Wholesaling Properties: Can a Seller Back Out of a Real Estate Contract?
Can home sellers back out of contracts? If so, when can this happen, why would they and what can you do about it?
One of the big concerns real estate investors have when wholesaling properties, that comes up after they get going is whether a seller can back out of a real estate contract after it is signed.
The bad news is that they do and they will, or at least they will sometimes try…
Real estate investors often find this a scary situation when wholesaling, especially when big profits are on the line and especially when they are attempting double closings.
There are a number of reasons why home sellers might consider backing out of a real estate sales contract including:
- They get greedy because you bid too fast or friends told them they should sell for more
- They change their mind about moving
- Their circumstances can change; job prospects fall through, relationship status changes
- They find out how much real estate investors are making by reselling their home
- Discover they will end up netting less than they anticipated
So how can real estate investors wholesaling properties minimize the odds of a seller trying to back out of a deal?
- Make sure they are really committed from the start (this isn’t like selling a used car)
- Close fast; the sooner you can close, the less time there is for issues to crop up
- Use transactional funding for two legit double closings so that they don’t know how much profit you are making by reselling their home
- Get your assignment fee upfront versus at closing when flipping real estate contracts. However, you’ll probably want to refund this if it falls through to keep your clients and reputation.
- Watch out for any items that could result in them netting less than expected. This includes: title liens, loan payoffs, code enforcement penalties, mortgage pre-payment penalties and federal tax liens.
Is it Worth Fighting Back When A Seller Tries to Bail?
If you have a signed, legally binding contract you can often absolutely have the right to sue for breach of contract. This could mean forcing them to sell or demanding compensation for your losses.
Of course this doesn’t mean it will ever be fast or easy though.
Recognize when the right or best thing to do is to let them go. Even if it’s not fair it can be cheaper and less stressful to let them walk than battle it out in court for years while bleeding attorney’s fees. Get onto the next deal…
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