You’re two weeks from your move date and a dreaded phone call comes in from your lawyer. Your buyer refuses to close. As you catch your breath and try to understand what’s going on, reality begins to set in.
You’ve already committed to buying a new home, the moving trucks have been booked, and in your mind, you’re imagining total financial ruin. How in the world can you get through this situation?
Although the majority of real estate transactions do close, there’s always a small percentage that may fall through. Although a firm agreement is a binding contract to which each side is expected to fulfill on its terms, a lot can happen as the deal marches to a close.
Although there isn’t a particular reason why a buyer would walk away, we’ve seen reasons such as losing their job, a drastic change in home values (between signing and closing), the inability to sell their home, or even a family dispute as some of the reasons why a buyer would walk away.
My buyer won't close. What are my rights as the Seller?
Aside from being a very stressful situation, here is what can happen next and your rights.
First, a firm agreement of purchase and sale is a binding contract. When a buyer won't close or does not complete an agreement without cause the buyer will be responsible for making the seller “whole”.
This means that the seller is entitled to be put in the same position as the seller would have been had the buyer completed the transaction as scheduled. The buyer is liable to the seller for the difference between the original contract price and the price that the seller will ultimately sell the home for, or, if the seller does not sell the home, the market value of the home at the time of the breach of the agreement by the buyer, plus any related costs incurred by the seller, such as legal, carrying, moving or accommodation costs etc..
As a seller, your damages must be reasonable and foreseeable and you must do your best to mitigate the amount of damages suffered (staying at Four Seasons, is not your best option). As soon as you sense the buyer will walk away, speak to your lawyer and Realtor to discuss your options as there may still be a way to get the deal done.
But My Buyer Put Down a Deposit, What Happens To it?
Buyers are generally not entitled to a return of their deposit, nor is their liability limited to the amount of they put down as a deposit. In general, as long as the deposit is not out of all proportion to the damages suffered, the seller is entitled to the deposit.
Getting your hands on the deposit is not just a matter of asking your real estate agent to send it to you. In fact, it may require you to go to court. The (real estate) Broker who is holding the deposit, in trust, can only pay out the deposit on the mutual direction of the seller and the buyer, or by court order.
This means a buyer who fails to complete a transaction can refuse to direct the release of the deposit by the Broker and force the seller through the expense and time of going to Court for an order compelling payment of the deposit. However, the seller does not have to wait for a Mutual Release to re-list the property and in fact may be obliged to do so in order to mitigate, or lower, the damages.
Having a deal fall apart can be a tough situation for both the buyer and the seller and the ultimate outcome is to have the deal close smoothly for both parties, avoiding the stress and uncertainty that comes with this ordeal. But before you let your emotions run high, it is important to understand the buyer’s situation and what can be done to get the deal back on track.
During this time, it is crucial to have the right professionals on your side. Your real estate agent and lawyer can communicate with the buyers to gain a clearer understanding of their intentions and find a suitable plan of action. By comprehending the interests of both parties and finding a way to progress, expensive legal disputes can often be avoided. Keeping open lines of communications are critical at this time.
If all sides are cooperating, then there is a good chance you might be able to reach a compromise solving the issue quickly and seamlessly.
The bottom line
In real estate transactions, there is a small chance that a buyer may back out, causing stress and uncertainty for the seller. However, the seller has rights in this situation. A firm purchase agreement is a binding contract, and if the buyer fails to close, they are responsible for compensating the seller. The seller is entitled to be reimbursed for the price difference if the home is eventually sold for a lower amount or for the market value if the home is not sold. The seller should mitigate damages and consult with their lawyer and real estate agent for possible solutions. Buyers are generally not entitled to a refund of their deposit, and obtaining the deposit may require legal action. Open communication and cooperation between the parties can often lead to a resolution without expensive litigation. The Deeded team is available to provide support and assistance during this process.