If a seller gets cold feet, can he back out of the deal?

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A small model of a house is cupped by pair of hands.

01/27/2015 | Author: TAR Legal Staff

I accepted an offer on my house two days ago, but I’m worried that I won’t be able to find a new home. I’ve decided to stay put. How can I get out of this deal?

If using the Texas Real Estate Commission or Texas Association of REALTORS® contracts, sellers generally never have a right to terminate a contract once it’s been executed. The only right a seller has to terminate is when a buyer is in default. Under Paragraph 15 of both the TREC and TAR contracts (the Default paragraph), one of the options a seller can take if the buyer is in default is to terminate the contract and keep the earnest money.

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Categories: Ethics, Research, Buyers, Sellers
Tags: legal, buyers, sellers, contract, forms


Comments

Erica Texada on 12/25/2015

—Rick DeVoss

Our situation is ongoing. I, as the buyer’s agent did asvise my client of their option period and what that does and does not entail. My buyer has very clear expectations. My client is also aware that the seller does not have to do repairs.  He also doesn’t want to terminate.  What I was getting at was the fact that the listing agent failed to properly advise their clients of their contractual responsibilities.  Our contract states in special provisions, as requested by the selle that the seller will pay for an appraisal on behalf of the buyer, that is required for financing. The seller isn’t trying to terminate the contract for repairs that we’re asking for, instead they base their termination on not wanting to pay for the appraisal which they agreed to in the contract , because they no longer want to be in the deal. 

Overall it’s sad. Hopes this makes more sense

Rick DeVoss on 12/25/2015

Erica—-
Your scenario did not sound complete.  If the buyer asks for some repairs, the seller does not have the option to cancel the contract.  All the seller can do is say that he will not pay for any repairs.  Then it is up to the buyer to decide if HE wants to terminate the contract during the Option Period.  But the buyer has the right to go through with the deal and forget about the repair request. 

I think all buyers,  and their agents,  have been drawn into a feeling of complacency since the “repair allowance” paragraph was removed from the contracts.  A buyer does not have any right to expect the seller to pay for any repairs after the contract terms are negotiated.  The Option Period gives him the right to terminate the contract, but not to expect repairs.  So buyer’s agents should clearly brief their clients that any repairs they want have to be asked for up front.  In a seller’s market, buyers should not expect the seller to agree to pay more out of pocket after the price of the contract is negotiated.  Maybe buyers should conduct an inspection up front if they are afraid of the condition of the house. 

As far as sellers go, they have the responsibility to make sure they are ready to move out before putting the house on the market.  The seller’s agent should take the responsibility to take them out and show them what they can buy within their budget—before they list the house!  And that “seller” should go to a loan officer and get pre-qualified for the anticipated loan to make sure he is a viable “buyer” when the time comes.  ~I’ve seen sellers who sold their house and then found out they could not qualify for the amount they thought they could, and were sorry they had not stayed put.  —Is it possible that the listing agent is too preoccupied with getting a new listing to protect the best interests of their potential clients??

We all lose time and money when a contract is terminated mid-stream.  So let’s do our homework and make sure both parties are prepared for what comes when a contract is signed and executed by both.  Neither one of them should have any reason to back out.  (Barring unforeseen disclosures found in an inspection.)

Erica Texada on 12/25/2015

I’m currently in a situation where the seller terminated the contract after my client asked for repairs.  He stated the reason for terminating was because they didn’t want to pay for the appraisal that they agreed to in special provisions. The listing agent tried to justify the seller terminating because there was a form. He sent over a metroTex Association of Realtors notice of sellers termination of contract with the sellers signature. It’s horrible that forms like these are out there because agents who do not study and stay abreast of the industry use them as if they were Trec or TAR forms

Rick DeVoss on 11/29/2015

Liz—-
There is something seriously wrong with such a scenario, and as professionals in this industry, I don’t think we should allow anyone to get away with it.

First of all, you have a suit for your commission, as you earned it according to the terms of the TREC / TAR forms.  You should take both the Broker and the Seller to small claims court, since I will assume that the amount of the commission is less than the max allowed in S.C.C.  ~I do believe the Judge would rule in your favor, and then you either get paid, or place a lien/judgment on the property.

