Can a buyer back out of a purchase agreement?

Learn more about purchase agreements, if and when a buyer may back out, and the possible repercussions when that happens.

When you purchase a home, the sale can fall through for many reasons. There could be issues preventing the sale on the seller’s end, but buyers often have concerns or second thoughts, too. When is backing out of a real estate contract acceptable? Learn more about purchase agreements and what can happen if you’re the buyer and need to back out.

When is backing out of a real estate contract acceptable?

Buying a home is a commitment of time, effort, and hard-earned money. But there could be instances where it makes sense for a buyer to back out of a real estate contract.

The first thing to consider is that most home purchase agreements are structured with contingencies. If any of these criteria are met, the buyer (or the seller) may be able to break the agreement and cancel the purchase. Here are some of the most common reasons that can cause a buyer to back out.

• Using an option period. Some contracts include a set period of time during which the buyer can choose to back out of the contract for any reason without penalty. These are usually short, just a matter of days, and are meant to give the buyer extra time to evaluate the home before fully committing to the purchase.
• Appraising the home value. If an appraised value is lower than the selling price, lenders will not provide the additional funds for the purchase. In this case, an appraisal contingency can help a buyer back out of the purchase.
• Enacting a kick-out clause. Many buyers are hesitant to agree to a purchase without having sold their existing home first. In these instances, they’ll include a clause in the agreement stipulating that they can back out of the purchase if they are unable to move forward.
• Failing a home inspection. Another common contingency in a real estate sale is the exception for whether the home passes a third-party home inspection. If an inspector finds major problems with the integrity of the home, the buyer may want to back out rather than take on a potentially more costly purchase.
• Securing a title. Having a title to a property ensures the buyer’s legal ownership. If there are issues with transferring the title, they might negate the ability for the sale to take place.

Another consideration is when, in the timeline of the purchase process, is when you’re looking to put a stop to the sale. Many contingencies have deadlines associated with them to keep the purchase process moving along, so be sure to comply.

Can a buyer back out of an accepted offer on a house?

When you put an offer on a home, and the seller accepts, you enter into what’s known as a purchase agreement. It’s a standard real estate contract that spells out the details of a sale. If you change your mind, you can usually back out of the agreement, but it gets a little complicated, depending on when you do so.

Can a buyer back out of a home purchase without repercussions?

Because it’s a binding legal document, there may be repercussions if you want to back out of a purchase offer that the seller has already accepted.

When you enter into this type of agreement, you are typically required to put down a deposit to demonstrate that you plan to follow through. This is called “earnest money” and is usually 1-3% of the property’s price. If there are no valid reasons for you to back out of the sale, you will most likely lose that deposit. This money compensates the seller for the time the home was off the market.

However, if you withdraw the offer before the seller signs, you should be able to back out without any consequences. This is also the case if the seller doesn’t meet certain requirements or deadlines outlined in the original purchase agreement.

Can a seller sue the buyer for backing out of a real estate contract?

Unfortunately, there may be instances where a buyer backs out of a real estate contract without adequate contingencies or legal standing to do so. For a seller, depending on the sale to go through, this can be an actionable offense. Sellers can pursue additional legal action if a buyer attempts to stop the transaction if there is a purchase agreement already in place.

Not all instances lead to immediate legal action. The seller may simply choose to retain the earnest money deposit from the buyer and cancel the agreement.

If you are considering breaching a purchase agreement, the best course of action is to consult a real estate attorney and act as quickly as possible. The more notice of intent you give to a seller, the more likely they may be to approach your decision reasonably.

Right way for a buyer back out of a real estate contract.

Deciding not to move forward with an anticipated real estate purchase can be stressful for everyone involved. Fortunately, there are a few steps you can take to mitigate the risk of additional problems arising as a result of your decision.

• Act fast. Giving the seller plenty of time can also leave room for the two parties involved to come to an agreement that works for everyone.
• Reference the contract. Be sure to remain factual, even when emotions flair up, and point to specific legal contingencies that support the ability of the buyer to back out of the real estate contract.
• Prepare to pay. In all likelihood, you won’t break the contract without paying some costs out to those involved. This can include anything from losing your earnest money to paying to cover the cost of attorney’s fees.
• Put it all in writing. Breaking a contract is just as formal an event as entering into one. Be sure to have your real estate agent or attorney (or both) put together a formal letter outlining your reasons for the change in plans.

Coordinate your real estate purchase documentation with Adobe.

Explore what you can do with Adobe Acrobat as you begin searching for homes, selling yours, or entering into a residential lease.