Can you keep the deposit if a home buyer backs out?


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After weekends of open houses, scrambling to clean up for last-minute inspections, and low-ball offers, you have finally received an offer on your home and exchanged contracts. But before you pop the champagne, remember the sale is not yet final and buyers can and do drop out. Here's what you need to know.

Homeowners looking to sell their property should not count their cash until the sale has settled.

Until then there is always a risk that your buyer may have a change of mind.

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Buyers get second thoughts. Personal circumstances may change, a better property comes up, they may feel they signed too fast, finance may no longer be available, they may feel they were misled, or that they paid too much.

Fortunately most buyers get over it and settle. But those with very cold feet don't. They just pull the plug on what you thought was a binding contract.

If this occurs during the contract's cooling-off period, you can keep the cooling-off penalty from any deposit paid. If the contract is still subject to finance approval or similar precondition (such as a prior sale), you may find your buyer validly (if not genuinely) terminating on that basis.

Whatever your suspicions, the best course is simply to refund the deposit, move on and find a better buyer.

Be prepared to negotiate with a reluctant buyer. Ask why the change of heart. Consider sweetening the deal by adjusting the price or varying the terms.

One story in my book tells how buyers, relying on a prior sale condition to get out, lost their deposit because they had not done "all things reasonably necessary" to sell their own home.

If your buyer defaults or terminates without validity, you may accept this and elect to forfeit the deposit. You may also sue for damages.

Otherwise you may affirm the contract and ask a court to order "specific performance" of the contract by the buyer. Seek legal advice on any commission liability to your agent.

If your buyer not untypically alleges misleading or deceptive conduct on your part or your selling agents, you should seriously consider whether you want to sell a house or buy a court case. Courts are always good places to avoid.

Ideally try not to contract to buy your next home until your present home is sold and settled.

'Our sale fell through'

Lyndall and her family were relieved to receive an offer on their Newcastle home last year after eight weeks on the market.

"We had done our research and knew we were asking a fair price," she says. "Finally we received an acceptable offer, much to our relief."

But after waiting three weeks to exchange contracts, the buyer pulled out.

"Our sale fell through as the sale of our would-be purchaser's home didn't eventuate."

Lyndall says she and her husband tried not to be discouraged.

"We determined not to drop our price, despite many urgings from our agent, then quickly received an offer which resulted in a successful sale."

The house eventually sold for $5000 more than the failed initial offer.

She encourages others to be patient with the process.

"Know your selling price range and hang in there. For us, it did all work out very well in the end."

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March 16, 2021 4.12pm

i sold my house months ago agent received 10% deposit settlement was supposed to be yesterday , the purchaser had received a scammed email from the conveyancers email account and paid money into it. Now its going to take a while to sort it out. im now paying rent and have an empty house, my question is do i cancel the sale or wait until the settlement sorts itself out

richard sucanji
April 2, 2021 3.56pm

i sold my home the person gave a deposit ,we both signed the contract 2 days later the buyer wants a building report done ,My question is the contract only says subject to finance ,if the building report dosnt come back good can the buyer withdraw from buying the home even if the contract never said about any building report

Mike M
May 25, 2021 5.23pm

Hi Richard, I am not a lawyer or a real estate agent, but I can answer your question from decades of experience. Subject to Finance is a universal get out clause. The buy can say the bank requires a building report before they will grant finance. If the building inspection comes back with major issues, they buyer can say "the bank wont let me lend that much" and try and negotiate a lower price. Your best bet is to let the buyer do whatever inspections they want - building reports, termites, etc. If you deny them, then the contract could well fail on the finance clause. Hope this helps.