Secondly, your buyer could do the same, by taking the seller to small claims court to recover his out of pocket expenses.  Doing this does not require an attorney.  And it will teach the seller a lesson.  (Maybe his agent will learn a thing or two as well.)

Now, I do believe that by hiring an attorney, and going to county court, the buyer could sue the seller for specific performance, and the judge may force the seller to sell the house.  If he wins his case, the court can award attorney fees to the buyer as well, and then he would not be out of pocket for anything.

Please realize I don’t have my law degree (yet), but any attorney at a title company can back up what I have outlined herein.  Let’s not just go “looking for another house” and make everyone in the industry realize that signing contracts is serious business not to be taken lightly.  Read the terms of the Listing Agreement carefully, and see where the seller is committed to pay a commission.  Then go and subpoena a copy of the one that the seller signed with the Broker in question.  They both need to learn that you can’t just “change your mind”...!

liz on 11/29/2015

I recently had a similar problem with a seller.  My buyer submitted an offer and the seller accepted.  After inspection we re-negotiated a new sales price and the seller accepted.  After the appraisal and survey (my buyer paid for) were completed the seller decided that he didn’t want to sell anymore.  Just 2 days before closing.  My buyer was very upset,  his lender was upset, the closer was upset and I was very upset.  My buyer invested time, resources and money on the inspection, appraisal and survey.  And the only thing the seller’s agent could say was “he changed his mind”.  My buyer got his earnest money back because he was not in default but he lost just as much on the services performed to purchase the property.  The seller’s agent justified the seller’s decision every time almost to the point like it was a game.  I don’t think the seller’s agent ever even told the seller that this was a legally binding contract.  I suggested to my buyer that he contact an attorney to see what could be done.  I couldn’t do anything else for my buyer at this point.  It was almost like the seller just wanted an inspection and appraisal value on his property.  Like if he never intended to sell and his agent was ok with it.  Good thing my buyer’s lender allowed us to do an escrow for repairs, if not the seller would have probably waited for repairs to be done before terminating the contract.  Not fair….

Rick DeVoss on 11/29/2015

Lyn—-
I am afraid your narrative is confusing, and may contain errors.  This makes it hard for anyone to give you advice.
~You said “The title company asked the BUYER for payoff information.”  Didn’t you mean they asked the “Seller”...??  That info would have to be at the title company before closing, or how could they cut any checks?

It would seem that you are guilty of not communicating very well with your seller.  Why in the world would she not want to show up for a “cash” closing…?
Perhaps your scenario is such that the buyer was ready for closing before the seller was advised to be there.  Why else would she not show up?  Did you give her instructions on when and how to get to the title company?

Maybe the Real culprit in this case is the husband who is an attorney!  Did you communicate with him?  Even though you say it was separate property, the husband would have to sign off on the transaction in Texas.  I can’t believe the title company would allow it to proceed without his signature.  (What proof of “separate property” did you give the title company?)

The way you wrote the description, it sounds like the seller defaulted.  But I fear there are other opinions by the attorney-husband.  ~So you will have to get an attorney to take the seller to court for your commission, and she gets representation for free.

Moral:  Be careful when you play with snakes.

Lyn Robertson on 11/29/2015

A friend asked me to sell her empty condo. Two days later I brought her a full cash offer which she signed. We had the Resale Certificate and Title Committment within about 4 days. The Title Company asked the Buyer for payoff information;  Lender was in Hong Kong.  I arrrived first, then did the Buyers, for a 3:00.p.m. Closing on time. The Seller did not attend. The Escrow Officer said that we could not close because she had not seen a Release of Lien from the Lender. The Buyers offered to sign the as yet not produced “Settlement Statement” and wanted to pay and leave. The Escrow Officer refused to accept the money. I called the Seller and asked her what she (condo was her separate property) wanted to do about the situation. She too refused to accept the money and did not come to Closing and sign. She refused to make the decision to tell the Title Company to accept the money, and then come and sign the documents if the Title Company would provide one since her husband, a lawyer, was in court and not able to be reached. The next day her husband said that we were “out of Contract” because we did not submit the cashier’s cheque to the Title Company.Then he refused to re-set a Closing. Everyone is very UPSET, INCLUDING ME, SINCE I HAD DONE EVERYTHING THAT IS REQUIRED OF THE REALTOR. The Buyer and I think that the Seller defaulted by refusing the funds brought to Closing. The Title Company is clueless if they think that a Lender is going to sign with no proof of funds at the Title Company. What is correct, please! Thank you very much!

