Selling a home, buyer backs out of contract

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Hello FW Finance. I will try to keep this short.

Property location - Alabama. Listed for sale 2 weeks ago. Buyer made an offer and offer was signed Thursday 22 Sep 2016 by both parties, $500 earnest money by buyer. Monday 26 Sep buyer decides they no longer want to purchase the house. No contingencies were reached to give the buyer an out of the contract (no inspection, etc). When informed the earnest money would be forfeited the buyer stopped payment on the check. 

Home list price 109k
Offer agreement 97.5k pending inspection

Questions - Realtor is telling me she has never had this happen before and certainly it has never happened to me. I have filled out one of those online consultations forms with a RE attorney and am awaiting a phone call. Not looking to sue. Some things I found on the web - Buyer may be responsible for difference between sales price and our contract price if lower. Buyer responsible for 'reasonable' attorney fees if litigation occurs. Buyer forfeits earnest money which is split between seller/agent (in my contract). Buyer subject to 'failure to perform' damages if I can prove any (not likely, only off the market a couple of days, no money spent). 

I do not plan on taking any legal action unless I sell at a considerable less price than our contract. Do I need to do anything to preserve this option?
What is reasonable?
Should I bother with the earnest money or just let that go?
Anything else I am missing?

Thanks
 

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True. I was thinking it was a figure of speech, but I wasn't looking at the poster's name... Probably literally cash on... (more)

Bend3r (Oct. 03, 2016 @ 3:52p) |

You got that right.

atikovi (Oct. 03, 2016 @ 3:57p) |

Yeah, he'd probably keep doing it until one day the cash disappears and they say "what money?" 

Heard of that happening b... (more)

henry33 (Oct. 03, 2016 @ 5:03p) |

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If the check was put in escrow, is the fact that it bounced your problem or the entity maintaining the escrow account?

Does your local prosecutor handle check fraud cases?
My county prosecutor set up a special 'economic fraud unit' just to handle bounced checks. Although it's mainly for business owners, I think they'd take a case for an individual, but I'm not sure if they'd take one where no goods changed hands.

For $500, move on with your life.

I'm not a lawyer or a real estate professiona. The way I see it you don't really have a case here. Buyer had concerns about "something" [fill in the blank here] he saw during his initial visit. He made you an offer but upon further consultations with his advisors about "something" he decided it was a bigger problem that he had initially anticipated. He informs you that he is no longer interested and wants to excercise his right to rescind the offer based on inspection contingency.

It sounds like you have an inspection contingency. You don't have a case if that's the case (no pun intended!)

Did your contract have an inspection contingency in it? Did the buyer back out during the inspection contingency period? If so, the probability of getting anything is almost zero.

Just becuase the buyer didnt have a professional inspector review the property does not mean they cannot invoke that contingency.

rechtien said:    No contingencies were reached to give the buyer an out of the contract (no inspection, etc)

Home list price 109k
Offer agreement 97.5k pending inspection

 

  thats an inspection contingency
. When informed the earnest money would be forfeited the buyer stopped payment on the check. 
lol so your agent told the buyer they would forfeit the EMD but before they deposited the check? Your agent is a newb
Realtor is telling me she has never had this happen before 
Yup definately a newb. Buyers back out ALL THE TIME, especially at the beginning of the transaction. it's not the end of the world.

Response to some questions. We aren't planning on pursuing any action unless we sell at a significantly lower price than the contract. There is language about that in the contract pertaining the failure to perform and contingencies but no contingencies were reached or cited by the 'buyer'.

No inspection was completed or scheduled by the buyer. Contract was finalized late Thursday. Buyer notified they would not purchase home the following Monday without giving reason. I am not local to the home, not sure if the check was placed in escrow or if that was being done Monday.

