Tips for sellers if a buyer backs out from a property deal

[] What are the precautions that a seller can take to protect their interests, in case a buyer cancels a property deal? We examine

A great deal of the property seller’s time, energy, effort and money would be wasted, if a buyer withdraws from a property deal, because of monetary reasons or loss of interest in the deal. While one cannot completely eliminate the possibility of such an event, a property owner can take certain precautions, to reduce the chances of a property deal falling through at the last minute.

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When can a buyer cancel a property agreement?

As soon as two parties agree to make a deal for a property transaction, a sale agreement or agreement to sell (not to be confused with a sale deed) is signed between them, laying out the ground rules for completing the deal. In the sale agreement, the buyer is granted two to three months’ time, to arrange the funds for completing the purchase, failing which the seller can forfeit the token money paid by the buyer for the property purchase. However, the terms and conditions in the sale agreement allow some degree of latitude to the buyer, in case he is unable to complete the deal in the following circumstances:

If the bank rejects the home loan application

In case the buyer is using housing finance to complete the transaction, he can use a contingency clause in the agreement, stating that the completion of the deal will depend on the lender approving his loan application. The bank can reject a borrower for various reasons, including his creditworthiness or problems with the property valuation. If the technical appraisal by the bank’s representatives, for instance, determines that the property value is lower than the deal value, the lender would reject the loan application.

If the buyer is unable to arrange the down payment

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Last minute impediments in arranging funds could spoil the deal, if the buyer in the meantime loses his source of income or is unable to arrange the down payment. If the buyer was selling his own property to buy this one and was going to use the sale proceeds from that deal, he might not be able to complete this deal within the stipulated timeline, if the other deal is delayed for any reason. In both these situations, the seller can forfeit the token money, but he may not sue the buyer for opting out of the deal.

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How to minimise the risk of a property deal falling apart?

Listed below are some of the precautions that you could take, to lower the risk of a deal falling apart.

  • If the buyer has a pre-approved loan, the deal has a better chance of getting concluded within the timeline. Give preference to this aspect, while screening interested buyers.
  • If the buyer is entirely using his own funds to make the purchase, do enquire about the source of the funding. Based on this, you can gauge the buyer’s ability to arrange the money.
  • The seller may consider inserting a clause in the sale agreement, stating that he is free to entertain other prospective buyers, even though the property is under contract to avoid any last minute jolts because of a possible cancellation of the deal.
  • The seller should hire a lawyer to work out the details of the sale agreement in such a way that it is not tilted in the buyer’s favour.
  • Always be ready with a back-up plan. Keep a list of other interested buyers handy, till the time the sale is finished.

What to do if a property deal is cancelled?

Tips for sellers if a buyer backs out from a property deal

If the buyer decides to back out, the seller will have to make quick changes in his sale strategy, to complete the transaction. Here’s what the seller can do:

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Other buyers: Scan the list of buyers who had expressed interest in your property. You can renegotiate a deal with them. More importantly, the new prospective buyers may have questions about why your existing deal failed. Ensure that you answer all their queries, so that they do not assume that there is some fault in your property.

Spread the word: While a real estate agent might be helping you with the transaction, it is highly recommended that you also let your friends and family members know about the property sale, to get buyers.

Sweeten the deal: If it is important to find a buyer quickly, you may offer some discount in the transaction value to the new buyer. Such a move would increase your buyer base too.

Leave no scope for mistakes: You do not want any past mistakes to derail your home selling plans this time. Stick to the ground rules and screen your buyers diligently.


Can a seller cancel a property deal?

If a seller backs off from a property deal, the buyer can file a suit for specific performance in the courts of law.

How can a seller ensure that the buyer has the money to complete a property deal?

The seller can check if the buyer has a pre-approved loan, as this can give an indication about the buyer’s financial capacity. If the buyer is using his own funds to buy the property, the seller should inquire about the source of such funds.

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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