Starr on 02/05/2015

My buyers lost a deal,  situation, commercial contract 108 acres
the Sellers backed out of contract after 6 months of city negotiatin, zoning, survey etc. Buyers fullfilled ever obligation fully in out up big money. Sellers backed out at end said they were not going to sell. Buyers wanted earnest back I thought legal action was a better idea. But the money & time investment we were all out was a travesty. Not to mention entertainment bringing the investors to town socializing showing them all of south & central Texas…......

Rick DeVoss on 02/04/2015

Sorry, but I am still having a problem with the time line of this scenario.
The Seller had a discussion with a Realtor some time ago about the desire to sell his property.  Then the agent listed the property, by having him sign a contract, and put it in MLS.  Another agent, (presumably), showed it to a buyer, who then decided he liked it and wrote an offer.  —This all takes time.  (Usually weeks!)
And now we have a situation where the Seller signed the contract, after having all this time to think about the consequences of selling the house.  And he wakes up two days later and says “I’ve changed my mind.”    ~Did he not read the part that says you are signing a legally binding contract—consult an attorney?  ~Did his agent not point that out to him?    ~Was there no time during this whole process that the Listing Agent and the Seller discussed the concepts of executing a contract, packing, moving, and sending your Change of Address card to the Post Office??

We may all be quick to blame the Seller for having his head in a dark place, but let’s also consider that his Agent failed to communicate some very important stuff to him, or this question shown above would have never existed.
Is it possible that the Listing Agent is the one who brought the Buyer to the table, and now has a very vested interest in closing this deal?  Could that be why the Seller is not talking to his agent?
Or, is this just some academic question designed by an attorney to see if Realtors know the laws of contracts…?

For all the “new agents” out there, I suggest you sit down and READ the entire contract from cover to cover.  Then ask questions about anything you don’t understand.    ...P.S. > The definition of a “new agent” is one who has never read the entire contract before.

 

Patrick Kernan on 02/04/2015

I generally tell my clients that once the contract is signed buyers have 3 (and sometimes 4) big “trap doors” out of the contract, but sellers have none.

So far, so good…knock on wood.

Karen Kimbro on 02/04/2015

I would say you have two options, first, is ask what the Seller what he/her is looking for in their new home and go find it,  or suggest building what he/she wants,  second, if in the Option Period and the Seller will not meet with the Buyers requests, then the Seller does not have to sell the house if the Buyer walks away while in Option Period.

Rick DeVoss on 01/29/2015

Perhaps the seller’s Agent should listen to his question, and come up with more creative answers…
This seller is saying that I don’t want to sell my house; he is not saying “I don’t want to sell my house to this buyer.”  So if he just told the buyer that he has changed his mind, and his family wishes to stay put, perhaps there are other solutions.
#1 > He could offer to pay the buyer to go find another house.  Money talks.  Give the buyer his Earnest Money back, as well as enough money to pay for a moving service.  (This has value to the buyer, because he is going to have to hire one anyway.)
#2 > Sign the Release of Earnest Money, attach a sympathy note, and just tell the buyer how sorry you are that your family has a crisis and you just can’t move them right now.  Give his Agent a tank of gas to go show him other houses.  The chances of the buyer taking you to court are very small at that point.  (Remember, we’re only two days into the option period.  Make sure to reimburse the buyer for any out-of-pocket expenses, such as inspector fees.)
#3 > But if the REAL problem, as stated in the question, is that the seller doesn’t think he can find the right house for his family, then simply ask the buyer for an extension of the closing/possession date, and get out there and look for another house!  ~This sounds like the seller and his Agent failed to communicate back when the house was listed.  Perhaps the seller should have gone out on a house-hunting trip before he listed his house.  Was the agent listening?  Was he serving the client’s best interests when he listed the property?  Is there really no other property in town that the seller can afford?  Why did he list the house for sale in the first place?

Realtors need to listen to their customers before they get them to sign a contract.  Our job is to serve the needs of the family.

Kevan Pewitt on 01/28/2015

Many sellers do not seem to have a good understanding that they do not have a right to terminate an executed contract.  This is an area that I always try to go over with my clients.


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