Any experienced real estate sales agent has horror stories of home buyers and sellers who tried to get out of their sales contracts.
Usually, it’s the first-time home buyers who get cold feet and change their minds about buying, also called “buyer’s remorse.” However, this disease is never fatal and usually can be overcome with the buyer’s agent’s wise counseling of the purchasers.
Less frequently, sellers change their minds and realize they can’t find another home that is as comfortable and affordable. Too often, sellers rush into listing their homes for sale, but when the residence sells quickly in today’s active market, they realize they don’t yet have a place to move. Seller panic sets in.
Seller’s remorse, also never fatal, can be more difficult for realty agents to handle than buyer’s remorse. Often, with the help of a real estate attorney who explains the costly legal consequences of canceling a home sale, realty agents can usually convince sellers to proceed with the sale as agreed.
– Remedies for buyer remorse.
Home buyers, especially first-timers, often think they have a “free look” rescission period after making a purchase offer. That’s not true for home purchases.
The only way most home purchases can be canceled without a financial penalty is if one or more of the purchase contract’s contingencies aren’t met. For example, if the seller accepted a purchase offer that contains a contingency for the buyer’s approval of a professional inspection report and if that report reveals defects the seller did not previously disclose, then the buyer can cancel the purchase.
Another common “escape clause” in a purchase offer allows a buyer to cancel the purchase and obtain a refund of the good faith earnest money deposit if the house doesn’t appraise for at least the amount of the sales price. This also applies if the buyer can’t qualify for the specified mortgage after making good faith loan applications.
However, when a buyer cancels an accepted purchase contract due to a change of mind, the seller can sue the buyer and recover damages. To illustrate, when a buyer cancels a purchase, if the seller puts the house back on the market for sale and if the best offer attainable is $20,000 less than the first buyer’s offer, the seller is then entitled to $20,000 damages from the defaulting first buyer.
However, if the buyer and seller signed a “liquidated damages clause” in the purchase contract, the damages the seller can keep are limited to the amount agreed upon in the sales agreement.
In rare circumstances, the seller can sue the buyer for specific performance of the purchase contract, asking the court to order the buyer to complete the purchase. An example would occur if a builder constructed a house to the buyer’s specifications and if that house could not be resold to another because the local market was depressed.
The landmark specific performance case forcing a buyer to buy is B.D. Inns vs. Pooley (218 Cal.App.3d 289), in which the seller built an 840-unit hotel to the buyer’s specifications. When the buyer refused to complete the purchase, the California appellate court ordered the buyer to complete the purchase since monetary damages were inadequate, as there were no other buyers available.
– Remedies for seller remorse
Sellers often catch seller’s remorse, especially after a quick sale for close to the full asking price. Often a well-meaning friend will say to the seller, “If your house sold so fast, you didn’t get enough for it.” Or a neighbor might say, “I heard about a house down the street, much like yours, which sold for $20,000 more.”
An equally important cause of seller’s remorse is when the seller realizes how nice the home is and how difficult it will be to find another that is as enjoyable.
Whatever the cause of seller’s remorse, if you’re the buyer and if you really want to purchase that home, your most effective remedy is a lawsuit against the seller for specific performance of the sales contract. That means you ask the court to order the seller to honor the purchase agreement and sell to you on the contracted terms.
Since no two properties are exactly alike and monetary damages won’t adequately compensate a disappointed buyer, courts readily grant specific performance to disappointed buyers whose sellers refuses to honor the signed contract.
Buyers suing for specific performance should usually record a “lis pendens” against the home’s title. This is a legal warning to any buyer or lender involved with that property that litigation is pending and anyone dealing with it does so at his or her peril subject to the outcome of the lawsuit. Although the seller could sell to another buyer, subject to the lawsuit verdict, the effective result is to prevent the home’s sale or refinancing.
– Additional possible remedies for a buyer or seller default
If the buyer and seller agreed in the sales contract to binding arbitration of any disputes that might arise, then arbitration replaces the possibility of a lawsuit. But buyers and sellers should understand that if they sign an arbitration clause, they (1) give up their right to a jury trial, (2) forfeit the right to appeal the arbitrator’s decision and (3) do not have to abide by court rules of evidence in the arbitration.
Perhaps a more acceptable alternative remedy is mediation. Expert mediators can often help buyers and sellers resolve their disputes, frequently with a compromise. Mediation, while not binding like arbitration, offers advantages such as (1) quick resolution by negotiation, (2) low cost compared to a lawsuit and (3) compromises that are agreeable to both parties.
An additional legal remedy, if the rights of the buyer and seller are unclear, is a lawsuit for a declaratory judgment. The court is then asked to determine the legal rights and obligations of each party. In other words, the judge decides “What do we do now?” Please consult a local real estate attorney for more details on these and other legal remedies.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, IL 60611.
