Buyer Looking to Back Out

Buying & Selling Real Estate
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Buyer Looking to Back Out

Greg D.
NJ · Member since 2016 · 14 posts · 0 votes

I'm a first time home buyer (in NJ), and shortly after attorney's review I had buyer's remorse. I made a poor decision and rushed to put in an offer due to pressure from my agent. I met with a bank's mortgage specialist and realized that financially the deal does not make sense for me. I want to back out of the contract, but the seller is not willing to let me.

My attorney has suggested I proceed with a home inspection, in hope that gives me an out. I'm not confident this will provide an out because the house is a flip and has been re-done. If I breach the contract I can be sued for broker costs (which at that cost I might as well complete the deal)

I am considering writing a letter to the seller, explaining it was an honest mistake and that I'm willing to concede the deposit at the least. Is this a good idea or could potentially cause legal problems? Do I have any outs aside from hoping something comes up in the home inspection? Any words of advice would be greatly appreciated.

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Kenneth GarrettPro Member
Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
9y

Greg,

I feel for your situation.  I have been an inspector for many years.  I can find things wrong on any house or building from the best qualified contractors.  If you have the inspection contingency it is there for your protection.  The inspector is your inspector and he/she works for you.  Explain what your situation is and I'm sure they can help you if necessary.  Do not ask anyone to do anything unethical but finding things on an inspection is fairly simple. 

Good Luck!

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  • Christopher Meis
    Vendor · Norwood, MN · Member since 2016 · 55 posts · 27 votes
    9y

    Do you have an inspection contingency in your purchase agreement? 

    1Reply
  • William S.
    Rental Property Investor · Overland Park, KS · Member since 2015 · 492 posts · 234 votes
    9y

    I'm not sure if the law is different where you're located but I ran into this in Milwaukee. I was the buyer and the seller wanted to back out. Since you're the buyer the inspection would be the way out, but sounds like this may be an issue. When my sellers wanted to back out they wrote me a letter. Their letter was not descriptive on their reasoning and them trying to back out I felt was dishonest. I think they were trying to get a better offer. I think your lawyer will be the one to look to on this. Perhaps put yourself in the sellers position. What would they think? What is their situation? Try to understand their side of things.

    0Reply
  • James Lloyd
    Attorney · Chatham, NJ · Member since 2016 · 63 posts · 40 votes
    9y

    Contracts for real estate fail all the time, especially in NJ, and buyers get their deposit back (typically).

    Going through inspection is a pretty good idea.  If something is in the report, then demand seller fix it at seller's expense.  If they refuse to fix it, then have your attorney send a cancellation letter saying that the inspection clause failed. (Read the contract on inspection to make sure what your rights are as Buyer in this regard).  Typically there is haggling on inspection items, but not in your case and make that clear to your attorney.  You will be out the $$$ for the inspection.

    Go back to your agent and tell him/her how you feel about the deal.  Don't necessarily accuse them of pushing you into it (at least not at first), but definitely let them know that this is not what you want.  If he/she gives you any garbage about "you signed a contract!!!", tell the agent you want to talk to his/her broker.  The last thing a realty agency wants is a dissatisfied customer.  See what the realtor/broker can do for you.  

    Have you received final approval for your mortgage?  If the numbers are so bad, I wonder if you'll ultimately get the mortgage anyway, in which case the contract should fail on financing (and you'd get your deposit back). Talk to your mortgage company about the numbers and why they don't look good.  You have to make a good faith effort to try to secure financing, which means providing documentation upon request, but the numbers are the numbers.  The mortgage company doesn't want to make a bad loan.  I would stress to the mortgage company that you are a first time buyer and you didn't know what you were doing with the numbers.  The financial crisis made lenders pretty skittish about allegations of pushing bad mortgages onto people that couldn't afford them.

    If the seller knew better, he/she would let you out of the deal.  Seller is going to waste more time and money trying to lock you down, which Seller could have spent putting the property back on the market.  

    1Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y
    Originally posted by @Christopher Meis:

    Do you have an inspection contingency in your purchase agreement? 

