What Happens When You Decide to Pull Out a Buying/Selling Contract

Posted on: Wednesday, 07 April 2021

If you are a home buyer or home seller having second thoughts about buying or selling your property, know that you always have the option to pull out. However, the effect of such action would vary depending on when you decide to do it.

This article will tell you what you need to know should you choose to let go of the property before and after the contract signing, including the implications of both actions if you stay in England and Wales.

Statistics on Pulling Out After Contract in the UK

The Department of Business, Energy, and Industrial Strategy released a research report stating that:

• On average, four out of ten buyers and sellers usually back off from their transactions after exchanging contracts.

• Sellers often experience a fallout in potential sales, with an average of 21% declining after accepting an offer.

• The buyers are the ones who are more likely to incur an added cost because of the contract termination.

That is how often failed real estate transactions are observed in the country. Although the good thing about living in England or Wales is that pulling out from a contract can be done any time.

What Is the Exchange of Contracts

The exchange of contracts is the part of the transaction that usually occurs at the end of the buying process’ second month. At this point, the buyer has already paid the deposit. As a result, the contract already becomes legally binding! This step serves as the contractual agreement between the two parties regarding selling and buying the property.

Before the contract becomes formal, both parties should do the following:

• Agree on all clauses and terms mentioned in the contract; and

• Sign on the contract.

All that is left is for the buyer to pass over the payment balance so that the property, full ownership, and keys get turned over. By this time, the agreed completion date is also discussed and determined.

The Reason People Pull Out Their Purchase

Now, you should know that even after the contract has been signed by both parties, there are instances where one of the two would feel the need to pull out their decision, and it happens because of various reasons.

Here are the common reasons they do so:

• They had a change of heart. Often, the shift in the decision is because of a sudden discovery about the house during the conveyancing search. For example, the house buyer learns that the location is prone to flooding, making them back out from the offer.

• The buyers are still looking for better options and may have found a more suitable choice.

• They failed to secure a mortgage and have no other means to pay the property within the discussed timeline.

How to Pull Out of a House Sale or Purchase

Should you decide to back down from your house sale or purchase, the first thing you should do is to contact your conveyancing solicitor and let them know of your decision. Your conveyancing solicitor will then take care of informing all the parties involved in the change of decision.

The Financial Implications of Pulling Out a Contract

Pulling out a contract is possible, especially if the buyer or the seller no longer want to push through with the process. However, the decision has many implications and penalties. One of its biggest consequences is financial repercussions.

Here are the things that could happen once you decide to put a halt to the ongoing transaction:

• As a buyer, you risk losing your deposit.

• The buyer or seller, whoever is seen as the party at fault, might face court time to determine who would cover the losses.

• Both parties would no longer have the opportunity to refund some of their expenses. One example would be the conveyancing costs which would already have been implemented by then.

The impact that the decision would cost you primarily depends on the timing. The earlier you give notice, the easier the cancellation process would be, whereas the deeper you are in the process, the more fees and penalties you would face.

Pulling Out a Purchase Before Exchanging Contracts

If you decide early on in the process, you would still need to pay for some of the already started services, depending on where you currently stand.

If you are the seller and you decide to reject an offer mid-way through the process, you would still need to pay off the estate agent fee if it says so in your contract. If the property you are selling is a leasehold property, then you can no longer take back the payment you forwarded to your landlord or managing agent.

If you are a buyer, you would need to still pay off the conveyancing fee along with your seller. Everything will depend on what is written in your contract, including how much you need to pay. Make sure to look into the terms before announcing your decision.

These are the usual fees that both parties would need to cover:

• Cost of the property survey

• Estate agent fees

• Valuation fees

• Conveyancing fees

Pulling Out a Purchase After Exchanging Contracts

If there is already an existing legally binding contract, you should know that although withdrawing from it is possible, it is still considered as breaching the terms. As a result, you would get penalties for it, especially if you are labelled as the party at fault.

Parties involved would need to undergo a process before officially terminating the contract. Here is what you should expect for your next steps:

• Upon receipt of the news, the party NOT at fault would need to issue a ‘Notice to Complete.’ It is a written document that gives the party at fault ten days to complete their transaction. Otherwise, the party NOT at fault would issue a contract termination notice with the default reason that it is because of the party at fault’s deficiency.

• If you are a seller deciding not to push through with the transaction, then you are bound to do the following:

  • Pay a daily rate of interest to your buyer;

  • Return the deposit of the buyer; and

  • Follow through on other things stated in your contract.

• If you are a buyer who pulls out from the transaction after signing the contract, you can no longer get back your initial deposit. Besides that, the seller can do any of the following:

  • They can now place back their property on the market;

  • They can claim any damage that occurred to their property during the given period; and

  • They can claim any financial losses they believe the termination of the contract cost them.

• As a buyer, you can also no longer claim back the money you have spent on the following services:

  • Mortgage application;

  • Property survey; and

  • Conveyancing, among others.

These are only some of the consequences that ending a contract would cost all people involved.

Conclusion

No matter your reason, a contract is a legally binding document that is powerful and has consequences when terminated. Fortunately, cancelling a real estate arrangement is possible in England and Wales. However, it would be best to make sure you are decided before signing the contract! Should an emergency occur, make sure that you have enough funds to pay off the legalities and penalties that your action would entail.

As you might have seen in this article, conveyancing is a service that is needed and cannot take back. Before you find the people to trust in this process, make sure you find the best-valued conveyancing service. Use our conveyancing fees calculator and see instant online conveyancing solicitor quotes for comparison!