Can you back out of a house offer? How to formally withdraw

The home buying process can come with many ups and downs. For some hopeful buyers, changes in circumstances might make you want to back out of a house offer. In many cases, buyers can do that, but the exact financial impact depends on the contract terms. In some cases, you might run into financial and legal implications backing out after making an offer on a house, which we’ll help you navigate.

Can a buyer back out of an accepted offer?

 As a home buyer, you may be able to terminate a signed home purchase agreement. However, if there are no applicable contingencies –⁠ or if contingency deadlines have passed –⁠ you could face costly consequences, including forfeiting your earnest money deposit.

As a buyer, the ability to back out of an accepted real estate offer is good news.  Even if the home is under contract, a buyer may be able to withdraw. Even if the home is under contract, a buyer may be able to withdraw — though doing so without a valid contractual reason could result in penalties.

Commonly acceptable reasons to withdraw an offer

Buying a home is a highly personal decision, as is deciding not to go through with a deal. There are a number of valid reasons to back out of buying a house, including:

• The buyer loses their income
• The house is appraised for less than the sale price.
• The inspection reveals major issues (cracks in the foundation, water leaks, roof damage, etc.)
• The buyer can’t sell their own house.
• The house has a title dispute issue.
• The loan falls through
• The seller fails to make agreed-upon repairs
• Undisclosed structural issues are discovered
• There are discrepancies regarding the property lines

What happens if you back out of buying a house?

If you walk away from a home purchase, the decision can come with a cost. After an offer is accepted, the purchase agreement includes specific contingencies.

As the buyer,  these mortgage contingencies can protect your right to walk away from the deal. On the other hand, the seller’s contingencies could protect theirfinancial interests and lead to the buyer facing a financial penalty for backing away late in the process.

You could lose your earnest money deposit

Your earnest money deposit is a show of good faith that affirms your intent to buy the home. You could lose it if you walk away from a sale for a reason that contingencies in the contract don’t cover.

If your reason for walking away from the purchase is covered by the contingencies in the contract, you can get your earnest money back.

For example, let’s say you walk away from the sale because you cannot sell your home. You would only get your earnest money back if the contract included a home sale contingency. Without this contingency, you would not get your earnest money back.

Since your earnest money deposit is typically around 1% – 3% of the sale price, losing these funds could be a significant financial hit.

The seller could pursue legal action

In some cases, the seller can sue the buyer for backing out of the sale. If the seller feels they incurred monetary damages due to the buyer backing out, they might decide to sue the buyer. However, the contingencies listed in many purchase agreements protect the buyer from this type of litigation.

If you’re concerned about the legal implications of backing out of a specific deal, enlist the help of a real estate attorney. They can help you navigate the process.

A potential example of this is a situation where a seller plans to buy a home with the proceeds from the sale. If the buyer backs out of the contract late in the process, it would delay the seller’s plans, during which time the price of the house they want increases.

Tips for backing out of a purchase agreement

As a buyer, there is a right way and a wrong way to get out of a purchase agreement. The process might be uncomfortable, but you can limit the financial and legal repercussions by following the details of your purchase agreement to the letter.

1. Act sooner than later

If you want to get out of a purchase agreement, time is a critical factor. In many cases, the contingencies embedded in a house purchase agreement have specific timelines. You must act within these timelines to avoid potential legal or financial penalties.

Review any timelines tied to the contingencies embedded in your purchase agreement.

2. Prepare to cover the costs of backing out

When you review your purchase agreement, you can determine the financial costs of backing out of a sale. In many cases, you’ll need to give up some or all of your earnest money to withdraw from the deal amicably.

Parting with your earnest money isn’t ideal, but it’s better than following through with a home purchase that no longer suits your needs.

3. Write a letter to the seller with your REALTOR^®

After determining that you want to back out of the sale, get in contact with your REALTOR^® and explain the situation to them. An experienced professional will help you write a formal letter to the seller to announce your plans.

The letter should include all of the necessary details of why you want to get out of a sale. Lean on your REALTOR® to create a letter that allows for a smooth departure from the sale.

4. Leverage contingencies

Any contingencies listed in the house purchase agreement will be very handy when exiting a deal. If you have any contingencies listed, make sure to use them. When you back out of the sale because of a covered contingency, the consequences will be minimal.

Failing a home inspection

If the home doesn’t pass a home inspection, that might give you enough reason to back out of the sale. This critical contingency offers you protection if the inspector finds a major issue with the home. Without this detail in the contract, you couldn’t back away without losing your earnest money.

Home appraisal is lower than selling price

A lender will not lend more money than the home is worth. If the home is appraised for less than the sale price, the lender might require the buyer to pay the difference out of pocket. For many, a low home appraisal might be the end of a deal if they can’t afford the extra cost or the seller won’t bring down the price.

With an appraisal contingency in place, the buyer can walk away from the sale without losing their earnest money after a low appraisal.

Buyer’s house won’t sell

If you’re buying and selling at the same time, you might include a home sale contingency in your purchase agreement. The contingency means you can walk away from the home purchase if you cannot sell your existing home first.

Ideally, you’ll be able to sell your home in a reasonable timeframe. But if things don’t go according to plan, this contingency can protect your earnest money.

Problems securing the title

The title indicates property ownership. Without a clear title, you might not be the legal owner of the property. Buyers can often walk away without any consequences if there is a dispute about the house title.

Difficulty obtaining financing

Most buyers rely on obtaining financing to finalize a sale. If the buyer is unable to obtain a mortgage from a lender, that might allow them to walk away from the sale. But the home purchase contract must include a financing contingency to allow for an easy exit.

FAQ about backing out of a house offer

Have questions about backing out of a house offer? We have answers.

What if I don’t have any contingencies?

If you waive contingencies or miss contingency deadlines, you may forfeit your earnest money deposit, depending on the terms of the contract and applicable state law.  In rare cases, the seller may have the grounds to take you to court to close on the house sale.

When is it too late to back out of buying a house?

 You can typically withdraw from a purchase agreement up until closing. After closing, the sale is final. However, penalties often increase once contingency deadlines have passed.

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

If no clauses prevent the seller from backing out of the sale, they can exit the deal at any time. As the buyer, you can expect to get your earnest money back if the seller backs out of the sale.

The bottom line: You should only back out of buying a house if you’re financially prepared

Though it’s not an ideal scenario, backing out of a house offer is sometimes a necessary move. Changes in circumstances, financing issues, and other factors can force you to withdraw. Ensuring that your contract includes contingencies can help you avoid unwanted consequences involved with this decision.

Are you ready to buy your dream home? Start the mortgage approval process through Rocket Mortgage today.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Refinancing may increase finance charges over the life of the loan.

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