What happens if you back out of a home purchase agreement?

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In today’s competitive housing market, available homes fly off the shelves if you don’t act fast.

About half of the homes pending in the spring of 2021 were on the market for about a week, according to Zillow. Buoyed by strong demand and low inventory, that momentum is expected to continue as we approach this spring 2022 home buying season.

When offers are flying in, buyers and sellers don’t have much time to think about complex contract terms. There is pressure to sign contracts to sell a home, and sometimes things go wrong causing a buyer or seller to reconsider their offer.

What happens if a buyer or seller changes their mind about buying a home? It depends on how far along you are in the process – and what contingencies there are. So, it’s wise to think about your exit from the start – whether you’re buying or selling.

After all, deals break all the time, especially in real estate.

Key terms

Before we begin, let’s review some key terms that are standard in every real estate contract.

Home Purchase Agreement: A legally binding agreement between a seller and a buyer for the sale and purchase of real estate that specifies the terms of the real estate transaction.

Income: Funds as a deposit to the seller to represent the buyer’s interest in purchasing a home. Also known as a good faith deposit.

Posted account: An account managed by your mortgage servicer or title company where funds for your real estate transaction are deposited.

Spontaneity: In a home purchase agreement, a contingency is a clause that contains certain conditions or actions to be legally binding on the seller or buyer, such as getting an inspection or getting financing.

Can a buyer or seller back out of buying a home?

The short answer is yes, a buyer or seller can get a refund from a home sale. Usually, the buyer has many ways to back out of the deal, as it is rarer and more difficult for the seller to change his mind. When a home is for sale, buyers are the ones who make offers to sellers – and their offers often include contingencies. Every emergency has a time limit.

“Most properties are sold with inspection rights,” says Christine Conti, broker and owner of Peacock Premier Properties, a Florida real estate agency. “It gives the buyer the discretion to say they don’t want to buy a house for any reason.”

If the buyer or the seller does not perform according to the terms of the offer, such as the inability to return the actual money, or in extreme cases, legal action that compels the parties to perform the action, including the sale of the property.

The buyer

“The buyer has the most protection when they walk away from a deal,” said Cristina Morales, Realtor at brokerage eXp Realty. “If they don’t have an opportunity, or if they have buyer’s remorse and decide at the last minute that they don’t want to go through with the transaction, they can lose their money.”

The three main conditions added to home purchase agreements are:

  • Inspection contingency; This It gives you a chance to do an inspection and see if there is anything wrong with the property that you didn’t know was wrong. It protects you from things that you can’t see with your own eyes, behind the wall, like something wrong with the reservoir, or from natural things,” Morales said.
  • Assessment Status: This means that if a home does not appraise for sale, the buyer has the choice to walk away or renegotiate with the seller.
  • Financial emergencyIt gives you an exit option if you are unable to get financing for your home loan.

There are other contingencies you can add, but the above are the most common. In the current white market, buyers often leave contingencies, especially inspection contingencies. And with cash deals, appraisal and funding contingencies are not required. As a buyer, if you’re willing to waive the contingency, your offer may be more attractive to the seller, but you accept all the risk of unforeseen damage or emergency repairs.

The seller

Key factors for sellers:

  • Home sale A home sale contingency means that the seller intends to buy another home and will sell the current home only if they can afford another one.
  • Rent it backIn this case, a seller may be waiting for another home to close or something else is going on in their life that makes it necessary to sell the current home but stay in it. This situation creates the contingency of a lease where buyers buy the house and the seller stays in it for a certain period of time.

That said, sellers generally don’t have as many (or any) contingencies as buyers.

Risks and penalties for withdrawing from a home purchase agreement

Despite the home purchase agreement, upfront fees and contingencies, both buyers and sellers can make a return from buying or selling a home. As mentioned earlier, buyers often walk away from real estate transactions. In doing so, there may be risks and penalties, especially if you do not meet the terms of the contract.

