What can a seller do? Here’s the short answer:
- Extend the closing if the seller still wishes the transaction to close
- Accept the breach, terminate the transaction, keep the deposit without having to account to the buyer and walk away (this is prudent in an escalating market)
- Accept the breach, hold the deposit in abeyance, determine your damages (by reselling the property) and sue the buyer for those damages, but you must account to the buyer for the deposit i.e. if your damages are less than the deposit, you must return the difference to the buyer (this remedy is prudent in a slow or slumping market)
- Don’t accept the breach but sue the buyer for specific performance of the contract i.e. sue the buyer to force him to close. This is the least favourable remedy as it takes far too much time and is costly.
I always advise sellers to get the largest amount of deposit that they can. In the event of default, its significance makes the unpaid seller’s decision as to which remedy to take much easier.
As we all know, the smaller the deposit, the less likely a buyer is to close. Conversely, the larger the deposit, the more likely the buyer is to close (more to lose). Oftentimes a purchaser is in funds but raises issues that he wants attended to before closing. From a seller’s perspective, a large deposit can overcome a dissatisfied purchaser’s threat of not closing – if he doesn’t close, he could lose the deposit. The value of a large deposit cannot be overstated.
If the seller is inclined to extend the closing in order to give the buyer a little more time to close, the terms and conditions of the extension are critical. I usually suggest the following financial terms to my clients:
- Adjustments will remain as of the originally scheduled closing date
- The buyer must reimburse the seller for all of his out of pocket expenses caused by the buyer’s failure to close on time, for example, interest on the seller’s mortgage, additional insurance premiums and moving costs, interest on the unpaid balance of the purchase price which the buyer has failed to deliver on time and increased legal costs
- That the buyer increases his deposit as a further sign of good faith and to reduce the likelihood that the he won’t close on the extended closing date
- That a mutual release be signed and held by me in escrow. If the buyer closes on the extended closing date, the mutual release will be destroyed. If the buyer fails to close, the mutual release can be delivered to the listing broker in order that the deposit be released and paid to the seller. Without a mutual release, no listing broker will release the deposit. This would then force the seller to sue the buyer for the deposit and/or to negotiate a settlement with the buyer for the release of the deposit. Typically in a case with no release, the settlement almost always calls for the seller to give up a part of the deposit
- That the buyer agrees to accept the property in “as is – where is” condition, without representation or warranty whatsoever.
Please contact me with any questions that you may have and a free no strings attached consultation.