Buying and selling homes is a serious business. It's a stressful one too, and one of the most stressful things that can happen in the sale process is having your house sale fall through.
But can this happen at any time, even after agreeing a purchase of a home?
In England and Wales, an offer to purchase a property is not legally binding. This means the buyer or seller can change their mind and pull out at any time before contracts are exchanged without penalty. This can happen weeks, or even months, into the process, and can leave both parties significantly out of pocket.
As many as one in three home purchases fall through for one reason or another. In this article we'll cover more about offers, legalities, and importantly, what you can do if your buyer has pulled out.
If you’re worried about your sale falling through, or if you want to avoid chains altogether, it may be worth considering a house buying company. You can cut right to the chase and find out if a cash house buyer is right for you by taking our short quiz. Hit the button below to get started:
1. What is an offer to buy?
When a property’s put up for sale it’s usually listed with a set asking price. Interested buyers will then make an offer to buy the property, either at the full asking price or a little under. In a highly competitive market, buyers may make an offer above the asking price in the hope of being chosen as the buyer, but this is less common.
In some cases, properties are listed with an invitation for ‘offers in the region of…’. Potential buyers will then place an offer on the property at around this price.
The seller will choose an offer and agree a purchase price with one of their potential buyers and the sale process will begin.
This may not necessarily be the highest price; it could be the buyer with the highest potential for a successful sale, such as a buyer with no chain or a first-time buyer with a pre-approved mortgage.
2. Is an offer to buy a property legally binding?
While an offer may be formally agreed between buyer and seller, it is not legally binding on either party until contracts have been exchanged. However, because Exchange happens right at the end of the process, this means that they can change their mind and pull out of the sale at any time, for any reason.
The collapse of a property sale or purchase can be very frustrating, but there is nothing you can do about it. Even if the sale process is well underway and you have incurred costs such as survey and legal fees, there’s still no legal obligation to proceed. This means you cannot sue to recover these costs.
2.1. Gazumping and gazundering
You would have thought that once an offer has been accepted, this is the price your purchase or sale will complete at. Unfortunately, that's not always the case.
Because accepted offers are not legally binding, the price can change right up to the last minute. This can happen in one of two ways:
- Gazumping – a seller may receive a higher offer. If this happens, they may threaten to pull out of the sale unless their current buyer is prepared to match the higher price.
- Gazundering – a buyer may reduce their agreed offer at the last minute, in the hope that the seller is too committed to turn the lower price down.
Gazumping tends to happen more in a very hot market, when there are more likely to be other buyers prepared to pay a higher price. Gazundering can happen in any type of market at any time though.
While these practices are frowned upon, there is nothing in law to prevent them from happening and causing a home sale to fail.
3. When can you pull out of a house purchase?
You can pull out at any time up to the exchange of contracts. You can pull out early in the process if you find a better option, or right up to the day of exchange if the survey or searches reveal new information. Only once contracts have been exchanged are you legally obligated to buy the property.
The fact that the sale price is agreed first, and the due diligence is done afterwards, it one of the key underlying reasons that so many house sales fall through.
3.1. Can you change your mind after contracts have been exchanged?
It is still possible to pull out of a sale once contracts have been exchanged, and before the sale is completed… but it’s going to be very expensive.
This is because the buyer will have to pay a deposit when the sale exchanges. This is usually 10% of the sale price.
If a buyer pulls out after contracts have exchanged, the seller is entitled to keep the deposit and can also sue for both costs and any loss in value they suffer in finding a new buyer.
We’ve written about the penalties a buyer faces if they pull out after auction. Many of the penalties we’ve written about there apply to non-auction sales too. Check it out at the link above.
