Our real estate attorney can help you navigate the situation
You’ve gone through the often lengthy process of finding a property you’re ready to purchase. The seller accepts your offer, you sign a contract, and you’re getting ready to close on the property. Then, at the last minute, the seller backs out. In all likelihood, two questions come to mind:
Can they do that?
What are my options now?
As with most legal questions, the answer is “it depends.” What follows is general information about what happens when a seller backs out of a real estate contract in Indiana. But in any given situation, the specifics will depend on the individual contract and surrounding circumstances, so it’s always best to get legal advice before taking any action.
What is a real estate contract?
A real estate contract is a legally binding agreement between a buyer and a seller for the purchase, sale, and transfer of real property. It’s often referred to as a purchase agreement or a purchase and sale (P&S) agreement.
The first thing you need to know about real estate contracts is that they must be in writing. While some types of oral contracts are enforceable, an oral agreement to buy or sell real property is not. In real estate law, if it’s not in writing, it’s not a contract.
Terms that are generally included in a real estate contract include:
- The names of the buyer and seller.
- A detailed description of the property.
- The purchase price.
- The earnest money deposit.
- The closing date (but note that the closing date in the contract is usually not a strict deadline).
- Financing details.
- Items included in the sale (e.g., appliances).
Additionally, many real estate contracts contain contingencies—conditions that, if not met, allow one party to back out of the transaction. For example, a residential sale may be contingent on the buyer’s satisfaction with the results of a home inspection, the buyer’s ability to obtain adequate financing, the sale of the buyer’s own house, or the seller’s successful purchase of a new house. Commercial sales often involve more complex contingencies, based on factors such as economic analysis, environmental inspections, pre-leasing, zoning, and others.
So, can the seller back out once they’re under contract?
The general answer is no, the seller can’t legally back out of the sale once you’re under contract. Contrary to popular belief, there is no grace period when you can just back out for any reason. If there is a valid contingency that protects the seller and that contingency is met—for instance, if the sale is contingent on the seller’s purchase of a new house, and the seller is unable to buy a new house despite making reasonable efforts to do so—then the seller can legally back out of the deal. Otherwise, though, refusing to sell may be a breach of contract.
What are the buyer’s legal options if the seller backs out of a deal?
Again, the buyer’s legal options depend on the terms of the contract, but broadly speaking, there are a few steps a buyer can take if the seller refuses to sell:
- Send a letter declaring that the seller is in breach of contract. Sometimes this is enough to get the seller to comply with the contract. It can also help to protect your legal options if necessary.
- Sue for monetary damages. As a buyer, you can potentially sue for your financial costs related to the seller’s breach of contract—but those costs may not be high enough to be worth it, depending on the circumstances. If the contract contains a liquidated damages clause—that is, language saying that you can sue for a fixed amount of money—then you can pursue those damages, if the clause is legally enforceable. Again, this all depends on the language of the contract and the surrounding circumstances, and only a lawyer can tell you what you might be able to sue for.
- Sue to force the sale. In principle, you can sue for “specific performance,” which would force the seller to hold up their end of the deal and sell the property to you. That said, a lawsuit can take years to resolve, and most of the time, you’ll be responsible for your own legal fees.
- Negotiate with the seller. It may be possible to return to the negotiating table and resolve any outstanding issues that are preventing the seller from completing the sale.
- Walk away. As frustrating as it is, sometimes, the best option when a seller backs out is to move on and find a different property to buy. If your other legal options cost more than they’re worth, all that’s left is to try again.
How an experienced real estate attorney can help
Remember, just because you have a contract doesn’t necessarily mean you are adequately protected in the event that the other party tries to back out of the deal. You have legal options in theory, but they may not be very helpful in practice. That’s why it’s so important to have a real estate attorney review the contract before you sign. Your lawyer can make sure that the contract language provides adequate protection in case you end up in a bad situation.
If the other side backs out of a purchase or sale, then a real estate attorney can review the contract and the applicable laws and explain your options. This situation is always frustrating, but the right attorney can make a significant difference.
If you are dealing with a real estate transaction in Indiana, choose a real estate lawyer with the experience and resources to protect your interests. Contact attorney Janet Davis Hocker and her legal team at Hocker Law, LLC today.
Affordable, knowledgeable, fun, creative, and winning are all words I would use to describe this team. The fact that they can handle all my crazy real estate and business stuff means they can definitely handle yours! – Eli S., ⭐⭐⭐⭐⭐