Can a Buyer Sue a Seller for Backing Out of a Home Sale?

Why do home sellers back out of a sale?

Sellers might have various reasons for wanting to back out of a home sale, even after a purchase agreement has been signed. Some common reasons include:

• Personal circumstances change: Unexpected life events such as job loss, illness, or family issues can lead to a change of heart.
• A better offer comes along: Sellers might receive a more attractive offer from another buyer and attempt to back out of the original deal.
• Issues with the home sale process: Problems during the home inspection, appraisal issues, or difficulty finding a new home can cause sellers to reconsider.
• Cold feet: The emotional attachment to a home or fear of change can lead sellers to second-guess their decision to sell.

For a glimpse at the current market, HomeLight surveyed more than 1,000 of the nation’s top real estate agents and asked them to share the leading causes of why sellers are canceling signed contracts. Here’s what the agents are seeing:

As you can see, some of these reasons might be protected by contingencies that can be built into the purchase contract. But if the reason your seller cancels the contract falls outside of these protections, you may have grounds to take legal action.

What are my lawsuit options to sue a home seller?

When a seller backs out of a home sale agreement without sufficient cause, Donaldson says that a buyer has two primary legal options to consider.

1. Sue for damages

“Legal damages is money,” Donaldson explains. “The buyer will say, ‘Alright, I paid $500 for appraisal. I paid $1,100 for an inspection. I bought a new [property] survey for $1,500.’ Damages can be these and any other cost incurred associated with making that offer as a buyer.”

This legal action seeks monetary compensation for the buyer’s losses resulting from the seller’s breach of contract. Damages can include:

• Return the buyer’s earnest money deposit (plus interest)
• Refund of buyer-paid inspection and appraisal fees
• The cost of the buyer’s legal fees
• Additional expenses incurred, such as temporary housing or storage.
• Lost opportunity costs, like mortgage interest rates rising in the meantime
• Any lost commission and marketing costs to the agents involved

Donaldson says the message you’re sending with the lawsuit is: “Hey, seller, you’re going back out? Well, I already spent this money. If you want to back out, you write me a check to reimburse me for the money I’m going to lose.”

2. Sue for the property

Also known as suing for specific performance, this legal remedy compels the seller to complete the sale according to the terms of the contract. This option is particularly relevant when the property is unique, and monetary compensation alone wouldn’t make the buyer whole.

“If it’s an investment property or a house that the buyers really love, they really want it, one of a kind — like one of those unique types of properties you find on the top of the mountain — buyers could attempt to sue for specific performance,” Donaldson says, explaining that the lawsuit message you’re sending is: “Seller, you have to specifically perform pursuant to your obligations on the contract. You must sell me that property.”

3. Possible outcomes

The outcomes of suing a seller can vary widely based on the case specifics, the jurisdiction, and the effectiveness of legal representation. Potential outcomes include:

• Settlement outside of court: Many disputes are resolved through negotiation or mediation, where the parties agree on a compensation package.
• Court-ordered damages: The court may order the seller to pay damages to the buyer.
• Specific performance: The court may compel the seller to proceed with the sale.
• Dismissal: If the court finds the seller had a right to back out, the case may be dismissed.

Donaldson notes that breach of contract is typically a civil matter, so jail time for the seller is not part of the equation.

When can a home seller terminate a contract without penalty?

There are several instances when a seller can legally terminate a purchase agreement without facing penalties, typically outlined within the contract itself. These include:

• Failure to meet contingencies: If the contract is contingent upon certain conditions (like the buyer securing financing or a satisfactory home inspection) and these are not met, the seller can terminate the contract.
• Buyer breach of contract: If the buyer fails to meet their obligations under the contract terms, the seller can back out.
• Mutual agreement: Both parties can agree to terminate the contract at any point.
• Contractual clauses: Some contracts include clauses that allow sellers to cancel under specific circumstances, such as a “kick-out” clause tied to the seller receiving a better offer.

