Someone just hit my blog asking, can a buyer back out of purchasing my home? It is actually a question that is asked by many home sellers.
Simply put, It’s not over till the fat lady sings!! There is always risk involved when a seller takes their home off the market. There is not guarantee that the buyer will close. It is not over until the closing is complete and the deed is recorded.
Can A Buyer Back Out of Purchasing My Home?
It may vary from state to state depending on state law. Many of the basic contracts, in Massachusetts, are written relatively the same when it comes to purchasing a home. There are typically two contingencies in the contracts where buyers can withdraw from a contract and if done it a timely manner and properly they will receive all deposit monies back.
- Mortgage Contingency- The buyer usually has about 30-45 days from the date of signing the contract to secure a mortgage. If they cannot obtain financing by a certain date they can notify the seller and back out of the contract with no recourse to them. As a seller it is important to keep that date tight usually no more than 45 days out. You don’t want to find out two days before closing that the buyer cannot perform.
- Home Inspection Contingency- The home buyer will typically have 5-10 days to complete a home inspection. If anything is to their dissatisfaction they again may withdraw from the contract with no further recourse to the buyer. (unless new terms can be negotiated)
Once the contingencies have passed then a home buyer must complete the sale or risk losing their deposit monies. While most transactions that have reached this point will close on time there can be unforeseeable events that could prevent the buyer from closing on the purchase of your home. What are some of these events we may see?
- Loss of job/ income- not being able to pay the mortgage or their financing is withdrawn
- Credit profile has changed in which event the financing can be withdrawn
- Buyers just change their mind, due to illness, lost interest, change of situation, divorce……
What happens if a buyer does not close on a property after the contingencies have passed?
In Massachusetts most contracts state that damages are limited to the deposits tendered and are held in an escrow account.
In some states a seller can sue for specific performance or damages, but not in the state of Massachusetts. Unfortunately, its not always that simple to keep deposits….. I will address the release of escrow funds in a future post as that is a post in itself.
What Can I do As a Home Seller to Prevent a Buyer from Backing out of Purchasing my Home?
One thing you can do is insist on a large deposit. Typically a 5% deposit is the highest amount that is given. Many buyers in this buyers market have gotten away with putting down much less. Basically, if the buyer walks away and leaves deposit money on the table you want it to hurt a little, or even a lot!
It could be easy for a buyer to walk away from $1500 dollars but not so easy to walk away from $15,000. Ask for the highest deposit you think the buyer will be willing to risk.
Secondly, look at the financing very closely. Obviously a deal that has a 20% down payment is more likely to close than a deal that where the home buyer is only putting down 3.5%(FHA Financing). Also closely review the financing pre-approval. As a sellers agents I always verify that assets, income and credit have been verified by the loan officers. There are companies that will issue a pre-qual based on verbal information that is given, this is where deals can start to go bad.
One last thing to do is do a pre-home inspection. Hire a home inspector to provide you with a home inspection prior to listing. Consider fixing items on the report or at least show the report to a prospective buyer so there are no surprises when they do their home inspection and they have tendered an offer based on the known issues of the house.
There are also things sellers themselves can do that will prevent a home from closing which could be title issues, material change in the condition of the house (fire damage, water damage) not delivering the house as spelled out in the contract and so on…. Make sure you are doing everything properly.
What can I do if a buyer wants to walk away from buying my house?
Consult a real estate attorney at the first sign of trouble. Contract law is complicated and should not be handled by any one but a real estate attorney. If you are not already working with an attorney on the sale of your home, find one. Bring them your Contract to Purchase, Purchase and Sale and any communication involving the real estate transaction for him to determine what your rights are in this situation.
What you will probably find is that a small deposit of a few thousand dollars is not worth the time effort or money involved in trying to keep it. But if you are talking significant deposit monies of tens of thousand of dollars, you may find the fight worth it.
Remember as a home seller you always take some risk taking your home of the market for a buyer. Try and tighten up dates and ask for the largest deposit you can get away with and try to hold the buyer to the deal.
This post, Can a Buyer Back out of Purchasing my Massachusetts Home? was provided by Kevin Vitali of EXIT Group One Real Estate in Tewksbury Massachusetts. Kevin can be reached at anytime by 978-360-0422 or by email at firstname.lastname@example.org
If you are thinking of buying or selling Real Estate in Massachusetts, contact Kevin for your free consultation. Make your next real estate transaction a smooth transaction.
Serving the Real Estate needs of Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest including the following communities and the surrounding areas, Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Merrimac, Methuen, North Andover, North Reading, Reading, Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford