We've all heard of buyer's remorse. But what if a seller won't close?
Finally. You signed an agreement last night to buy your dream home. You’re so excited that you can’t sleep. You think about all those other homes you saw and lost out on. All the bidding wars you’ve lost, and the emotional rollercoaster you went through.
At last, your dream home is within reach. You drop off your deposit the next day and start making a massive “to-do” list to prepare for your move.
Suddenly a call comes in from your lawyer. Your seller refuses to close. As you try to grasp what just happened and wait for someone to pinch you so you can wake up from this nightmare, reality sinks in.
Although most real estate transactions do close, there’s always a small percentage that may fall through. More common are situations where the buyer can’t or won’t close. Although this may happen for various reasons, in most cases, it is more likely that the buyer experiences remorse on their purchase and tries to back out of the deal.
But what if a seller won’t close or experiences seller’s remorse?
This situation is becoming more common as the home prices continue to appreciate and a seller starts pondering if they’ve left too much money on “the table”.
For example, John agreed to sell his house to Martha for $500K. Both parties signed a binding agreement to close the transaction within 60 days. Two weeks later, John’s neighbour, who has a very similar property puts their house on the market and ends up selling for $600K. John starts feeling that he has missed out on the opportunity to get an additional $100K for his home. This is commonly called seller’s remorse. Seller’s remorse can be for a variety of other reasons such as sentimental value, or others. After all, selling your home is a highly emotional experience.
So parties can have remorse. What does it mean for the transaction?
A firm agreement of purchase and sale is a binding contract. When a seller won’t close or does not complete an agreement without cause the seller can be responsible for making the buyer “whole”.
This means that the buyer is entitled to be put in the same position as they would have been had the seller completed the transaction as promised and scheduled.
So, continuing with our example above, if John ends up backing out of the agreement to sell his house for $500K and Martha now has to buy another home and paid $600K due to the appreciating market conditions, John, as the seller may be liable to his Martha for the difference between the original contract price and the price that Martha will ultimately buy a comparable the home for, plus any related costs incurred by the buyer, such as legal, carrying, moving or accommodation costs etc.
As a buyer, your damages must be reasonable and foreseeable and you must do your best to mitigate the amount of damages suffered (so staying at Four Seasons while you're shopping for a new home, is not your best option).
As soon as you sense the seller won't close, speak to your lawyer and Realtor to discuss your options as there may still be a way to get the deal done.
Since every situation is different, you should, first-and-foremost, consult a lawyer to seek proper legal advice and understand your rights and remedies. It's best to do so at the earliest sign of issues. Your lawyer and Realtor can also help establish a line of communications with the seller, while removing the emotional aspects out of the equation. In many situations expensive litigation can be avoided by understanding the interests of both sides and figuring out a way to move forward.
If all sides are cooperating, then there is a good chance you might be able to reach a compromise solving the issue quickly and getting you into your new home.
But I Put Down a Deposit, What Happens To it?
If a seller backs out and decides to breach the agreement, you are generally entitled to a return of your deposit upon either signing a mutual release or a court order.
A mutual release is a document used in real estate when a deal falls through. It releases both parties from the Agreement of Purchase and Sale. The buyer gets their deposit back and the seller is free to sell their house to someone else or hang onto it. It also means that both the buyer and seller release each other from any future liabilities or damages.
As a buyer, while it may be tempting to just get you deposit back and move on, it is wise to seek legal advice prior to signing a release to understand your options.
Important Note: This article is not Legal Advice. No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.