Buyer penalties

Typically, contingencies are time-bound, meaning that their actions must take place on an agreed-upon date. For example, if your inspection contingency is for seven days, but you haven’t inspected by the tenth day, you’ve failed the contingency because you didn’t complete it within the allotted time frame. If you withdraw, you won’t get your deposit or real money.

The best way to navigate emergencies is to keep track of the dates and do whatever tasks you need, such as inspections, surveys, or evaluations, in the time you have. If you don’t, you may lose the money you have already spent on the contract. Excess funds and deposits are held in an escrow account. Once you withdraw, the funds will be released to the seller if you do not complete them.

However, if you get your inspection, assessment and funding within the agreed time frame and choose to withdraw, there are no penalties. For example, if you conduct an investigation during an inspection contingency and discover material facts you don’t want to win, you can get your money back risk-free.

Pro tip

For both buyer and seller, keep a close eye on the dates on the home purchase agreement that deal with contingencies. If both parties do not perform, it can be a reason to cancel the contract.

Seller penalties

“In 28 years of practice, I’ve only had a salesperson come back twice,” Conti says. “The buyer has the right to sue for specific performance or damages. You don’t just change your mind after signing a legally binding contract.”

“It’s rare to see a seller come back out,” Morales added. “The buyer can sue the seller to foreclose. But then there is the cost of defending yourself in a legal situation. A court will then decide who will be the judge. That’s why, as a seller, it’s important to make sure you 100% accept the offer before you sign the contract.

When home shopping makes sense

There are many reasons why a buyer may back out of selling a home.

Inspection and negotiation on maintenance

The biggest obstacle to cleaning is the first tests. This includes a standard inspection but may include separate inspections for HVAC systems, sewer lines, termites, radon, lead paint, asbestos, and mold. A buyer can order a survey to make sure they are getting all of the ad lots and there are no frills. These are all invisible issues, so it’s a good idea to investigate.

In all of these inspections, if there is material evidence that the buyer does not want to meet or is unable to negotiate, the buyer may decide to walk away.

Cloud topic

Other reasons to hold back include finding a cloudy title. At this point it is unlikely that the home title is defective and clear and unmarketable. Common title defects include public record errors, unknown liens, false claims, unknown easements, and land boundary disputes.

Evaluation issues

If the property to be sold is valued at less than the asking price, the contract may be terminated: – If there is no appraisal contingency or if none of the parties can reach an agreement on a new selling price.

Financial problems

If the buyer’s finances fall through, this can be a good reason to pull out of the home purchase agreement.

Most of these situations arise when the buyer is getting financing from the mortgage lender, who often has their own requirements. For example, if the roof is old or the property is in a flood zone, the buyer may have a difficult time obtaining home insurance or may find that flood insurance is too expensive.

If these situations occur in an emergency, you can leave without explaining the reason. Even if you run into a problem you don’t want to deal with, keep a close eye on your emergency situations so you don’t make a mistake on a technicality.

Expert advice to protect yourself from danger


  • Before signing, read and understand your contract: “The real value for buyers is learning about the contract and the obligation to perform. If you’re not performing, the seller can ask to break the contract,” says Morales. For both buyer and seller, a real estate agent can guide you through the contract every step of the way.
  • Add contingencies It is very rare to get a home purchase agreement without a financial contract contingency. As a buyer, consider adding an inspection, appraisal, and financial considerations to protect yourself as you approach closing.


  • Review the financial proof: “If you’re a seller, review the buyer’s financial background check, pre-approval or financial statement,” Conti advises. This prevents you from getting into a situation where the buyer accepts the offer only to find that they are ineligible for a mortgage or have their money tied up elsewhere.
  • Cash guarantee: Get a home purchase deposit if you’re a seller. If you are a buyer, be willing to put down earnest money to show good faith in your intention to buy. The usual amount is 1% of the sales price, but in hot markets it can be up to 3%.

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