What To Do When The Buyer Wants Out Of The Deal
By JD Esajian on February 10, 2016
What do you do when the buyer wants out of the real estate deal?
It happens. In fact, during the process of many real estate transactions, there will be at least one day on which the buyer is seriously regretting signing the purchase contract. This is true whether you’ve given them the best deal in the world, or they could have done better. The point is that voiced or not, this is a frequent occurrence. For those professionals counting on that commission to feed their kids and pay their mortgage, and for the seller that was counting on the proceeds to complete their contract and keep their word on buying their next home and showing up at their new job on time, this can be incredibly frustrating and costly. So as the seller, Realtor, or an investor in the middle of a flip; what do you do?
You Know When The Buyer Is Flaking Out When…
Sometimes the buyer will directly tell you – or someone else involved in the transaction – that they are backing out. They might even just send a cancellation form and request a release of the deposit. While this doesn’t always happen, it is good to try to get a sense of whether or not trouble has been brewing for a while.
Other earlier indicators may include the buyer stopping answering phone calls, texts, or emails from the loan officer, title company, Realtor, or seller. Or they may just stop trying to push the deal forward and stall on sending in paperwork.
The earlier you can catch their doubts, the better. That can give you time to save the deal and stay on track with your real estate closing date. Even if you can’t save it, the sooner you know, the faster you can find another buyer.
Why Buyers Back Out Of Real Estate Deals
You only have hope of saving the deal if you really understand why they are tempted to back out. It may rarely be the first issue that arises, or reason given. This is especially true if they fear being able to get their deposit back or being sued for not performing.
So you’ve got to put some thought into it, and ask.
Reasons buyers may consider backing out include:
- Challenges in providing conditions to mortgage lenders
- Fear of the market changing
- Poor service from vendors involved
- They’ve seen a better deal to rent or buy
- Stress
- Escalating closing costs and payments
- A change in their personal situation
Solving The Issue
Many of these challenges can be overcome, but it can be a waste of time to focus on the symptoms if you aren’t getting to the heart of the problem. Dig in; is it really a minor factor which can be worked around, or are they determined not to close? If it is the later, as with landlords and difficult tenants; it can be wiser to just let them go.
The seller may technically have some ground to try and sue for performance. As the seller, you might hope to recoup some of your wasted time and costs from the earnest money deposit. Some buyers will be happy to release it in order just to get on with their lives. Others will push back. Trying to sue beyond the deposit may rarely be worth it. If you do win, and you win your attorneys’ fees to be paid, you still have to collect, or hope they comply with the court’s order. If they don’t have the money, then you aren’t going to get your time compensated for and you’ll probably be out thousands of dollars in attorney fees. If the buyer has a sound reason for withdrawing, or simply was not able to close due to financial reasons, then it may be unlikely that going to court is worth the time or money.
It is also worth putting yourself in the buyer’s shoes and thinking about what the right thing to do is. If it is just a matter of them seeing a cheaper house down the street, that is one thing. But if the buyer’s financial situation isn’t good and closing will cause them and their family a hardship, which could then lead to foreclosure and damaging the community, do you really want to force that on them? Or should you take it as a lesson learned, split the deposit money, and look for a stronger buyer? After all, you can’t force them to buy it. If they really don’t want to they’ll find an out, and maybe one which ensures they get their deposit back too.
This is definitely an area some real estate agents, investors, and loan officers want to think more about. Playing the bully might hurt your reputation, and your wallet even worse. Perhaps it’s better to get back on the horse and just go find more deals. Build a loss ratio into your work so that you aren’t so desperate when a deal goes bad on you.