You’ve found what you think is the perfect place. You put an offer in. The seller accepted it. Can you back out of a house offer even after doing all that?
Sometimes the answer is yes, but there are very real financial and legal risks to think through before backing out of a real estate deal. This can be especially tricky to think through because buying a house is one of the most stressful and emotional times in a person’s life. In fact, one study showed that at least half of home buyers said they cried at some point while they were buying a house.
Can a Buyer Back Out of a Contract After an Accepted Offer?
Yes, but don’t take this lightly. There could be very real consequences. Let us explain why.
Understanding a Real Estate Contract
Most states consider a real estate purchase agreement a binding, legally valid contract. If you make an offer on a house and the seller accepts, it’s pretty serious stuff. You are obligated to carry out the terms of the sale agreement, including paying the agreed-upon purchase price for the house.
So before getting too far down the road, know this: the period of time between signing a contract and closing on the house is called “being under contract”. It typically lasts between 30 and 60 days.
Earnest Money Deposits and Contracts
Along with your written house offer, you’ll be making an earnest money deposit to show you’re serious. Earnest money deposits, typically between 1-3% of the purchase price, are part of most standard real estate contracts. What happens if a buyer tries to back out of the purchase offer?
Usually, the contract clearly states when a buyer gets to keep the money and when the seller gets to keep it. So let’s get to the bottom line about when, and if, you can back out of a house offer after you put your money down.
Reasons Why You Can Back Out of a House Offer
Several legitimate reasons are spelled out in a real estate purchase agreement where you can back out of buying a house after it is under contract.
Contingency Clauses in a Real Estate Contract
Contingency clauses protect buyers and sellers if certain conditions aren’t met. It’s a get out of jail free card, as long as the reasons fall within those contingency clauses. Let’s explore a few of these standard real estate contingencies.
Appraisal Contingency
With an appraisal contingency, the home needs to appraise for at least the amount agreed upon in the contract. If not, you, the buyer, can walk away without losing your earnest money.
This is because your lender is unlikely to lend you money for more than the house is actually worth. It also protects you from paying more than a home’s fair market value. It’s always a smart thing to have in your real estate contract.
Inspection Contingency
This gives you a way to renegotiate or terminate the deal after a professional home inspection, based on the inspector’s report. For example, you may be able to terminate a real estate contract if your inspector uncovers mold in the basement that was hidden.
While the seller is required to disclose any known issues in writing, if you discover significant hidden problems after the inspection, the inspection contingency allows you to cancel the real estate contract without losing your deposit.
Financing Contingency
This means that you, the buyer, have to get your loan approved in order for the sale to go through. If it doesn’t you’re able to walk away with your earnest money deposit. Of course, that means that you’ll also lose the house. If the seller agrees to it, though, you may have the option of coming up with more cash to make up for the amount of the mortgage that was denied.
Home Sale Contingency
This one only applies if you already own your house. It means you have to successfully sell your existing house in order for your next purchase to go through. The seller often agrees to a home sale contingency with a specified date. If the sale falls through before that deadline you’re able to walk away from buying a new house with no penalty and keep your earnest money deposit.
Additional Reasons a Buyer May Back Out of a Real Estate Contract
Sometimes other events occur during the transaction that cause it to fall apart. In cases like that, the answer to can you back out of a house offer might be yes.
Seller Issues
Say a title search reveals issues with ownership, back taxes, or even unpaid homeowner’s dues that would become your legal responsibility as a buyer. If the seller isn’t willing to fix the issue, you’ll often be able to cancel the house contract without a penalty.
This also includes situations where the seller intentionally tries to hide problems from you, but these usually also get caught during inspections, like Elizabeth Weintraub writes about for the Balance on Why Buyers Walk Away.
Buyer Issues
Although appraisal and inspection contingencies are very common, you don’t always need one to terminate the contract. As this 2021 study from the National Association of Realtors shows, nearly a third of buyers waived appraisal and inspection contingencies, at least in 2021.
If you discover an undisclosed problem like the one Lynn Pineda shared on her blog about in a Home Sellers Horror Story, you can likely still walk away and keep your money. This is particularly true if you can provide sufficient documentation showing a significant defect the seller didn’t tell you about. Keep in mind though, Redfin’s study that revealed 60,000 deals were called off nationally during September 2022, suggests it may not always work out this way, and you might need legal help.
Can You Back Out of a Home Offer Without Losing Money?
If you just have “buyer’s remorse”, the answer to this may not always be yes, and you should definitely consult with a real estate attorney in your state for specific advice.
Option Periods and Cancelling a Home Offer
In some states there’s also something called an option period. That means that, even after the purchase offer is accepted, you can still back out during a short time frame, as long as you paid a small fee for it in advance. It’s not an inspection or appraisal contingency, though, and it is not something typically offered or included in all real estate transactions.
Option periods let a buyer back out of a home offer without losing earnest money or providing an explanation, but be aware there are specific rules and deadlines.
Breach of Contract in a Real Estate Contract
In this situation, since you have no legal reason for breaking the contract, you may just have to breach the contract. Basically, this just means that you are admitting that you are breaking the terms of a contract, the contract to buy a house in this case. You might be okay, but be aware this could get ugly, which is why talking with your attorney about how to cancel a home offer legally in this type of situation is a good idea. You may want to even try mediation.
Can a Seller Back Out of a Home Offer?
Although we are primarily focused on how a buyer may back out of a purchase, this happens to sellers as well. If a buyer asks, can a seller back out of a purchase offer that I made, usually they have just as many risks to worry about.
But there are a few exceptions. Some states allow for an “attorney review” period where the seller can also get out of the contract, with very few consequences. That’s as long as they are within that timeframe. Another thing to keep in mind; depending on how your real estate contract is worded, if your contingency clause fails on your end of the deal, the seller might also have grounds to terminate. This means the seller gets to keep the buyer’s earnest money deposit. There are even situations where a seller might face a lawsuit for backing out of an accepted offer, so be aware it’s not easy for a seller, either.
Get Help with Your Contract
It’s helpful to remember, the best real estate agents know all these potential contingencies, along with other issues that commonly come up. They can give you more practical advice. But as this research shows, contracts fail for all sorts of reasons. An estate attorney can provide expert advice and walk you through this process. This will help make sure you make smart financial choices when dealing with a big life-changing transaction. After all, you only get one shot at making your estate deal go smoothly.
FAQs about Can you back out of a house offer
Can I retract an offer on a house?
Yes. You can typically retract your purchase offer any time before it’s accepted, with no consequence. You don’t even have to explain why, it’s your right.
Can you back out of an offer if the seller accepts it?
That is more tricky, because your contract is typically legally binding once the offer is accepted. However, you can likely still get out of it as long as it’s due to reasons stated within the contract. In many cases that’s by meeting contingency clause requirements.
However, as Conor MacEvilly discussed in his blog post on the Benefits of a Pre-listing Inspection, things can still be amicable and work out to everyone’s benefit. For instance, if you cancel due to an inspection finding and it was done before going under contract, both sides have potentially avoided a headache later. That’s always the best approach when selling and buying property.
What happens if you change your mind about buying a house before closing?
A lot depends on the timing, and whether there’s something in your contract allowing you to get out of it. In some states you can even just walk away. Just know this though, it’s highly likely the seller gets to keep your deposit. And you may be sued as well.
Conclusion
Navigating a home purchase agreement is tricky, particularly for first-time buyers. And the rules about what happens to the money deposit in the contract and whether you face penalties differ based on your local market and what your state’s rules are. Hopefully, this post answers many of your questions and helps you think through if or when you can back out of a house offer and gives you the confidence you need to get the best deal.
