Why this matters: In a “hot” real estate market, a seller’s desire to capitalize on soaring prices can motivate them to wrongfully cancel an existing contract in pursuit of a higher offer. In this series, we break down the critical steps every buyer agent must take to protect their buyer. From enforcing specific performance to calculating recoverable money losses, you’ll see how to navigate a seller’s breach with confidence and precision. 

The prior episode covers the seller’s failure to act and act timely.

Seller perceptions of a “bad deal” in a hot market

Market conditions surrounding a seller’s refusal to voluntarily cooperate with a buyer and transfer property under an existing purchase agreement usually include:

  • seller pricing power (due to too many prospective buyers, too little inventory and eager mortgage loan originators (MLOs));
  • mortgage rates at cyclically moderate to lower levels; and
  • price increases publicly recognized as an upward trend, commonly referred to as a “hot real estate market” — hot for sellers.

During these economic “boom” and “bubble” periods of fast upward movement in real estate pricing, sellers often agree to sell property for a price less than top dollar. The seller or the seller agent has not fully checked into the current trend in market prices experienced by sales of comparable property.

The failure to ascertain the property’s market price before accepting a buyer’s offer sometimes results in an agreed sales price significantly below the market price. Then, during the escrow period, the seller discovers the property’s far greater market value and views the sale as a “bad deal.” To capture the additional money, the seller simply cancels the sale and sells the property to another buyer at a higher price.

The end game for all sellers of real estate is to net the most money possible on a sale under current market conditions. However, when a seller under contract with a buyer decides to cancel the sale so they can profit from a resale of the property at the higher market value, they merely encourage the buyer to pursue the same end game.

However, one remedy available to a buyer when the seller cancellation is not excused is the recovery of money from the seller equal to the increase in price of the property. The buyer is entitled to any increase in the property value above the price set in the purchase agreement.

Basically, what the seller receives in additional net proceeds on an immediate resale belongs to the buyer on the wrongfully cancelled sale.

Thus, when the buyer pursues the seller to recover the increase in pricing, the seller is unable to retain the financial advantage they sought by breaching and reselling at a higher price.

Editor’s note — Stay tuned for the next two episodes of this series.