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Can seller back out of signed contract

I live in Southern California and am in the process of buying my first home (Condo).  The place was listed for $250,000.00 which is what I offered.  There were several offers and they accepted my counter of $260,000.00.  I have an FHA loan, and the FHA approval of the complex expires just days before my close of escrow.  My relator, lender, escrow and title company have worked hard to get this down in a timely manner.  We are all set to close, signed doc's with the title co. paid off all fees and down payment just waiting for the seller to do the same and its done.  A couple of days ago the sellers agent called my agent to ask to see the appraisal.  According to my agent I had to show them because of the FHA stipulation.  So we did.  Well the appraisal came in at $280,000.00, $20,000.00 over the sale price.  Now the sellers will not sign the remaining documents to close the deal.  The sellers agent will not even return phone calls or emails from my agent or lender.  They have not come right out and said it, but I believe they want more money now to what the appraisal said.  My worry is that they will wait till the FHA approval runs out on the complex and I will not be able to purchase the condo.  My question is what rights do I have as far as being locked into a contract?  I have paid for the appraisal, home inspectioin as well as everything else.  I have already notified my landlord I am moving in 30 days and they have found someone to take over my apartment.  Can I sue and force the sell of the house?  Can I sue for damages?  Any advise would be greatly appreciated.

Thanks,
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November 05 2013 - US
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Answers (6)

I assume they have signed the sales contract, which was your offer form.  At the end of escrow, they must execute the deeds.  I assume that is what you are waiting for the seller to sign.  In this case, yes, they would be in breach of the sales contract based on what you have said.  Then, you would be entitled to sue for damages.  I suggest you consult with a local real estate attorney.
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November 06 2013
First of all it is not uncommon for homes to appraise for more than the agreed sales price - and this typically is not cause for seller alarm (e.g. causing the seller to back out) when it happens.)  In California sellers can continue to solicit offers after accepting an offer (back-up offer).  Many times a back-up offer will come in higher than the primary accepted offer. The seller cannot arbitrarily back out and take the higher offer.  If they want to accept the higher offer they have to hope the buyer in the primary offer backs out (see buyer contingencies below).  The same holds true for higher appraisals.  It is almost de rigueur that the seller will see the appraisal. It is not a big deal.

 It would seem unlikely that the seller would back out and risk damages due to a higher appraisal.  The seller damages to be paid to you (and potentially both realtors) if seller is found to be in breach would eat up a chunk of this difference and it would likely take another 45 days to close escrow with a new buyer - which adds more carrying costs for the seller.  Then of course there is no guarantee a new buyer will emerge and close escrow.   It could be the seller received a more attractive back up offer.  

If you are looking for the short answer - here it is - read no further. The seller cannot back-out without penalty if you - the buyer - perform as per the contract.  The seller cannot be forced to sell the house but can be held responsible for damages. 

Longer answer:

Since you live in California you are probably using the CA Residential Purchase Agreement (RPA.)   As you are no doubt aware, you as the buyer have several contingencies that allow you to back out of the contract without penalty (e.g. physical inspection contingency, appraisal contingency, financing contigency - to name the most common contingencies that are cited when backing out of deal.)  These contingencies are typically set at 17 days - unless otherwise agreed or extended.

It sounds like you have released the appraisal contingency and most likely the physical inspection contingency and perhaps the financing contigency if you are close to the close of escrow.

If you have released all of your contingecies on time and fullfilled your obligations under RPA  14 C (2) (fairly benign notices that are typically easily fullfilled - the seller cannot simply back out without recourse due to a change in mind (or higher appraisal).  Even if you have not released your contingencies the Seller needs to give you a  "Buyer Notice to Perform"  which allows you 2 days to perform.  

If you have reached the close of escrow date indicated on the RPA and are ready to close and the seller is not on track you need to send a Demand to Close Escrow (CAR form DCE).

One wrinkle that I am not able to opine on is the FHA Condo expiration - this is something your lender needs to provide you info on.   If you cannot close escrow on time due to loan funding this might give the seller not only the cause needed to cancel - your 3% Ernest Money Deposit could be at risk (if you have released the financing contingency.)  I do not believe the seller can be forced to close escrow earlier than the stated date in the RPA.   Your failure to fund the loan on the RPA stated escrow of close date might give the seller the excuse they need.  One option - again talk to your lender - would be for you to fund the loan earlier and for your to carry the loan a few days earlier.  (I am out of my element here so ask your lender)

The seller cannot be forced to sell the home, however they can be forced to pay damages for breach of contract.   Depending on whether RPA item 26 (Dispute meditation) was intialed will govern whether the dispute will be abitrated by a mediator or settled in court.

If you have released all contingencies and  the seller backs out without cause you will have very solid grounds for suing for damages and prevailing and your costs would include (but not be limited to) increased rents, all appraisal, inspection costs and if your loan has funded, costs associated with this as well.  The seller could also be forced to pay both realtor commissions - likely 5%.  If the sellers realtor is not educating his seller on potential damages then perhaps your agent can send the sellers agent a note that outlines potential damages.

Your Realtor should be able to give you very solid guidance on all of this.  As a first time home buyer I wish you the best of luck.  Hang in there!

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November 06 2013
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I have been in contact with my agent and looked at the contract. There are no contingencies on this sale. The property in question is vacant and has been the entire time. My good faith deposit was given just a day or two after they accepted my offer.
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November 05 2013
If you're looking for advice, hold out for advice from an agent from California as laws vary from state to state. I won't answer the question as I am from MN. If in doubt, contact an attorney. Real estate agents can't practice law - unless they're also a lawyer.
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November 05 2013
Rhonda obviously didn't read the RULES FOR POSTING.

Read your contract.  Talk to your buyers agent to see if he/she can assist.
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November 05 2013
There are may opportunites for a seller to back out of a contract.  It depends on what the contract says.
It depends on when the decison is made and it depends on when earnest money was deposited
I can answer your questions and help you 
with your real estate decisions. [Content removed by Zillow Moderator. Please see our Good Neighbor Policy]
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November 05 2013
 
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