     "Buyer and seller acknowledge and agree that, because the purchase of home is one of the most significant investments a person will make in a lifetime, all aspects of this transaction require considerable analysis and investigation by Buyer before closing title to the Property. While Brokers and salesperson who are involved in this transaction are trained as licenses under the New Jersey Licensing Act they readily acknowledge that they have no special training or experience with respect to the complexities pertaining to the multitude of structural, topographical, and environmental components of this Property. For example, and not by way of limitation, Brokers and salespersons have no special training, knowledge or experience with regard to discovering and/or evaluating physical defects, including structural defects, roof, basement, mechanical equipment, such as heating, air conditioning and electrical systems, sewage, plumbing, exterior drainage, termite, and other types of insect infestation or damage caused by such infestation. Moreover, Brokers and salespersons similarly have no special training, knowledge or experience with regard to evaluation of possible environmental conditions which might affect the Property pertaining to the dwelling, such as the existence of radon gas, formaldehyde gas, airborne asbestos libers, toxic chemicals, underground storage tanks, lead, mold or other pollutants in the soil, air, or water."

    0Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y
    Originally posted by @James Lloyd:

    Contracts for real estate fail all the time, especially in NJ, and buyers get their deposit back (typically).

    Going through inspection is a pretty good idea.  If something is in the report, then demand seller fix it at seller's expense.  If they refuse to fix it, then have your attorney send a cancellation letter saying that the inspection clause failed. (Read the contract on inspection to make sure what your rights are as Buyer in this regard).  Typically there is haggling on inspection items, but not in your case and make that clear to your attorney.  You will be out the $$$ for the inspection.

    Go back to your agent and tell him/her how you feel about the deal.  Don't necessarily accuse them of pushing you into it (at least not at first), but definitely let them know that this is not what you want.  If he/she gives you any garbage about "you signed a contract!!!", tell the agent you want to talk to his/her broker.  The last thing a realty agency wants is a dissatisfied customer.  See what the realtor/broker can do for you.  

    Have you received final approval for your mortgage?  If the numbers are so bad, I wonder if you'll ultimately get the mortgage anyway, in which case the contract should fail on financing (and you'd get your deposit back). Talk to your mortgage company about the numbers and why they don't look good.  You have to make a good faith effort to try to secure financing, which means providing documentation upon request, but the numbers are the numbers.  The mortgage company doesn't want to make a bad loan.  I would stress to the mortgage company that you are a first time buyer and you didn't know what you were doing with the numbers.  The financial crisis made lenders pretty skittish about allegations of pushing bad mortgages onto people that couldn't afford them.

    If the seller knew better, he/she would let you out of the deal.  Seller is going to waste more time and money trying to lock you down, which Seller could have spent putting the property back on the market. 

    Thanks for the good information. I appreciate the response.

    If the inspection comes back fairly clean would I be screwed?

    The realtor (a friend of my mother's) did give me the "you signed a contract" speach.

    I pre qualified at a much lower rate then what I was finally approved for (I haven't locked into a rate yet). The mortgage I was approved for is roughly 50% of my net income.

    The seller is a LLC who is owned by a man from the same town as me. The property is also in a flood zone, I was aware of this during attorney review but was provided a slightly misleading quote (did not include contents coverage) from my realtor.

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  • James Lloyd
    Attorney · Chatham, NJ · Member since 2016 · 63 posts · 40 votes
    9y

    Does the contract say anything else about inspections?  Typically there's something like "Buyer will not ask for merely cosmetic changes" or some limitation on Buyer's ability to request changes.  If there isn't then you can really ask for the world from the inspection report.  I would ask your attorney about the attorney review letters sent to see if there were any changes made to the inspection provision(s).

    Also, and I wanted to put this in the earlier post, unless the attorney is charging by the hour, then ask your attorney about the best ways to get out of the contract and keep your deposit.  (Most NJ attorneys charge flat rates on real estate transactions, but I don't know what kind of arrangement you have with your attorney).  He has already suggested at least one good way (inspection).

    0Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    9y

    Greg,

    I feel for your situation.  I have been an inspector for many years.  I can find things wrong on any house or building from the best qualified contractors.  If you have the inspection contingency it is there for your protection.  The inspector is your inspector and he/she works for you.  Explain what your situation is and I'm sure they can help you if necessary.  Do not ask anyone to do anything unethical but finding things on an inspection is fairly simple. 

