Richard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
You’ve saved, skimped, searched, and finally found a home to buy. You’ve even signed a purchase contract. But what happens if the seller decides to back out of the sale? If you’ve found yourself in this situation, or you’re just mentally preparing for a worst-case scenario, it’s fair to ask: Can a buyer sue a seller for backing out of a home sale?
This guide will walk you through the essentials of home purchase agreements, your options for recourse if a seller reneges on a deal, and how to proceed with a lawsuit if necessary. We’ll share expert tips and insights from a real estate attorney so you know your options and what to expect.
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Disclaimer: As a friendly reminder, this blog post is meant to be used for educational purposes, not legal advice. HomeLight always encourages you to reach out to your own advisor.
A home purchase agreement, also known as a real estate contract, is a legally binding document between a buyer and a seller. It outlines the terms and conditions of a property sale, including the purchase price, closing date, and any contingencies that must be met before the sale can be finalized. This contract ensures both parties understand their obligations and provides a clear path to transferring ownership of the property.
Here are key components typically found in a home purchase agreement:
“Yes,” says Stephen Donaldson, a leading real estate attorney with The Donaldson Law Firm in New York. “If the seller has defaulted pursuant to the terms of the contract, a buyer can sue a seller for backing out.” However, he adds, “You always want to avoid litigation.”
He explains the specifics of when legal action is appropriate depend on the terms outlined in the purchase agreement and the laws of the state where the property is located.
“What constitutes as the default is identified and spelled out in the contract,” Donaldson says. “It usually falls under the heading of ‘If the seller refuses to satisfy contractual obligation.’ That will give the buyer a right to bring action against the seller.”
Donaldson cautions that the home purchase contract must clearly be on your side.
“Why a buyer would bring an action against the seller is generally only if the seller refuses to close,” he says. “It’s about specific performance. The buyer is saying, ‘You signed the contract that said you were going to sell me this house. Now, you’re telling me you’re not. No, you’re defaulting against the contract. I’m going to bring the action against you to make sure you sell me that house. And if you don’t want to do that, then pay me back the money I’ve lost from losing this transaction.”
Sellers might have various reasons for wanting to back out of a home sale, even after a purchase agreement has been signed. Some common reasons include:
For a glimpse at the current market, HomeLight surveyed more than 1,000 of the nation’s top real estate agents and asked them to share the leading causes of why sellers are canceling signed contracts. Here’s what the agents are seeing:
When a seller backs out of a home sale agreement without sufficient cause, Donaldson says that a buyer has two primary legal options to consider.
“Legal damages is money,” Donaldson explains. “The buyer will say, ‘Alright, I paid $500 for appraisal. I paid $1,100 for an inspection. I bought a new [property] survey for $1,500.’ Damages can be these and any other cost incurred associated with making that offer as a buyer.”
This legal action seeks monetary compensation for the buyer’s losses resulting from the seller’s breach of contract. Damages can include:
Donaldson says the message you’re sending with the lawsuit is: “Hey, seller, you’re going back out? Well, I already spent this money. If you want to back out, you write me a check to reimburse me for the money I’m going to lose.”
Also known as suing for specific performance, this legal remedy compels the seller to complete the sale according to the terms of the contract. This option is particularly relevant when the property is unique, and monetary compensation alone wouldn’t make the buyer whole.
“If it’s an investment property or a house that the buyers really love, they really want it, one of a kind — like one of those unique types of properties you find on the top of the mountain — buyers could attempt to sue for specific performance,” Donaldson says, explaining that the lawsuit message you’re sending is: “Seller, you have to specifically perform pursuant to your obligations on the contract. You must sell me that property.”
The outcomes of suing a seller can vary widely based on the case specifics, the jurisdiction, and the effectiveness of legal representation. Potential outcomes include:
Donaldson notes that breach of contract is typically a civil matter, so jail time for the seller is not part of the equation.
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There are several instances when a seller can legally terminate a purchase agreement without facing penalties, typically outlined within the contract itself. These include:
It’s crucial to consult with a real estate attorney to understand your rights and the best course of action based on your specific situation.
If the seller’s reason for canceling the sale falls outside of the contract provisions, what legal defense can you expect?
“The short answer to your question is, it doesn’t really matter,” Donaldson says. “Because if the seller has defaulted pursuant to the terms of the contract, the reason why is irrelevant.”
