Buying or selling a house is a big decision in anyone’s life.
It is not surprising that many people worry that they may have made the wrong decision.
Backing out of a house purchase or sale is not a decision to be taken lightly and you need to know your rights.
As you might expect, whether you can simply change your mind and walk away, or whether there will be any consequences if you choose to do so, depends on the circumstances.
Is there a binding contract?
The contract (or “missives”) for a house transaction is usually made up of an exchange of letters between solicitors.
The contract becomes binding once the final contract letter has been sent: when the parties are agreed on every point.
We have a separate article on our website about how the missives are constituted.
Until the final letter has been sent, either the seller or the purchaser can change their minds and walk away from the transaction, usually without any financial consequences.
Risks of negative consequences
If you are buying a property from a builder, you will probably have paid a reservation fee. If you change your mind before the contract is in place, you will lose the reservation fee.
The ability of either the seller or the purchaser to change their mind is one of the arguments why it is important that the contract is put in place as soon as possible.
Against this, however, you must weigh other risks. For example, for a purchaser, one concern is the need to be certain that you will get a mortgage to fund the purchase.
Situations where you are allowed to back out
Once the contract is in place, both the purchaser and seller are bound by it, and there are very few circumstances in which either can back out of the agreement without incurring some sort of penalty.
Various situations can arise in which a purchaser might be allowed to withdraw from the contract.
During the course of a transaction, a number of reports have to be obtained to ensure that the purchaser will get good title to their house. If one of these reports shows something that means the purchaser will not get good title -and this cannot be rectified by the seller – then the purchaser would be entitled to change their mind.
This might be, for example, where there was a Court Order against the seller, preventing them from selling the property unless payment of a debt is made. But perhaps there are insufficient funds available for payment of the debt.
Other circumstances may be where you discover that the seller has not obtained the necessary permissions for having made alterations to the house.
A seller is generally much more restricted. The only circumstance in which they would be allowed to change their mind would be if the purchaser fails to make payment of the price on the agreed date. Even then, the seller must allow the purchaser a reasonable time before they can end the contract.
Consequences of breach of contract
If the contract is in place and all the various reports are in order, a seller or purchaser could still change their mind and refuse to proceed with the transaction. There would be negative financial implications for them, though.
A purchaser who does not proceed with the purchase will be charged interest on the purchase price, in the first instance.
After 2 or 3 weeks (depending on the contract), the seller will be entitled to withdraw from the contract and sell the house to somebody else.
The purchaser’s liability does not end at that point, however.
They would be responsible for any difference in the sale prices, as well as the seller’s additional costs and expenses. These could include re-marketing fees, cancellation-of-removal costs and bridging loan costs. It is not usually possible to quantify what payment would be due to the seller until a later date.
Usually, the financial liability for a seller who does not wish to proceed with the sale is much less. If that happened, the seller would need to pay to the purchaser their reasonable losses which could include, for example, additional accommodation costs, if a purchaser had sold their existing house and needed rented accommodation.
Speak to your solicitor
If you are worried that you are making the wrong decision in connection with the purchase or sale transaction, speak to your solicitor as soon as possible. It may be that the contract is not yet finalised. Or it may be that – by discussing your concerns – you find out that the situation is not as bad as you had feared.
How we can help
If you have any questions about the issues raised in this article or about our Property Purchase / Sales and Estate Agency Services in Moray, feel free to contact us for a chat.
You can call us on 01343 544077 or send us a Free Online Enquiry.
All initial discussions are free of charge and without obligation. We’d be glad to hear from you.
Links you might like
The following, related articles on our website might be helpful for you to read too:
- Conveyancing FAQs
- How much does it cost to buy a house in Moray?
- What are missives?
- Buying a Property in Moray (Help from a Law Society of Scotland Video)
Image source: Bigstock (image has been cropped)
What Are Missives?