This house is a rental. We have owned it 15 years. Owe 50k on it. We expect it to sell between 95-105. The local market is average and more a buyer's market I would guess as the primary local employer is the Army.

rechtien said:   Response to some questions. We aren't planning on pursuing any action unless we sell at a significantly lower price than the contract. There is language about that in the contract pertaining the failure to perform and contingencies but no contingencies were reached or cited by the 'buyer'.
So what's this "pending inspection" language in your OP?
No inspection was completed or scheduled by the buyer. Contract was finalized late Thursday. Buyer notified they would not purchase home the following Monday without giving reason. I am not local to the home, not sure if the check was placed in escrow or if that was being done Monday.
If the contingency is there than it doesn't matter what they did or not. They don't owe you an explanation. 
This house is a rental. We have owned it 15 years. Owe 50k on it. We expect it to sell between 95-105. The local market is average and more a buyer's market I would guess as the primary local employer is the Army.

  

"I inspected the house from Google Street view and didn't like the color."
Would get the buyer out of the contract assuming there's an inspection clause

The OP is taking the inspection clause to mean there had to be a professional inspection. In reality it could be viewing pictures or even driving by the house. Lack of a scheduled inspection doesn't mean squat.

The buyer changed his mind within 3 business days! He had a contingency, and even if he didn't in many states 3 days is within the period of time where anyone can walk away from a deal without penalty(I don't know Alabama law though)

It would be hard to convince anyone that you suffered damages for 3 days worth of not having your home listed on the market.

Earnest money was too low. Should have been at least $1000. That is the point of earnest money. If you were not happy with $500, should have asked more. 

Only accept a cashiers check next time.

Here is "an article" by an Alabama attorney on the law. http://realtyvan.com/cs%20earnest%20money.html Without a signed agreement by both of you to release the funds, they will sit unless one of you goes to court (or small claims court) to get an order releasing it, regardless of what the contract says. Living out of state, and being in a contingency period, you should release the funds and let it go. He can say I went out there with my friend who is a contractor, and it looked like it needed (insert reason here like a new roof or brickwork) and I decided it was not in the condition where I wanted to proceed.

rechtien said:   We aren't planning on pursuing any action unless we sell at a significantly lower price than the contract.Well, you have no action to pursue.

zapjb said:   Only accept a cashiers check next time.
I have made hundreds of offers and the only people that demand certified funds were hud .

rechtien said:   Response to some questions. We aren't planning on pursuing any action unless we sell at a significantly lower price than the contract. There is language about that in the contract pertaining the failure to perform and contingencies but no contingencies were reached or cited by the 'buyer'.

No inspection was completed or scheduled by the buyer. Contract was finalized late Thursday. Buyer notified they would not purchase home the following Monday without giving reason. I am not local to the home, not sure if the check was placed in escrow or if that was being done Monday.

This house is a rental. We have owned it 15 years. Owe 50k on it. We expect it to sell between 95-105. The local market is average and more a buyer's market I would guess as the primary local employer is the Army.

So does your contract say "contingent upon financing?" That's an easy out in a lot of situations. Does it broadly say "contingent upon inspection?"  If so, then it doesn't  mean some type of formal inspection has to be paid for or done by an individual with certain qualifications. For example, the buyer's mother in law sneering at the property is a type of inspection. I don't think the buyer has to give you details, but your real estate agent should reach out to the other agent and get some feedback as to why the buyer backed out.
Some things in real estate work differently in different parts of the country, but In my area it's extremely rare that the buyer would lose EMD when there are contingencies in the contract.
Move on from this $500.00, inquire about the feedback mentioned above, and focus your energy towards getting another buyer.

Pursuing a loss if your accepted offer is lower than this one seems difficult unless your realtor did something like decline showings or other offers, remove MLS listing, or change signs or advertising to something like "Sale pending!". But those would all be pretty dumb to do until very late in the process, like after earnest money has cleared and contingencies are passed.

You have no case as long as the buyer backed out within the contingency period. They don't need to do a professional inspection. They can back out because they don't like the way the wind blows in the house. Don't waste your time and change your realtor.

rechtien said:   Questions - Realtor is telling me she has never had this happen before 
  she just started her career, you being her first client ? you probably need a new agent if you are looking for sound advice.

Maybe not the stop payment but I am sure if she has experience people have backed out before.

MeraNamJoker said:   
rechtien said:   Questions - Realtor is telling me she has never had this happen before 
  she just started her career, you being her first client ? you probably need a new agent if you are looking for sound advice.