He explains with this imagery: “Imagine you’re the judge, and you have a seller and buyer in your courtroom. You read the contract, and it is clear that the seller has defaulted — based on the provisions of the contract the seller agreed to by signing it. You, as a judge, can look at the seller and say, ‘It does not matter why you defaulted. It says if you do this, you default, and you defaulted.’”
If you’re trying to decide if you should proceed with a lawsuit against a seller who backed out of a home purchase contract, Donaldson advises: “That’s a big conversation with the lawyer. You have to find a real estate litigator, and they’re going to want to see the contract of sale.”
The first step will be to review the contract and all the correspondence between buyers and sellers or their attorneys. “The buyer’s attorney needs to identify: A. Did the seller default to the terms of the contract?; B. What remedies are available for the buyer?; and C. What action can the litigator take that is most likely going to get the buyer to a place where they want to end up?”
If you find yourself in the position of needing to sue a seller for backing out of a home sale contract, here’s a general guideline showing what the process might look like:
1. Review the contract: Carefully examine the purchase agreement to understand the terms and if the seller has indeed breached the contract.
2. Gather everything you have in writing: Compile all related documentation, such as the purchase agreement, correspondence with the seller, and any financial records related to the transaction.
3. Consult with a real estate attorney: An experienced lawyer can provide advice on your case’s strength, the likelihood of success, and the best legal strategy to pursue.
4. Consider alternative dispute resolution: Before filing a lawsuit, explore if mediation or arbitration can resolve the dispute, as outlined in your contract.
5. File a lawsuit: If necessary, your attorney will help you file a legal complaint against the seller in the appropriate court.
6. Prepare for court proceedings: Work with your attorney to gather all necessary evidence and witnesses for your case.
7. Attend court appearances: Be prepared to attend all court hearings, which may include pre-trial conferences, mediation sessions, and the trial itself.
Whether a lawsuit reaches the courtroom depends on various factors, including the case’s complexity, the evidence’s strength, and both parties’ willingness to settle out of court. In most cases, Donaldson says, a resolution will come in the form of a pre-trial settlement.
“Settlement is going to be reached 99% of the time. The chances of there being a trial — even just a bench trial with the judge acting as part of the jury as well — are extremely limited,” Donaldson says. “Once a case is commenced (the plaintiff submits the complaint), the defendant has to submit some kind of answer or reply. And then usually what happens is some sort of discovery schedule is set, meaning that the parties conduct depositions. And usually, it is going to be a settlement.”
Here’s what you might expect:
The option period is a specified number of days during which the buyer has the right to terminate the purchase agreement for any reason. This period allows the buyer to conduct inspections and due diligence without committing fully to the purchase. The buyer typically pays a fee for this option, which may or may not be refundable depending on the contract terms.
What is a cooling-off period?A cooling-off period is a legally mandated timeframe after a contract is signed, during which parties can cancel the agreement without penalty (typically 3-5 days). This period is not applicable to all types of transactions and varies by state and the specific type of contract. In U.S. real estate, cooling-off periods are more common in timeshare or off-plan property purchases than in standard home sales.
Should I sue a seller for backing out?Deciding to sue a seller for backing out of a home sale is a significant decision that depends on several factors:
It’s important to consult with a real estate attorney to weigh the pros and cons based on your situation.
Do more buyers or sellers back out of home sales?Donaldson says it’s far more common to see a buyer back out of a sale. “You don’t see a whole lot of sellers backing out because — to come full circle — they put the energy into putting their property on the market, preparing their property, retaining a real estate broker to help him sell it, and all other sales efforts…so why back out [when they finally have a buyer].”
Can I prevent a seller from backing out?While it’s challenging to completely prevent a seller from backing out, ensuring a well-drafted, clear purchase agreement can minimize the risk. Including specific performance clauses and substantial earnest money deposits might deter sellers from breaching the contract.
How long does a lawsuit against a seller take?The duration of a lawsuit can vary widely, from a few months to several years, depending on the case’s complexity, the court’s schedule, and whether the case is settled before trial. Pre-trial settlement is the most common resolution.
With the right support and guidance, you can achieve your homeownership goals. HomeLight can connect you with top real estate agents in your area with the highest buyer success and closing rates. These agents can provide expert advice and advocacy every step of the way.
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At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Richard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
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