After having an offer accepted a home, some homebuyers may wonder if they can back out of the contract to purchase. The reasons a buyer may want to cancel a real estate contract can be quite varied. In today's hot seller's market buyers often get cold feet wondering if they are overpaying for a house or if the market will crash.
Or maybe they discovered they were caught up in the excitement of buying a home and didn't choose a home that suits their needs.
Maybe, prior to closing your circumstances have changed which makes buying that home a bad decision.
Whatever the reason, there are homebuyers who want or need to back out of an accepted contract on a home they are about to purchase.
Withdrawing An Offer On A Home
If you have submitted an offer on a home that hasn't been accepted, it is easy to withdraw your offer. Immediately notify your agent to notify the seller you want to withdraw your offer.
An offer that hasn't been accepted yet, with signatures is not a legal and binding contract. You certainly have the right to withdraw your offer prior to acceptance with no recourse to you. Make sure you notify the listing agent or the seller in writing prior to acceptance.
Backing Out Of An Accepted Contract
While withdrawing a contract before it is accepted is easy, canceling a contract to buy a home after it has been accepted adds many layers of complexities.
Before you cancel a real estate contract consult with an attorney. There can be legal and financial ramifications that are far-reaching and you need to consider all the outcomes carefully before moving forward with backing away from a real estate contract.
Read Your Real Estate Purchase Agreement
Everything will fall back to your offer or real estate purchase and sale agreement that is signed by you and the seller. Your purchase contract will tell you how and when you can back out of a contract and if there will be any recourse to you.
Real Estate Contingencies
Most purchases agreements have some contingencies in them that allow a buyer to back out of a deal and nullify the contract with all deposits returned to the buyer. Contingencies are not a default of a contract and you have agreed with the seller that you can back out of a deal with the seller under certain circumstances.
A contingency in a real estate contract is an if-then scenario. If something does or does not occur by a certain date it will allow a buyer to notify the seller, nullify the contract and receive all the deposit monies back with no further recourse for the seller.
Make sure you read the contract and understand the contingency. There will be dates and certain steps for you to exercise a contingency and the steps must be followed to the letter.
Contingencies can be varied, but here are some common contingencies:
- Mortgage Contingency- A mortgage contingency allows you to secure a mortgage by a certain date.
- Home Inspection Contingency- Your home inspection contingency will allow you to perform a home inspection by a certain date that is satisfactory to you.
- House to Sell Contingency- This contingency gives you time to close on your house by a certain date for you to have the funds to purchase a new one.
If you use contingencies in your purchase contract to back out of purchasing a home, it is simply a matter of following the steps in your contract to exercise the contingency.
Can I Cancel A Real Estate Contract For Any Reason?
This is where it gets sticky. The short answer is yes. You can decide to walk away from a real estate closing at any time. But depending on the reason, it could cost you.... dearly.
We already talked about contingencies and taking advantage of the contingency to walk away from a purchase and sale agreement on a home with no recourse to you.
But there could be other reasons you decide to walk away from a sales agreement on a home that is not covered by your purchase and sale agreement. In that case, there will most likely be language in the contract to purchase the home and purchase and sale agreement that spells out what happens if a buyer defaults.
Why Your Home Deposit Is Important To A Seller
Homebuyers often do not understand the importance of the home deposit or good faith deposit they put down on a contract to buy a home. To a seller, it is very important. In the case of a buyer's default, it is often the only monies available as damages if you default on your contract to purchase.
The deeper you get into the escrow period on a home purchase the greater the damages to a seller. At some point they have secured other housing (which usually requires deposits) they may have put items in storage, they have hired a mover, etc...
As a home buyer, you, backing out of purchasing their home will cost the home seller money and in some cases, tens of thousands of dollars.
Your Deposits Are At Risk
The amount of your good faith deposit can show you are serious and will work diligently to close on their home. But in most cases, if you walk away from closing on a home, outside of any contingencies in your contract you are leaving your deposit money on the table for the sellers.
Laws Are State Specific
Again, if you are thinking of walking away from a purchase agreement before closing, consult an attorney in your state. Real Estate contracts are very state-specific and one state can be very different than another on how a buyer's default is handled.
In Massachusetts where I practice real estate, there is a standard clause addressing a buyers default in the offer to purchase and the purchase and sale contract:
"if buyer defaults in buyer's obligation, the deposit monies tendered as a deposit shall be paid to the seller as liquidated damages and this shall be the seller's sole remedy."
Meaning, if the buyer defaults they are agreeing to the good faith deposit being turned over to the seller for any damages. The seller is agreeing they accept the deposit as liquidated damages and cannot seek further compensation or sue for specific performance.
I reached out to Michelle Gibson a Wellington FL real estate agent, who explained Florida is similar to Massachusetts where the deposits tendered are the sole remedy for a buyer defaulting on a contract.
In other states like New York, it is possible for a seller to seek liquidated damages or sue for specific performance forcing you to purchase a home. While it is a difficult route for a seller to pursue, it is possible.
Can A Seller Keep My Deposit?
First, remember you have signed a legal and binding agreement to perform on a contract and you may have cost the seller a significant amount of money.
With that said, sometimes there are unforeseeable situations, like a job loss or medical reason that is preventing you from being able to perform on your contract. Your course of action can include:
- Consult with an attorney immediately to understand what you agreed to in the contract and if there is a way to retain your deposit. An attorney may be able to negotiate a resolution that both buyer and seller can live with. Neither party wants to end up in litigation over the deposit money.
- Appeal to the listing agent or seller. Be honest about your circumstances. In a strong real estate market, a seller may have some empathy and release you from the contract and move on to sell the house again.
- Negotiate a partial release of your deposits, where you get some back deposit money and the seller gets to keep some of the deposit. This can be effective if there is a large deposit on the table.
If you don't agree to turn over your deposit to the seller, the money will be held in escrow until there is a resolution that both parties agree to.
As a final thought, if a dispute between you and the seller over the deposit money goes to litigation remember it can get quite costly if you go to court with an attorney. You did sign a contract and chances are you will have no standing in court.
It will be an uphill battle to try and retain part or all of your deposit money if you do not perform on a contract outside of agreed-to contingencies.
Defaulting on a real estate purchase and sale is a serious matter. Your contract is an enforceable contract in the courts.
Before entering into a contract on a home, make sure you are serious about buying and there isn't a hint of a possibility you can't close on your transaction.
Read your contract so you understand what the ramifications for default are and how escrow monies will be handled. Have a real estate attorney review and negotiate your purchase and sale agreement.
A competent real estate attorney will negotiate as many contingencies as they can to give you an out. But in the end, once the contingencies lapse you need to perform on the contract or risk losing your deposit.
Can I Back Out Of An Accepted Offer? is provided by Kevin Vitali of EXIT Realty. If you want a Massachusetts REALTOR that serves rather than sells call Kevin at 978-360-0422. Kevin will put his 20 years experience to work for you.