 
I agree with this - it's not possible that the Realtor has never had this happen unless she's brand new.

This happened to us once and it was annoying and yes we did end up with a slightly lower offer so it cost us $.  But, the buyer was within their rights.

And we have also been on the other end, canceling without paying for an inspection - sorry - but in the disclosures we received, there were a couple of easement issues that we were very uncomfortable with.  We had even asked our realtor about the easements before making the offer, and he said the other agent told him it was all in the disclosures.  It would have saved us all some time and trouble if they'd just explained the easements without the bother of offer/counter-offer/ escrow opening.

I hope you get another offer quickly.

You accepted an offer more than 10% below asking price after just two weeks on the market?  The guy did you a favor.  That is, unless your newbie real estate agent gave you poor advice about your listing price.

rechtien said:   ...When informed the earnest money would be forfeited the buyer stopped payment on the check. 

 

get a new realtor. i thought even the dumbest ones knew better than to hold up an EMD return because the seller "doesnt think they should have to"...the realtor should have explained that the EMD is not OP's if the buyer changes their mind during the inspection period, and pointed to the obvious language in the contract to that effect. rookie shit.

SlimTim said:   Pursuing a loss if your accepted offer is lower than this one seems difficult unless your realtor did something like decline showings or other offers, remove MLS listing, or change signs or advertising to something like "Sale pending!". But those would all be pretty dumb to do until very late in the process, like after earnest money has cleared and contingencies are passed.
  MLS rules often require them to update the status within 24 hours or receive fines.  For example, local MLS rules When it has an offer (even in unrestricted option period), it must be updated.  When the option period is over, it must be updated to pending as well.

As stated....move on with your life and get the house sold.

If there was an inspection contingency period, and buyer was within that period.....you have ZERO case. None. Nada.

OP was your listing price 109k way too high? Or were you feeling charitable accepting 97.5k?

Broker here. Happens all the time. Normally the contract isn't valid unless there's consideration. In this case the funds bounced so I'm not even sure you really have a valid contract. The other question is whether the agent deposited the funds in a timely fashion. If she waited a few days then you might have a case against the agent, but it sounds like it happened right away. As for changing the status within 24 hours, yes we have that in our MLS too, but a lot of agents wait til they actually have the check because it's not considered under agreement until you have the funds.

rechtien said:   $500 earnest money by buyer.
Offer agreement 97.5k 

  I get a $500 deposit on $3-4,000 car. Why you accepted less than $5,000 on a nearly $100K house is beyond me unless you were desperate to get ANY offer on it.  
rechtien said:   Buyer made an offer and offer was signed Thursday 22 Sep 2016 by both parties, $500 earnest money by buyer. Monday 26 Sep buyer decides they no longer want to purchase the house.
When informed the earnest money would be forfeited the buyer stopped payment on the check. 

 

  Why wasn't the check deposited by the escrow company. Should have cleared by the 26th. You have a better case against the escrow company than anyone else.

atikovi said:   
rechtien said:   $500 earnest money by buyer.
Offer agreement 97.5k 

  I get a $500 deposit on $3-4,000 car. Why you accepted less than $5,000 on a nearly $100K house is beyond me unless you were desperate to get ANY offer on it.  
rechtien said:   Buyer made an offer and offer was signed Thursday 22 Sep 2016 by both parties, $500 earnest money by buyer. Monday 26 Sep buyer decides they no longer want to purchase the house.
When informed the earnest money would be forfeited the buyer stopped payment on the check. 

 

  Why wasn't the check deposited by the escrow company. Should have cleared by the 26th. You have a better case against the escrow company than anyone else.

  
Just the standard practice for the area. For houses up to 250k, I've gotten $500 deposits, but even for houses in the 700-900k range, it's still a 1k deposit with the offer. But after inspection contingencies expires, it's more like a 5% or even a 10% deposit on cash offers. 

If the inspection contingency hasn't expired yet, it's still possible for the other party to send in something that cites the inspection contingency. Brokers may be taking short cuts, but in the end, all the laws tend to favor the buyer. The flip side is that you go after the buyer, then there's pending litigation and that ties up the property. Look up lis pendens. 

