What do you do when a seller backs out of a deal? - Become A Real Estate Investor, with Brad Smotherman

If you have any kind of deal flow at all, then you have encountered this…

You get a great lead, you sign up a great deal, then you get a not-so-great text message from your seller that is telling you the deal is off.

It can be very frustrating. You spend your marketing dollar to get the lead and you spent a significant amount of time doing pre-work before your appointment. You negotiated the deal like a professional. Yet, the deal doesn’t want to stick.

What do you do?

1. Do you have a binding contract?
First, you need to have a good understanding of what makes a binding contract in your state. I suggest having a real estate attorney that you are comfortable with taking a look at your contract to make sure it is as investor friendly as it can be and that it will hold up in court. While he does this, be sure and ask him/her how to make sure your contract is binding. Some states require earnest money/consideration. Some don’t. A great real estate attorney will help you more than you realize when you are starting.

2. Have a conversation
It is important that we are extremely fair with people. Sometimes, a seller can get cold feet, or may have a concern that is pretty easily answered. We always try to take a diplomatic approach, ask them what their concerns are, and see how we can help. Remind them that they made an agreement.

3. Memorandum of contract
One of the things that your investor friendly attorney should do is add a memorandum of contract clause in your contract. This allows you to record a memorandum at the county courthouse register of deeds to cloud title if a deal starts to go squirelly. If I get a text message of phone call saying that the deal is off, and the seller is in no way open to the fact that they agreed to sell me the house, then filing a memorandum of contract is my first step. This keeps the seller from selling to anyone but me.

4. File a specific performance lawsuit
If worse comes to worse, then you can always file a specific performance lawsuit. This can take up to 6 months, and your attorney should file a lis pendis lien against title. This further clouds title and makes it practically impossible to sell the house until the lawsuit is concluded. In my markets, it takes about $5k-10k to get a specific performance lawsuit complete.

5. Agree to a 20 year first right
In cases where people have decided that the house is their forever home, and they do not want to sell to anyone, regardless of price, I always offer that they can give me a recordable first right of refusal for 20 years at the same price. In other words, if in the next 20 years they decide to sell the house, I get the first shot at buying it at the same price they agreed to in the past. If the seller, who already signed the contract to sell me the house has decided they want to live in the house and not sell, this arrangement shouldn’t bother them in the least. However, in 8 years and hundreds of transactions, I have never had anyone take me up on this. It, in every single case for me, has come down to….they want more money.

Brad Smotherman