Buying a house is one of the biggest financial decisions a person will make in their life. Most buyers who put in an offer hope to purchase the home. However, there may sometimes be situations that require them to back out of the purchase agreement.
Learn what reasons may allow a buyer to back out of a sale, including a few of the most common selling contingencies. We’ll also review some common requirements for backing out of a home sale.
The Home Buying Process
The home-buying process consists of shopping for your dream home, putting in an offer, and coming to an agreement with the seller. From here, the legalities of the contract determine how long it takes until closing and whether or not the buyer has the option to pull out.
Here are the steps buyers and sellers can expect during the home-buying process.
Offer and Acceptance
The initial stages of buying a house require a buyer to make an offer and the seller to accept the offer. Usually, this process also includes numerous back-and-forth negotiations until each party can agree on not only the home’s price but also the terms of the sale.
An offer typically includes an earnest money deposit, which is a financial deposit that shows the seller that the buyer is serious about the purchase. An earnest money deposit may also be referred to as a good faith deposit.
The Purchase Agreement
The purchase agreement is a legal contract that clearly lists the terms and conditions of the home sale.
A traditional purchase agreement includes the agreed-upon price, closing date, and buyer or seller contingencies. It also lists the buyer and seller using their legal name and the property’s complete address. Payment information is also included, which defines how the buyer will pay for the sale, whether through financing or cash.
It’s not uncommon for the purchase agreement to undergo numerous revisions by both parties before being finalized. Buyers may negotiate specific contract terms, such as the purchase price or contingencies. The seller may counter-negotiate until both parties reach a mutual agreement.
Once the buyer and seller sign the purchase agreement, they begin the next steps in buying or selling a home. At this point, it is a legally binding document.
Contingencies
Contingencies are common in real estate contracts, benefiting buyers and sellers. Here are a few of the most common contingencies used in a purchase agreement:
- Financing Contingency: A financing contingency allows the buyer to back out of a home purchase if they cannot secure financing. The seller may set a specific period in which the mortgage contingency must be met.
- Home Inspection Contingency: A home inspection contingency allows the buyer to conduct a home inspection. If the inspection reveals expensive problems, the buyer can renegotiate the purchase price or withdraw from the sale. The buyer is also allowed a final walkthrough of the property to ensure any agreed-upon repairs are completed.
- Appraisal Contingency: An appraisal contingency allows the buyer to withdraw from the purchase if the property does not appraise for the agreed-upon price. A property that doesn’t appraise may also not be eligible for financing.
- Home Sale Contingency: A home sale contingency gives the buyer time to sell their house before closing on the new home.
- Title Contingency: Many purchase agreements include a title contingency, which allows the buyer to withdraw if the property does not have a clear title free of liens.
Contingency clauses allow buyers or sellers to withdraw from a real estate transaction, usually without penalty. Title issues or undisclosed defects are common reasons buyers may back out of a deal without penalty. However, buyers must meet contingency period timelines to avoid severe consequences, such as losing earnest money.
Backing Out Before Contingencies Expire
Most real estate contracts have contingency expiration dates, and it’s important to exercise your legal rights within this period. Before you can back out of buying a house, you may need to review the following requirements.
Exercising Contingencies
Each contingency has specific requirements and deadlines that must be met to withdraw from the home purchase without consequence. The term agreements will vary depending on the contingency type and the particular contract. For this reason, it’s important to review the purchase agreement in detail before signing.
Review the contingencies outlined before withdrawing from a purchase to protect your financial interests. For example, a buyer who wants to back out of buying a house due to an inspection report must do so within the due diligence period.
Additionally, some contracts require the seller to make needed repairs. If the seller refuses to make the listed repairs, the buyer may have a legal right to withdraw from the contract.
Potential Consequences
Some contingencies may still have financial implications, even when the buyer backs out within the listed time frame. Depending on the contingency clause, buyers could lose their earnest money deposit. The seller or buyer could also pursue legal action if the contingency requirements of the purchase agreement aren’t met.
Backing Out After Contingencies Expire
It is more difficult to back out of a home sale after contingencies expire than to do so within the specified contract period. If you back out of buying a home after contingencies expire, it could lead to the following consequences.
Breach of Contract
Backing out of a sale without a valid reason could be a breach of contract, which puts the buyer at legal risk. The seller could file a lawsuit against the buyer, which could result in expensive financial penalties or lawsuit payouts. A seller could also be at risk of a breach of contract if they don’t fulfill their listed obligations.
The buyer or seller could be subject to recovery of damages, including the property’s purchase price, loan interest, expenses, time wasted, or loss of deal.
Negotiating with the Seller
In some cases, the seller may be willing to negotiate a contract cancellation without penalty. However, depending on the circumstances and the reason the buyer wants to back out of the sale, the seller may not always agree. If you get cold feet about purchasing a home, it is best to work closely with your real estate agent to explore your options.
Specific Circumstances and Exceptions
Other circumstances may lead to a voided purchase agreement, including the following situations.
Seller Breach of Contract
The seller could be liable for damages incurred if they breach the contract. The buyer may sue the seller for money associated with repairs, title fee costs, real estate agent fees, or time lost attempting to purchase that specific house.
Unforeseen Circumstances
Unforeseen circumstances can also lead to a voided sales contract in real estate. Natural disasters, home damage, or other significant property changes could lead to mutually agreeing to void the sale.
Legal Recourse
Buyers who decide to no longer purchase a home with a valid purchase agreement should seek legal counsel. Working with a lawyer may also be useful when dealing with difficult sellers.
The Role of a Real Estate Attorney
Working closely with a real estate lawyer can be helpful when buying or selling a home. Here are a few ways legal representation can assist in home-buying.
Reviewing the Purchase Agreement
The purchase agreement outlines the buyer’s and seller’s expectations. Before you sign this document, consider consulting with a real estate lawyer to ensure you understand the listed rules and requirements and potential risks.
Negotiating with the Seller
A real estate lawyer can also be valuable when negotiating the best deal with the seller and, when necessary, to back out of the sale. A lawyer adds more protection to the buying and selling process.
Protecting Your Rights
Working closely with a lawyer helps protect your legal rights and best interests throughout the home-buying process. A house is the largest purchase you will make in your life, so it is important to understand the financial and legal consequences.
Selling to a Cash Home Buyer Gives You More Flexibility
A buyer may decide to back out of a home purchase without consequences as long as they have a valid reason. Specific contract contingencies protect the buyer and seller. However, these same contingencies can also slow down the process, leading to long appraisal and inspection periods and pushing back closing dates.
Sellers seeking a fast sale with minimal inconvenience might consider cash buyers. A cash buyer allows sellers to skip the appraisal, inspection, contingency guidelines, and financing requirements, leading to a much faster sale.
With a cash sale, the seller also controls the closing date. A-List Properties can provide this streamlined experience, ensuring a fast and convenient sale.
Contact us today at (972) 526-7042 or fill out our online form to receive a fast cash offer for your home.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
