What to Do When A Property Seller Backs Out of the Deal

·5-min read
What to Do When A Property Seller Backs Out of the Deal
What to Do When A Property Seller Backs Out of the Deal

As a property buyer, you’re already aware that you need to be on your best behaviour. From searching for your dream home and negotiating prices to budgeting your finances and comparing home loans across banks, there is a lot you need to do to make sure your purchase goes smoothly.

But what happens when the seller backs out of the deal? Are they allowed to do that, and are you entitled to any form of compensation?

When Can Sellers Back Out of the Deal

Neither the buyer nor seller has any obligation to the other party until a contract has been offered by the seller and accepted by the buyer.

In the beginning stages, when the buyer is still browsing property listings and making appointments and no contract has exchanged hands, the seller is free to decide if he or she no longer wishes to sell the property.

Hence, if you have already viewed the property and expressed verbal interest in it, but the seller has not issued you with an Option to Purchase (OTP) or sales agreement, they can back out anytime with no repercussions.

When Sellers Cannot Back Out of the Deal

After signing the OTP, that’s when things become more ‘official’.
After signing the OTP, that’s when things become more ‘official’.

Once the seller issues an OTP, things become more complicated. Should you choose to exercise the OTP, you and the seller will have entered into an agreement to transact.

Whether the seller can back out of the deal depends on the terms of the OTP, so you should read it carefully before exercising it.

The vast majority of OTPs do not enable the seller to back out of the transaction with impunity once the OTP has been exercised. By contrast, the buyer is usually allowed to back out of the deal, although they will forfeit any option fee or deposit that they had to pay in exercising the OTP.

In some transactions, you will sign a sales agreement after exercising the OTP. This contract, too, is binding on both parties and there is usually no way to back out of it.

If the seller backs out of the OTP or sales agreement, any option fee or deposit paid by you must be refunded.

In addition, you can choose to sue the seller in order to force him or her to follow through on his or her obligations. However, unless the seller has not refunded the money you have paid or the cancelled transaction has caused you to sustain great losses, you may not want to go through the hassle or potentially foot the costs of taking legal action.

How to Protect Yourself Against ‘Bad’ Sellers

In the vast majority of property transactions, the seller will not back out. However, there are a couple of things you can do to weed out a potentially difficult seller:

1. Find Out Why They Are Selling the Property

When you meet with the seller or the agent, pay attention to whether the seller seems serious about selling the property, or whether he or she seems to be on the fence about it. Quizzing the seller or agent about the reason for the sale can help you identify a hesitant seller.

If the seller is upgrading their home, that is usually a good sign that they are motivated. However, if it sounds like they are just testing the waters to see how much their property can fetch but have no real need to sell it at the moment, there is a chance they will not go through with the sale.

2. Take Note of Whether the Seller Is Responsive and Consistently Respects Timelines

If the seller is constantly failing to follow through on their promises or is not able to respect timelines, there is a chance they will prove flakey.

So, pay attention to whether they return your calls on time, respond to your requests for more information, are punctual for viewing appointments and issue the OTP or sales agreement when they say they will.

3. Read the OTP and Sales Agreement Carefully Before Signing

Your rights and obligations, as well as those of the seller, will be set out in contracts like the OTP and sales agreement. Hence, it is very important to read all documents carefully before signing them.

Take care to note if there are any clauses dealing with situations where the seller decides to back out of the transaction or terminate the contract. If you are not comfortable with these clauses, you will need to negotiate with the seller to have them removed.

4. Keep a Copy of All Communications

All communications with the seller and agent, whether formal or informal, should be kept in case you get into a dispute. So, be sure to save a copy of all text messages and emails.

In the case of verbal statements, it is always best to put them down in black and white and have them acknowledged by the seller. Hence, whenever the seller makes a verbal statement (such as agreeing to a newly-negotiated price), send them a text message or email later on confirming the details of the conversation.

5. Know Your Rights When Dealing with Sellers

While most sellers do not end up obstructing their property transactions, it is always a good idea to know what you and the seller are entitled to do, as well as keep your eyes open for a seller who could prove unreliable.

By reading through all contracts carefully before you sign anything and retaining a copy of all communications with the seller and their agent, you are protecting yourself in the event of a possible dispute.

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