Let it go.

henry33 said:   Just the standard practice for the area. For houses up to 250k, I've gotten $500 deposits, but even for houses in the 700-900k range, it's still a 1k deposit with the offer. But after inspection contingencies expires, it's more like a 5% or even a 10% deposit on cash offers.
That seems just crazy to me. Must be a buyers market then. What's to stop a buyer from putting a $1K deposit on a $900K house and taking it off the market a week or two while he shops around for a better house? If he finds a better house, he just forfeits the deposit, not a big deal on a house in that price range, while the seller misses out on two weeks of potential buyers.

atikovi said:   
henry33 said:   Just the standard practice for the area. For houses up to 250k, I've gotten $500 deposits, but even for houses in the 700-900k range, it's still a 1k deposit with the offer. But after inspection contingencies expires, it's more like a 5% or even a 10% deposit on cash offers.
That seems just crazy to me. Must be a buyers market then. What's to stop a buyer from putting a $1K deposit on a $900K house and taking it off the market a week or two while he shops around for a better house? If he finds a better house, he just forfeits the deposit, not a big deal on a house in that price range, while the seller misses out on two weeks of potential buyers.

  
Nothing really. You just hope you're working with a broker who doesn't want to waste everyone's time. Seller still has to accept the offer. The strongest ones are the ones that don't have a contingency, write an offer with too many contingencies and it may not be accepted.

atikovi said:   
henry33 said:   Just the standard practice for the area. For houses up to 250k, I've gotten $500 deposits, but even for houses in the 700-900k range, it's still a 1k deposit with the offer. But after inspection contingencies expires, it's more like a 5% or even a 10% deposit on cash offers.
That seems just crazy to me. Must be a buyers market then. What's to stop a buyer from putting a $1K deposit on a $900K house and taking it off the market a week or two while he shops around for a better house? If he finds a better house, he just forfeits the deposit, not a big deal on a house in that price range, while the seller misses out on two weeks of potential buyers.

  the realtor doesn't care.  It's faster to find someone either not willing or not able to put up more than $100, so they tell the seller that it's "standard practice" to get things moving along.  Then the deal falls through, and new offers are lower because the listing's stale.  But a 5% lower sale price only reduces the realtor's commission by 5%, so they don't care.  The realtor cuts down their time investment required to close to ~0 rather than what any due diligence would take, and it decreases their commission by only $100s, who cares that their "client" loses $1000s-$10000s?

The hilarious thing is that most "buyer's agent" realtors will hassle you against making a larger earnest deposit when you want to do so.

henry33 said:   Broker here. Happens all the time. Normally the contract isn't valid unless there's consideration. In this case the funds bounced so I'm not even sure you really have a valid contract. The other question is whether the agent deposited the funds in a timely fashion. If she waited a few days then you might have a case against the agent, but it sounds like it happened right away. As for changing the status within 24 hours, yes we have that in our MLS too, but a lot of agents wait til they actually have the check because it's not considered under agreement until you have the funds.
  Yes, some also make up their own rules.  The listing agent refused to mark the house my offer was accepted on to active option or even to pending after all contingencies were removed at all over the month until close.  Almost killed the deal, I almost backed out partly because of it, along with other nonsense.  (No, I didn't report the agent to the MLS like I could have, because I didn't want to nuke the deal).  

It should also be obvious that there is no contract until there is a check, at least in my state's standard forms it's pretty clear on the contract that it needs a stamp from escrow saying the funds were received for the contract to be valid.  Problem being no one reads the contracts and the people paid to walk the buyer/seller through it (Realtor(R) ) doesn't do their only job either.  They just sign "here, here, and over here" and then whine on forums when someone follows the letter of the contract and backs out.