    Good Luck!

    3Reply
  • Guillermo Birmingham
    Accountant · Alexandria, VA · Member since 2016 · 11 posts · 1 vote
    9y

    Greg,

    In the state of Maryland, the standard Real Estate contract has a clause that allows buyers to get out of a contract on the basis of their response to an housing inspection.  Additionally, if the banker you met with...doesn't approve your loan...that's typically another way.  I would take a look at the clauses in your contract before contacting the seller.  (That's really your Real Estate Agent's job).

    Take a look at the New Jersey standard real estate contract beginning with Section 20:  Inspection Contingency Clause.  Read from there to Section 22:  Attorney's Review Clause which provides for a few contingencies which would allow you to get out of the contract.  I believe Section 20 paragraph D discusses the issue you mentioned previously with regards to the home being in a flood zone as well.  If this was deleted from the contract (if it was considered not to apply)...then you have the right to back out of the contract due to the flood zone issue.

    First of all...I would recommend you hire your own attorney...and not one provided by the Real Estate Agency (unless they had you sign a buyers representation contract, Real Estate Brokers all typically represent the seller).  Good Luck!!

    Guillermo A. Birmingham, CPA

    1Reply
  • James Lloyd
    Attorney · Chatham, NJ · Member since 2016 · 63 posts · 40 votes
    9y

    Ugh, because this agent is your mom's friend, I would give her one more chance to be nice.  Stress how dissatisfied you are with the deal because you can't pay for it.  Explain how you felt pressured to enter the deal.  If she doesn't end the conversation with something like "I'll see what I can do", then explain to your mom that your realtor is failing to act in your best interest.  Then call the broker or request to see the broker and explain how you felt pressured by the agent and that you don't think she was acting in your best interest.  Explain the issue regarding the flood plain as an example.

    I can understand why you want to get out.  A mortgage payment of 50% of your income is madness (in my opinion).  

    1Reply
  • Christopher Meis
    Vendor · Norwood, MN · Member since 2016 · 55 posts · 27 votes
    9y

    Greg,

    I'm an inspector from MN, so I'm not familiar with NJ real estate. That was why I asked about an inspection contingency, here you can use almost anything from the inspection report to cancel a purchase agreement. I have to agree with Kenneth, get a good inspector, even a remodeled or flipped house will probably still have issues that were not addressed.

    0Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 294 posts · 150 votes
    9y

    @Greg D. In Ca as long as you have not release contingencies you do not need a "big reason" to withdraw your offer.  Also, make that you hire your own independent inspector.  You also probably have a finance contingency which should allow you to withdraw your offer without penalty within a certain time period.  Is there anything that would prevent you from qualifying for the loan, job change, car purchase etc???

    1Reply
  • Michael Boney
    Mays Landing, NJ · Member since 2016 · 6 posts · 0 votes
    9y
    Send me a message with the property info and how to contact you. maybe we can work something out.
    0Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y
    Originally posted by @Clarence Johnson:

    @Greg D. In Ca as long as you have not release contingencies you do not need a "big reason" to withdraw your offer.  Also, make that you hire your own independent inspector.  You also probably have a finance contingency which should allow you to withdraw your offer without penalty within a certain time period.  Is there anything that would prevent you from qualifying for the loan, job change, car purchase etc???

     I've reached out via email Thanks for the advice. 

    0Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y
    Originally posted by @Michael Boney:

    Send me a message with the property info and how to contact you. maybe we can work something out.

     Sent

    0Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y

    I appreciate all of the responses. I will try to get a home inspection ASAP (I had one scheduled for Wednesday but was told by my realtor to cancel before she & my attorney decided it would be in my best interest to get one)

    As I mentioned earlier, I am considering writing a letter and delivering it to the office of the seller. Explaining how I am a first time home buyer and made a mistake rushing into the deal (due to pressure from my realtor) and underestimated the costs. I did not intend to cause so many issues. I will offer for him to keep the deposit ($1,000) if he will allow me out of the contract. Is there any risk/downside to this action?

    0Reply
  • Christopher Meis
    Vendor · Norwood, MN · Member since 2016 · 55 posts · 27 votes
    9y

    Start with the inspection to see what turns up before offering anything.

