There are several reasons why home buying might not push through; however, what if the reason is because you have a change of heart?

Is that reason valid enough?

When is it too late to back out?

While it might be tricky, the thing is, a buyer can definitely back out of a real estate deal they have signed with a seller. However, consequences might arise, particularly if the agreement lacked exit routes. Therefore, it's important to understand your legal and financial rights as a homebuyer. If you're considering withdrawing an accepted offer, here are some things to think about.

Can a homebuyer back out of a contract agreement?

The quick answer-- yes!

To put it another way, you have a legal obligation to follow the terms of the purchase agreement you sign. An advance payment known as "earnest money" is given to the seller showing you are serious about purchasing the home and intend to see the transaction through to completion.

"If a buyer is not completely serious, it is unfair to the seller to take their home off the market," says Marc Hagerthey, a Maryland real estate agent with RE/MAX. "A portion of the closing costs at settlement will be covered by the earnest money, which will remain in an escrow account."

It is, however, quite legal to cancel your offer on a home if specific conditions are included in the contract and are not fulfilled. These limitations outline circumstances in which it would be permissible to withdraw without incurring penalties, such as forfeiting your earnest money investment. In most situations, if a contingency in your contract was not fulfilled, the buyer may elect not to purchase the house and receive their earnest money back.

Common Reasons Why Buyers May Back Out Of Buying A Home

• They were unable to secure funding.
• Unexpected loss of employment.
• The evaluation was too low.
• An important issue was discovered during the examination.
• Their former residence didn't sell.
• There were title problems discovered.

Baking Out With A Contingency

The conditions that must be fulfilled for a home purchase to proceed are known as contingencies, and they are usually included in a normal real estate contract. This involves both parties agreeing on particular tasks that need to be finished in a given amount of time.

Key Terms

Real Estate Contingency

This is a clause that allows both parties, the buyers and sellers, to back out of a purchase agreement if certain requirements aren't fulfilled. For example, a mortgage contingency that included criteria that were not fulfilled and required a homebuyer to obtain a mortgage loan by a certain date.

Homebuyers may include conditions for finance, home inspection, selling their own house first, or an appraisal that is lower than the sale price. You can easily withdraw your offer and still receive your earnest money deposit back if you decide to do so because a prearranged contingency was not fulfilled.

If there are conditions in place, a buyer is typically more protected when withdrawing from a transaction. For instance, suppose the home inspection report reveals expensive problems like foundation fractures or a severely damaged roof. You can get away with it if you have a contingency for a home inspection, particularly if the seller declines to make repairs or provides credits to cover the expenses. A finance contingency, which provides you with an escape route if your mortgage loan is denied, is another crucial safety measure.

To protect yourself, pay special attention to the contingencies listed in the agreement, especially the due dates for each. For instance, within 14 days of the contract being signed, you might have to finish a house inspection and request any necessary repairs or credits. To receive final loan approval, a financial contingency may need to be satisfied within 30 days. Ask your real estate agent how to proceed if you have questions or require additional time to finish a contingent activity. To obtain an extension for you, they will probably have to submit a contract addendum that the seller must accept.

Backing Out Without A Contingency

Things can become complicated and even unpleasant if a buyer withdraws from a deal for a reason not explicitly stated in the contract. For example, if you withdraw from an offer for a non-contingent reason, you could lose your earnest money. Since you paid that down payment on the understanding that you would fulfill your end of the bargain, the seller is legally allowed to keep your money if you withdraw for any reason not specified in the contract.

For a buyer, this can be unaffordable, particularly if they still intend to purchase another home. Earnest money deposits typically range from 1% to 2% of the home's sale price, however they can be greater.

The National Association of Realtors reports that the median sale price of homes in the United States is approximately $400,000. A buyer who changes their mind might lose anywhere from $4,000 to $8,000 on a house that costs that much, plus legal fees.

However, withdrawing from an agreement for non-contingent grounds can result in more than just financial loss.

Can They Sue You If You Back Out?

The quick answer again is, yes.

A property purchase can be canceled more easily before a contract is signed. However, it is more difficult for you to leave after that or after the contingency periods have passed without getting into financial or legal issues.

In addition to losing your earnest money, the seller may take legal action if you terminate a signed contract for a cause that was not specifically stated and accepted as a contingency.

A buyer who violates the terms of the contract may be sued for "specific performance," in which the buyer is compelled by the court to close on the house. This situation is uncommon, though. According to John Graff, CEO of Ashby & Graff Real Estate in Los Angeles, "this is pretty uncommon." "The courts are more likely to order a seller to close a deal than the other way around."

Certain states include a provision in home purchase agreements requiring both parties to consent to mediation in the event of a disagreement. If your state allows it, you will have the opportunity to directly argue your case to the seller with the assistance of an impartial mediator in the hopes of resolving the matter out of court.

Final Note

Making the decision to purchase a home is a serious matter that should not be taken lightly. Although there could be severe repercussions, a buyer could withdraw from a real estate agreement they have signed with a seller. Including contingencies in the contract before you sign it is the greatest approach to protect yourself. Here, it can be quite important to work with an experienced real estate agent and perhaps a real estate lawyer as well.

As soon as you've made up your mind, tell the vendor if you must withdraw an accepted offer. Collaborate closely with your lawyer and agent, who can assist you in explaining your reasons for wanting to back out in writing. In the end, you might lose your earnest money deposit, but purchasing a house you don't want or can't afford would undoubtedly be a more costly error over time.