It’s crucial to consult with a real estate attorney to understand your rights and the best course of action based on your specific situation.

»Learn more: The most common contingency clauses in a home purchase contract

What legal defenses do sellers use when facing a lawsuit?

If the seller’s reason for canceling the sale falls outside of the contract provisions, what legal defense can you expect?

“The short answer to your question is, it doesn’t really matter,” Donaldson says. “Because if the seller has defaulted pursuant to the terms of the contract, the reason why is irrelevant.”

He explains with this imagery: “Imagine you’re the judge, and you have a seller and buyer in your courtroom. You read the contract, and it is clear that the seller has defaulted — based on the provisions of the contract the seller agreed to by signing it. You, as a judge, can look at the seller and say, ‘It does not matter why you defaulted. It says if you do this, you default, and you defaulted.’”

Steps to sue a seller for backing out of a contract

If you’re trying to decide if you should proceed with a lawsuit against a seller who backed out of a home purchase contract, Donaldson advises: “That’s a big conversation with the lawyer. You have to find a real estate litigator, and they’re going to want to see the contract of sale.”

The first step will be to review the contract and all the correspondence between buyers and sellers or their attorneys. “The buyer’s attorney needs to identify: A. Did the seller default to the terms of the contract?; B. What remedies are available for the buyer?; and C. What action can the litigator take that is most likely going to get the buyer to a place where they want to end up?”

If you find yourself in the position of needing to sue a seller for backing out of a home sale contract, here’s a general guideline showing what the process might look like:

1. Review the contract: Carefully examine the purchase agreement to understand the terms and if the seller has indeed breached the contract.

2. Gather everything you have in writing: Compile all related documentation, such as the purchase agreement, correspondence with the seller, and any financial records related to the transaction.

3. Consult with a real estate attorney: An experienced lawyer can provide advice on your case’s strength, the likelihood of success, and the best legal strategy to pursue.

4. Consider alternative dispute resolution: Before filing a lawsuit, explore if mediation or arbitration can resolve the dispute, as outlined in your contract.

5. File a lawsuit: If necessary, your attorney will help you file a legal complaint against the seller in the appropriate court.

6. Prepare for court proceedings: Work with your attorney to gather all necessary evidence and witnesses for your case.

7. Attend court appearances: Be prepared to attend all court hearings, which may include pre-trial conferences, mediation sessions, and the trial itself.

Will my lawsuit reach the courtroom?

Whether a lawsuit reaches the courtroom depends on various factors, including the case’s complexity, the evidence’s strength, and both parties’ willingness to settle out of court. In most cases, Donaldson says, a resolution will come in the form of a pre-trial settlement.

“Settlement is going to be reached 99% of the time. The chances of there being a trial — even just a bench trial with the judge acting as part of the jury as well — are extremely limited,” Donaldson says. “Once a case is commenced (the plaintiff submits the complaint), the defendant has to submit some kind of answer or reply. And then usually what happens is some sort of discovery schedule is set, meaning that the parties conduct depositions. And usually, it is going to be a settlement.”

Here’s what you might expect:

• Many cases settle before trial: It’s common for disputes to be settled through negotiation or mediation, as these processes are often less costly and time-consuming than a trial.
• Pre-trial motions: Even if a case is set to go to trial, pre-trial motions can resolve certain issues beforehand, potentially negating the need for a full trial.
• Court schedules can delay trials: The court’s calendar can affect if and when a trial starts. Sometimes, the delay encourages both parties to reach a settlement outside of court.
• Readiness for trial: If the case is particularly complex or the parties are far apart in their settlement positions, the lawsuit may proceed to trial. However, this is generally considered a last resort due to the time, expense, and uncertainty involved.

How to get to the homeownership finish line

With the right support and guidance, you can achieve your homeownership goals. HomeLight can connect you with top real estate agents in your area with the highest buyer success and closing rates. These agents can provide expert advice and advocacy every step of the way.

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