What happens to the deposit on a house if the deal falls through?
In the unlikely event your house sale falls through after exchange of contracts, who gets the deposit? There are three stages of house sale in England and Wales (Scotland has a slightly different system), see below. But what happens if a buyer pulls out after exchange of contracts?
If a house sale falls through who gets the deposit in less than 20 seconds…
In England and Wales either the buyer or the seller can pull out at any stage before exchange of contracts. There aren’t usually any financial consequences of pulling out before contracts are exchanged. Except that each party will be liable for any costs they’ve each incurred up to that point. But if either the buyer or the seller pulls out after contracts have been exchanged, the party who’s in breach will be liable for damages and will forfeit the deposit. This is normally 10% of the contract price.
Stages of a house sale in England and Wales
In the UK, well in England and Wales that is, a house is only truly sold when the contract is completed. There are usually three stages in the house sale in the England and Wales, as follows:
- Offer is made and accepted. Sale can still fall through for many reasons. Up to the point contracts are exchanged either the buyer or seller can pull out without financial consequence. However, each party will be responsible for their own costs incurred up to the point the other party pulled out.
- Contracts are exchanged. At this point it’s common practice for a 10% deposit to change hands and for a completion date to be set. The completion date can be the same as the date of exchange. But this is usually 30 days from exchange of contracts. In theory a house sale can still fall through during the exchange to completion period, but it’s uncommon. If the buyer pulls out once contracts have been exchanged, they stand to lose the 10% deposit and may suffer costs.
- Completion date. This is the date when all the funds for the agreed offer price are paid over to the vendor (or seller of the house). The house sale is complete at this point in the process.
If your buyer pulls out before exchange of contracts, there’s not much you can do about this. For example, pulling out of a house sale after the survey does happen. This is particularly true where something has been picked up on the survey.
Similarly, after an offer has been accepted on your house you can still back out, but usually not once contracts have been exchanged.
But what happens if a buyer pulls out after exchange of contracts?
If a house sale falls through who gets the deposit
So let’s look at what happens if a buyer pulls out after exchange of contracts. As already explained in the three stages of a house sale in England and Wales, once contracts have been exchanged there is financial consequence of pulling out of the contract.
The point at which contracts are exchanged between each party’s solicitor, it’s common for a 10% deposit to be handed over at the same time. These deposit funds will pass between the client account of the buyer’s solicitor and the client account of the seller’s solicitor.
At any point during the period between exchange of contracts and completion, if either party pulls out, the party that does pull out will be in breach of contract.
If a house sale falls through due to the seller, who gets the deposit
If the house sale falls through because of the seller, the deposit may be refunded to the buyer. So in this case the buyers would get the deposit money back. At the very least, the seller may also be liable for financial damages at this stage.
Having said that, it may be too late for the seller to pull out in any event. Once contracts have been exchanged. An exchange of contracts is a legally binding contract in England and Wales.
If this has happened to you as a buyer of a house, you’d need to speak with your solicitor about what rights you have.
What happens if a buyer pulls out after exchange of contracts?
In the unlikely event the house sale falls though. Perhaps because the buyer has changed their mind. It’s usual for the deposit to be forfeited by the buyer. If this is the case, it’s the seller who gets the deposit.
In addition to the buyer loosing their deposit at this stage in the buying process, they may also be liable to pay damages to the seller too. If this has happened to you, your solicitor will be in a position to explain what to do.
Whilst it might be inconvenient if your house sale falls through, it does have one huge advantage. Let’s say you’ve just sold your house for £250,000. The deposit involved would be £25,000. In this case you are usually able to keep this deposit of £25,000. This is of course assuming the contracts of exchange allow for this, which they normally do,
You can then put your house back on the market for £250,000 and bank the £25,000. Not such a bad position to be in.
More Reading: What to do if your house sale has fallen through twice
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