Can You Back Out Of A House Offer? How To Formally Withdraw
Sarah Sharkey6-minute read
June 07, 2023
The home buying process can come with many ups and downs. For some prospective buyers, changing circumstances could mean you want to back out of a house offer. The good news is you can do that. However, in some cases, you might run into financial and legal implications.
Can A Buyer Back Out Of An Accepted Offer?
As a home buyer, you can back out of a home purchase agreement. However, with no contingencies written in the contract, you may face costly consequences such as losing your earnest money deposit.
As a buyer, the ability to back out of an accepted house offer is good news. Even if the home is under contract, you can walk away from the sale. But the potentially negative consequences tend to grow the further along you get in the home buying process.
Commonly Acceptable Reasons Why A Buyer Might Withdraw Their Offer
Buying a home is a highly personal decision. But when a buyer walks away from a sale, the decision usually happens due to one of the following reasons:
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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 contingencies can protect your right to walk away from the deal. But as the seller, some contingencies can protect your financial interests. With that, buyers may face significant costs when backing away late in the process.
You Could Lose Your Earnest Money Deposit
Your earnest money deposit is a show of good faith that you seriously intend to purchase the home. You could lose it if you walk away from a sale for a reason not covered by contingencies in the contract.
If you walk away from a home purchase due to a reason 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 very rare 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 want to sue the buyer. However, the contingencies listed in many purchase agreements protect the buyer from this situation.
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.
How To Back Out Of A Purchase Agreement Properly
As a buyer, there is a right way and a wrong way to get out of a purchase agreement. The process might not be comfortable, but you can limit the financial and legal repercussions by following the details of your purchase agreement to the letter.
Act Sooner Than Later
If you want to get out of a purchase agreement, your timeline is critical. 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 consequences.
Review any timelines tied to the contingencies embedded in your purchase agreement.
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 part with some or all of your earnest money to withdraw from the deal amicably.
Parting with your earnest money isn’t a pleasant prospect. But it’s better than following through with a home purchase that no longer suits your needs.
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®. Start by explaining 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.
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 due to 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.
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 disappointing 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.
Hopefully, 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 due to lack of financing.
FAQs On 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 don’t have any contingencies in the home purchase agreement, the seller is legally able to keep your earnest money. 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?
It’s technically never too late to back out of buying a house. But the sooner you can back out of the deal, the smaller the consequences will be. Most contingencies require buyers to back out within a certain number of days. Otherwise, you might lose your earnest money
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
It’s possible to back out of a house offer. The key to walking away smoothly is to include contingencies in your home purchase contract.
If you follow the timelines outlined in your home purchase agreement, you can likely walk away without any financial consequences. But if you wait too long or back out for a reason not outlined in your contract, you might lose your earnest money.
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