Bend3r said:   
henry33 said:   Broker here. Happens all the time. Normally the contract isn't valid unless there's consideration. In this case the funds bounced so I'm not even sure you really have a valid contract. The other question is whether the agent deposited the funds in a timely fashion. If she waited a few days then you might have a case against the agent, but it sounds like it happened right away. As for changing the status within 24 hours, yes we have that in our MLS too, but a lot of agents wait til they actually have the check because it's not considered under agreement until you have the funds.
  Yes, some also make up their own rules.  The listing agent refused to mark the house my offer was accepted on to active option or even to pending after all contingencies were removed at all over the month until close.  Almost killed the deal, I almost backed out partly because of it, along with other nonsense.  (No, I didn't report the agent to the MLS like I could have, because I didn't want to nuke the deal).  They just sign "here, here, and over here" and then whine on forums when someone follows the letter of the contract and backs out.

It should also be obvious that there is no contract until there is a check, at least in my state's standard forms it's pretty clear on the contract that it needs a stamp from escrow saying the funds were received for the contract to be valid.  Problem being no one reads the contracts and the people paid to walk the buyer/seller through it (Realtor(R) ) doesn't do their only job either.

  
MLS is basically a bunch of real estate brokers banding together to sell each others listings. It's really none of your business if they mark it as active or not. You've still got a signed contract so even if they don't change the status, your contract is still valid. They can't accept any other offer until you back out. It's a little insane to back out just because the listing agent didn't change the status. That was their only leverage against you, that they would have backup offers. It's kinda standard these days around here, in a hot market you call the agent to make sure it's really available. They're just harvesting agent info for backup purposes in case you flake out and don't proceed and backing out because some agent didn't change the status is flaky. 

henry33 said:   
Bend3r said:   
henry33 said:   Broker here. Happens all the time. Normally the contract isn't valid unless there's consideration. In this case the funds bounced so I'm not even sure you really have a valid contract. The other question is whether the agent deposited the funds in a timely fashion. If she waited a few days then you might have a case against the agent, but it sounds like it happened right away. As for changing the status within 24 hours, yes we have that in our MLS too, but a lot of agents wait til they actually have the check because it's not considered under agreement until you have the funds.
  Yes, some also make up their own rules.  The listing agent refused to mark the house my offer was accepted on to active option or even to pending after all contingencies were removed at all over the month until close.  Almost killed the deal, I almost backed out partly because of it, along with other nonsense.  (No, I didn't report the agent to the MLS like I could have, because I didn't want to nuke the deal).  They just sign "here, here, and over here" and then whine on forums when someone follows the letter of the contract and backs out.

It should also be obvious that there is no contract until there is a check, at least in my state's standard forms it's pretty clear on the contract that it needs a stamp from escrow saying the funds were received for the contract to be valid.  Problem being no one reads the contracts and the people paid to walk the buyer/seller through it (Realtor(R) ) doesn't do their only job either.

  
MLS is basically a bunch of real estate brokers banding together to sell each others listings. It's really none of your business if they mark it as active or not. You've still got a signed contract so even if they don't change the status, your contract is still valid. They can't accept any other offer until you back out. It's a little insane to back out just because the listing agent didn't change the status. That was their only leverage against you, that they would have backup offers. It's kinda standard these days around here, in a hot market you call the agent to make sure it's really available. They're just harvesting agent info for backup purposes in case you flake out and don't proceed and backing out because some agent didn't change the status is flaky. 

  Exactly.  They are free to get backup offers while it's listed properly as active-option, but few would actually look at it or make an offer if it's listed properly.  The only reason not to update the status is to deceptively pull in people with a lie that there was no contract.   It's plenty the buyer's business.  I cold-called the office asking about the property and they lied and said it was on-market with no contract.

The option fee paid is in exchange for taking the property off market during the unrestricted option period.  It's dishonest to list wrong information and it directly violated the contract.  Having it off market is the main leverage the buyer has for negotiations during the option period.

I also said that wasn't the only reason, the agent also listed an incorrect (1/3 of actual) HOA dues which any rational person figures into the offer price made.  Plus they purposefully supplied incorrect disclosure forms and did not supply the existing inspection reports until after contract negotiation and half the option period was over.  (State-required disclosure forms and state law to supply any inspection reports within... 2 years?   I'd have to go look up the time period..)  Plus there was other things I won't go into.  I specifically said it wasn't just that one thing ....  In the end I got a very good deal but the seller got the short end of it mostly due to the unscrupulous realtor.  Can't help but feel a little bad for the relocating military family that got a bad deal through picking that classical realtor at a standard realty firm.  The up to ~$15k they lost was probably a much bigger impact on them than the $10k I saved.  I highly doubt they had more liquid assets than the house cost like I did.  It's insane that they bought near the local market bottom, sold at new record peaks, and ended up with only a couple $100 in their pocket after paying off the prior mortgage.

