As a seller, can you claim money from buyers if they pull out?
Published: 24th April 2023
Are you a home owner or thinking of becoming one soon? If so, it’s critical to understand the potential risks and legalities that could arise during the selling process – especially if something goes wrong! One such risk is what happens when buyers pull out of a sale at the last minute. Can as a seller, you claim money from them in this situation? This article looks at whether as a seller, you can claim money from the buyers if they pull out.
The answer is, it depends; although for many cases, the answer is no. It depends on how the property was sold.
Sale through high street or online Estate Agent subject to Contract
‘Sold subject to Contract’ is a phrase you will have seen on ‘For Sale’ boards for a long time. It means that an offer has been accepted on the Property, but the deal is not yet legally binding. The deal does not become legally binding until exchange of Contracts. This provides breathing space for both parties but especially for buyers, who can arrange their finance, ask their solicitor to ask appropriate questions and make sure they are happy with their purchase without an arbitrary time limit set. It also gives a chance for a seller to change their mind and decide they don’t want to move or for whatever reason, they don’t want to sell to that buyer for the agreed price. Because it is ‘subject to Contract’ no party is entitled to compensation from the other if a party pulls out of the deal.
A buyer pulling out can be stressful and upsetting but it is worth remembering that the ‘Sold subject to Contract’ system gives flexibility and an assurance that checks can be completed. The majority of cases go through under this system. Even if a seller has employed a conveyancing solicitor to oversee the sale, a buyer cannot claim compensation from a seller if they pull out.
What happens if a buyer pulls out after exchange of Contracts
Exchange of Contracts makes the buyer legally bound to buy the Property on the Completion Date and for the price as stated in the Contract. If they don’t, the Buyer is entitled to charge compensation at what is called the Contract Rate, which is an agreed rate of interest on the Contract which the Buyer must pay to the seller on top of the sale price. This can be anything, but it is usually 4% above the Bank of England base rate or the base rate of a reputable high street bank for every day that the Buyer does not complete.
After 2 weeks if a Buyer still refuses to or cannot complete, a Seller can then take back the Contract and demand 10% of the purchase price from the defaulting Seller. The Seller is then free to sell the Property again, with the old buyer’s deposit in their bank account. Alternatively, a Seller may ask the Court to force the Buyer to complete, but this can be difficult and time-consuming. It must be said, it is rare that a Buyer does not complete after exchange of Contracts.
Traditional Auction sale (excluding modern method)
In a traditional auction, Contracts exchange between the Buyer and Seller upon the fall of the hammer. The Special Conditions in the auction Contract will set the Completion Date, which is usually 20 working days or 28 calendar days from the date of the auction. Remedies for the Seller if the Buyer does not complete or does not complete on time, are similar to the above, as it would be a breach following exchange of Contracts.
Frequently asked questions
Q. Can I claim money from buyers if they pull out?
A.It depends on the situation and how the property was sold. Generally, if the property was sold subject to contract, no party is entitled to compensation from the other if a buyer pulls out. However, if it has gone through exchange of contracts, then possibly.
Q. What happens if a buyer pulls out after exchange of Contracts?
A. If the buyer does not complete after exchange of Contracts, the seller is entitled to charge compensation at the Contract Rate, which is usually 4% above the Bank of England base rate or the base rate of a reputable high street bank for every day that the Buyer does not complete. After two weeks if a Buyer still refuses to or cannot complete, a Seller can then take back the Contract and demand 10% of the purchase price from the defaulting Seller.
Q. What are my options if I’m a seller and the buyer has pulled out?
A. As a seller you have a few options available; you can take back the contract and demand 10% of the purchase price from the defaulting Seller, you can re-sell it to another buyer, or you can ask your conveyancing solicitor to try and get an order from court to force completion.
Q. Is there anything else I can do as a seller besides claiming money?
A. Yes! As a seller you have other options besides claiming money; you can re-sell it to another buyer, or you can ask your conveyancing solicitor to try and get an order from court to force completion from the original buyer who pulled out.