3.2. Why do buyers change their mind?
There are a number of reasons why a buyer would change their mind about a property purchase after their offer has been accepted. These include:
- A negative survey – revealing problems with the property such as subsidence
- A negative search – revealing new planning applications for the area that will change
- Problems with finance – the buyer may not be able to get the mortgage they need
- Changes in circumstances – such as sudden illness, divorce and deaths in the family, or a change in job role or location
- Legal issues – such as boundary disputes or title problems
- Chain problems – the buyer’s own home sale may fall through leaving them unable to move. See our article on the fastest way to sell a house for possible solutions. Click here if you want more information on what housing chains are and how they work)
- Change of heart - sometimes a buyer will simply change their mind about a property and decide to stay put in their current home or move somewhere else
3.3. Does it cost a buyer money if they change their mind?
The financial cost of pulling out of a property purchase will depend on how far the buying process has progressed:
- Survey costs – most buyers will want to have a survey done before exchanging contracts. This can cost anything from a few hundred pounds for a basic homebuyers’ report to several thousand for a full structural survey.
- Legal costs – these will depend on the service agreement with the company and how much work has been done by the solicitor or conveyancer. Even in a no sale-no fee contract, there may still be costs for disbursements such as local searches.
We’re in the process of creating a Youtube video on how to minimise the costs you incur when a sale falls through – we’ll add a link here once it’s live.
4. What can you do if your buyer changes their mind?
As discussed above, you have no legal recourse if a buyer changes their mind and pulls out of a sale.
If they've pulled out because of a problem with the price, or with work that needs to be done on the property, you can try to renegotiate. This can work, but the compromise the buyer wants you to make on price could be a lot more than you’re prepared to accept, or they may have just changed their mind about buying the property.
If your house sale falls through, then you have three main options.
Option 1. Put it back on the market.
The first and most obvious route is to put your home back on the market.
It can be really disheartening going right back to square one, especially if you were trying to sell for a long time before your sale fell through.
For some people, this can be a good time to choose a new estate agent. Changing estate agents can bring a number of benefits, and we’ll be writing more about this topic soon. (Email us on email@example.com to subscribe for updates.)
Continuing to sell through estate agents isn’t going to be the best option for everyone though.
For example, if you have an onward purchase then losing your buyer could result in losing your next purchase too. This is because the owner’s likely to put it back on the market to try and find a buyer who’s able to move more quickly.
If it’s your dream home and you have your heart set on it, then there’s another option worth considering. See below.
Option 2. Sell to a cash house buying service
Some professional house buying companies can make you an offer within 24 hours, and can complete on your purchase in as little as 2 weeks.
If this sounds appealing, the first thing you need to do is find out whether or not this is really the right option for you...
I designed a short 60-second quiz to help you do just that.
If a Cash House Buyer is the right option, I'll introduce you to the company I know and trust on your quiz results page.
Hit the button below to get started.
The service is perfect for situations where you’re trying to save your onward purchase, and many customers use this service to save or repair broken chains.
Although the service is very fast and gives you complete certainty, it does come with a compromise on price.
Speed vs Price
You’re likely to receive an offer at around 85% of your previous sale price. You will make a couple of savings on costs though. The company will cover your legal fees, and you have no estate agent fee to pay as the company buys from you directly.
Although this can be a great service if you're in this situation, note that this “quick sale” market is poorly regulated. This means it can be difficult to know if the company you’re speaking with are genuine or not. Unfortunately, being a member of the National Association of Property Buyers and Property Ombudsman does not necessarily mean they're a genuine house buyer company - even if they have great reviews.
I’ve worked in and around this industry for a long time, so I can help. If you feel like fast, certain sale could work for you, hit the button above and I can direct you to the best and most trusted companies
But what if you can’t accept the discounted price, and don’t want to go back on the market? There is one other option that could work…
Option 3. Sell your property at auction
Selling by auction is faster than selling via the estate agents, but you should expect a higher price than selling directly to a house buying company.
Read about the benefits of selling by auction here.
Alternatively, to cut right to the chase and find out whether selling by auction is a good fit for you, use this free online quiz I've developed for you:
By Matthew Cooper, Co-Founder of Home Selling Expert