Last Updated: October 5, 2022

When Real Estate Contracts Fall Apart

Written By: Barbara L. Pearce
Picture of a handshake ripped down the middle

We always warn people that a real estate transaction "isn't over til it's over", as the saying goes. It is not uncommon for contracts to fall through, although the percentage in any given type of market can vary. Right now, the flattening of demand across the country means that cancelled contracts are going up.

Issues that arise to challenge a sale

They can range from inspection issues, to title problems, to necessary permits or zone changes. If you are the sellers, you need to weigh the reasonableness of the request against the danger that a stalemate may result in a broken contract. Although it could be true that the buyers are using that threat to obtain a concession that would not have been granted upfront, you are where you are. If it is better to give in than to take the chance of having to find a new buyer, just do it and try not to let it bother you too much. The same is true on the buyers' side. If the sellers want to delay the closing, take the pool equipment, or get extra benefit for some other reason, it may make the most sense to let them win, particularly if other issues might arise later--being flexible the first time often saves money later.

Sometimes, people just change their minds.

There isn't anything that can really be done about that eventuality, except to make the pain of breaking the contract high enough to keep some buyers from walking away. Ultimately, however, if threatening to keep a deposit doesn't work, there is little upside in trying to save the sale. You can't make buyers buy if they have decided not to do so, however much you may feel that they are being unfair or unethical.

The important point to remember is that such a move is about them, not you. In most cases, you did not cause the contract to fall through, and the other side has simply made a choice that works only for themselves. At that juncture, the best strategy is to put the property back on the market as quickly as possible. That works for everyone. For the sellers, it shortens the period of time before a sale takes place. If you act soon, you will be mitigating damages as well. If the contract should ever end up in litigation, it may become important to show that you did what you could to lessen the impact of a cancelled sale.

For the buyers, the same thing is true.

You don't want to posture, pretending that there is a solution, if you know that you will never close. You also are responsible for keeping damages to a minimum. Arguing about the deposit upfront, and refusing to sign a release, can cause trouble later, for both parties. The smartest course of action is to find a new buyer right away. Especially at this time of year, you run the risk of delaying a new sale until the spring, if you keep the property from going back on the market, and the sellers from accepting a new contract.

In an ideal world, you will never need the advice in this post. However, it never hurts to be prepared for the worst, so that the emotional blow does not prevent you from behaving rationally. After all, there are greater catastrophes, and putting a closing into perspective can make the process easier for everyone.

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