    1Reply
  • Jim Keller
    Investor · Riverside, CA · Member since 2014 · 351 posts · 220 votes
    9y

    I'm sorry to have this type of stuff out there....

    For years I didn't take my own actions seriously, to my own detriment.  I write this not to be critical of you personally, but to show others it doesn't have to be this way.

    No one cares about your business more than you, wake up all of you who hear words like faduciary, or I'm an expert.  They aren't working for you, it's just a fact.

    Early in my days as a real estate agent I lost a deposit for a client.  It was only $2,000 a huge sum for me at that time.  I made the decision to just write a check to them, and we ended up doing more work together.

    Reasently I took a hard money loan out on a condo in Anaheim, Ca I fixed and sold the condo in a mater of 3 months with a expected profit of over $50,000.

    Then the other shoe fell, everyone starting with me missed the fact that the HOA had a few words in one sentence "possible litigation" and we all just missed it. The lender, escrow me, no one saw it. Could I have called an attorney, yelled or screamed maybe.

    I lost my top dollar buyer and desided to sell fast, in the end I wrote a check for over $8,000.  That was August 2015 and instead of freaking out I just put my head down and did more deals.

    Some good free advise from me is to settle this and move on.  I completed over 20 deals since that happened and at age 52 seen my net worth has grown like I always "dreamed" or knew it would.

    Please tell us all about your next deal, and how you brushed off this bad situation.  We have all been there.

    JIM


    2Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    1Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y

    @Jim Keller

    Thanks for sharing your experiences and giving me some hope I can move on. I'm hoping something can work out, I have definitely learned from this experience. 

    0Reply
  • Greg D.
    OP
    NJ · Member since 2016 · 14 posts · 0 votes
    9y

    @Levi T.

    It should appraise for at least the selling price. I have been approved for a mortgage (albeit at a much higher rate then I was pre qualified for). Can I request a rejection letter, despite already being approved? Can I ask them to re-evaluate my situation? Should I reach out to another lender in hopes of a rejection letter?

    0Reply
  • Mike B.
    Developer · Chicago, IL · Member since 2013 · 433 posts · 356 votes
    9y

    There's always a reason to get out of a contract. Even if you were buying a new construction home, the inspection still wouldn't come back clean. This is a great example of how important it is to have a good team (lawyer, Realtor, Inspector, etc...) behind you.

    0Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Greg D.:

    @Levi T.

    It should appraise for at least the selling price. I have been approved for a mortgage (albeit at a much higher rate then I was pre qualified for). Can I request a rejection letter, despite already being approved? Can I ask them to re-evaluate my situation? Should I reach out to another lender in hopes of a rejection letter?

      I've done it, called my banker up and told him to give me a rejection letter, then walked away from a bad deal once.

    You likely have a lot of options. You just got to stand up tall and use them.

    Get your inspector, make sure you get the report, then just pick the house apart, drop a lending rejection letter, and call it a day. Drag your feet and at some point someone's going to move on.

    0Reply
  • Juan Reyes
    Jericho, NY · Member since 2016 · 143 posts · 49 votes
    9y
    I am not sure what the property look like. But I own an inspection company and to be honest when we inspect Flips that's when we find the most issues. Unfortunately investors try to cover up things with new paint not realizing that as inspectors we know what to look for. I'd be very surprised if the inspector finds nothing wrong, but of course it could happen. I personally would say that unless the property is brand new there will most likely have some findings. Best of luck
    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    9y

    @Greg D. It's easy, read your contract. With a quick Google search....paragraph 18 E says if you find structural/environmental issues, and seller refuses to cure, you can cancel.  

    But, better for you, 18 F says if the property is in a flood zone, you can cancel.  Just send notice, case closed, since you said this property is in a flood zone.  You have 10 business days, 2 weeks, from the end of the attorney review period.

    Your agent has to know this, and should have told you, if they were looking out for your interest.

    1Reply
  • Shannon K.
    Buffalo, NY · Member since 2015 · 252 posts · 109 votes
    9y

    Can you "fail" to get financing in any way?  Tell the lender you feel the financial burden is too high and you're not comfortable proceeding. Ask them to deny you? I'm not sure if that's even a possibility, but that just popped into my head here...

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