Bend3r said:   

  Exactly.  They are free to get backup offers while it's listed properly as active-option, but few would actually look at it or make an offer if it's listed properly.  The only reason not to update the status is to deceptively pull in people with a lie that there was no contract.   It's plenty the buyer's business.  I cold-called the office asking about the property and they lied and said it was on-market with no contract.

The option fee paid is in exchange for taking the property off market during the unrestricted option period.  It's dishonest to list wrong information and it directly violated the contract.  Having it off market is the main leverage the buyer has for negotiations during the option period.

I also said that wasn't the only reason, the agent also listed an incorrect (1/3 of actual) HOA dues which any rational person figures into the offer price made.  Plus they purposefully supplied incorrect disclosure forms and did not supply the existing inspection reports until after contract negotiation and half the option period was over.  (State-required disclosure forms and state law to supply any inspection reports within... 2 years?   I'd have to go look up the time period..)  Plus there was other things I won't go into.  I specifically said it wasn't just that one thing ....  In the end I got a very good deal but the seller got the short end of it mostly due to the unscrupulous realtor.  Can't help but feel a little bad for the relocating military family that got a bad deal through picking that classical realtor at a standard realty firm.  The up to ~$15k they lost was probably a much bigger impact on them than the $10k I saved.  I highly doubt they had more liquid assets than the house cost like I did.  It's insane that they bought near the local market bottom, sold at new record peaks, and ended up with only a couple $100 in their pocket after paying off the prior mortgage.

  
You called up the office and some office person looked up the status of the property and said it was on market. You'd have to call the listing agent to find out the exact status. Suffice to say, it would have never gotten to the stage where the buyer looks at the property and writes up an offer and has it accepted. There's a LONG way to go from just calling up and asking about the status of a property. As I said, you might be slightly flaky, the real point for not changing the status was to get backup buyers or to just get other buyers who call up asking about that listing, a classic bait and switch where they say that one just went under contract, but I can show you something else. Happens in sales all time, car dealers are also pretty bad at doing this. As for the leverage you think you may or may not have, they could always say no regardless of what leverage you think you may have. As for incorrect information, mistakes sometimes get made, that's why there's a standard phrase which says that the buyer did all their due diligence, that usually involves calling up the HOA and verifying the condo fee. Usually why there's a line in the P&S which states that buyer didn't rely on any representations by the brokers and verified all the information themselves. 

atikovi said:   
rechtien said:   $500 earnest money by buyer.
Offer agreement 97.5k 

  I get a $500 deposit on $3-4,000 car. Why you accepted less than $5,000 on a nearly $100K house is beyond me unless you were desperate to get ANY offer on it.  
rechtien said:   Buyer made an offer and offer was signed Thursday 22 Sep 2016 by both parties, $500 earnest money by buyer. Monday 26 Sep buyer decides they no longer want to purchase the house.
When informed the earnest money would be forfeited the buyer stopped payment on the check. 

 

  Why wasn't the check deposited by the escrow company. Should have cleared by the 26th. You have a better case against the escrow company than anyone else.

  Hahahaha so wait, you want people to put 5% down on a house as a deposit.  Thats insane. I would guess most people buying a 100k house would only put about 5k as a down payment.  

Skipping 14 Messages...
Bend3r said:   
jagec said:   
That's not the same thing as writing a check for the escrow company.

True. I was thinking it was a figure of speech, but I wasn't looking at the poster's name... Probably literally cash on the table.  

  
Yeah, he'd probably keep doing it until one day the cash disappears and they say "what money?" 

Heard of that happening before too, someone got paid under the table then the guy sued saying he never got the money. He did end up losing though, buyer was somehow able to prove it.



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