a deposit collection is usually good enough for many just to get back to the market as fast as possible with the least amount of loss involved.
In any case, as a seller you will want the cancelation to be made by the buyer with a purchase contract cancelation agreement. This document will ensure all parties are in agreement by inclusion of signatures from all the parties to the sale. Again, this provides a solid defense after the fact against anyone trying to argue different after the fact. It’s also good form to return any deposits, less incidental costs, if they originally paid. There’s no reason to make a profit unnecessarily. Unfortunately, some sellers don’t take this path and then face a buyer with an axe to grind. This is ultimately a personal decision as a seller, but short gains are often not worth longer term angst.
A Contract Default
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In the more extreme case, which is more frequent than desired when it’s a buyer’s market, a flat out contract default can occur. This is when the buyer just flat out walks away from the sale agreement and ignores any request or effort to enforce it. Again, if this occurs early on, it’s much more of an argument for negotiation. But after formal agreement and well into finalization, the buyer stands on very shaky ground expecting to get out of a default legally. A seller can easily make an argument for damages, losses, costs due to reliance of a sale expected to happen and more. The deposit will be the first to go to the seller, and some sales agreements will include “liquidated damages,” agreed-upon penalties if a party defaults on the agreement. Keep in mind thought, legalities and litigation can still be draining and end up in a net loss. Sometimes cutting a bad sale off and moving on may still be the better path, financially and mentally.
