When buying a house, the seller might suddenly receive a better offer and cancel the contract with the buyer. When this happens, you’ll probably wonder, is it possible to sue a seller for backing out of a contract with the buyer? The answer is, it depends on what stage you are in the real estate process.
Suing the seller for backing out of an accepted offer
When a buyer likes a house, the buyer makes an offer to purchase the property. The buyer’s offer to purchase is usually a very simple one to two-page offer in a short offer form provided by the listing agent. The seller may or may not accept the offer. The seller may communicate the acceptance verbally or in writing. Even if the seller accepts the offer, the seller can back out, for as long as the seller hasn’t signed the purchase agreement. In New York, real estate offers are not really binding agreements, because after the acceptance of an offer, a home inspection still has to take place, and the parties still negotiate on the price, depending on the results of the inspection. However, once a purchase contract has been signed by both the buyer and seller, the seller cannot back out without legal and financial consequences.
A purchase agreement is a more detailed contract that contains the selling price, the contingencies, and conditions for closing. Upon signing the purchase agreement, the buyer makes a deposit of earnest money equivalent to around 10% of the purchase price that is subtracted from the purchase price. At this stage, once the seller counter-signs the purchase contract, both the buyer and seller are bound and cannot back out without a valid reason provided in the contract.
Suing the seller for backing out of a purchase contract
Once the seller signs the more detailed purchase contract, the seller is considered in contract with the buyer. If the seller backs out of the purchase contract without legal justification, the buyer can sue the seller. The buyer has different legal remedies depending on his objective.
If the buyer really wants to purchase the house, the buyer can sue the seller for specific performance plus damages and costs of the lawsuit. The buyer can also file a notice of pendency to notify third parties about the existence of a case involving the real property and can file an application for a temporary restraining order and preliminary injunction to prevent the seller from selling the property to another person.
If the buyer can let the house go, the buyer can demand for the return of the earnest money plus interest and damages. Damages may include the time wasted, temporary housing, storage, home inspection fees, legal fees, lost opportunities to purchase other properties, or even damages arising from the fact that the buyer may have to pay more to buy an alternative home because market prices have risen rapidly.
Seller’s remedies to cancel the contract without damages
Even if a purchase agreement has been signed, the seller can resort to certain strategies that can result to the cancellation of a contract without penalties. For example, the seller can convince the buyer to a mutual cancellation without penalties. Sometimes, the seller includes a provision that requires the seller to find a replacement home before closing. If the seller is not able to find a replacement home, there is no penalty in not continuing with the sale. A riskier option is for the seller to expose some problems with the property which would make the buyer change his mind and encourage both parties to mutually cancel the deal.
At any rate, it is always best for the seller, when seeking to cancel a purchase agreement, to consult with a real estate attorney like us. An attorney can advise the seller on the possible repercussions of backing out, can provide alternatives and strategies in backing out without penalties, and ultimately, can represent the seller in negotiating with the buyer on damages when backing out.
On the part of the buyer, it is always recommended to already have a real estate attorney like us beside you when you begin the process of buying a home. The attorney will not only review the purchase agreement and other documents, but can be there from the start, to review the offer form. Having a real estate attorney will also show the seller that the buyer is serious, which is an advantage when there are multiple competing offers.
If you would like to sue the seller for backing out of a contract or interested in knowing your remedies in backing out, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at email@example.com.