Can you back out of an accepted, signed offer to buy a home? After all, a lot can happen during the closing period in any sale—losing your job, a medical emergency, a divorce—that might require you to change your plans. The good news is, yes, it’s possible to rescind a signed offer—but when you do it will determine whether you will lose your earnest money.
Can you back out of an accepted offer on a home?
Yes, but it might cost you. By signing a purchase agreement for a property, you’re legally bound to the contract terms, which typically include an up front deposit called earnest money—usually amounting to 1-5% of the purchase price. Earnest money shows the seller that you’re a serious bidder willing to follow through on the deal.
Of course, even with the best intentions, there still might be reasons why you untimely won’t elect to close the deal. That’s why most sales agreements (drafted by your real estate agent) include contingencies that allow you to renegotiate or back out of the deal without losing your earnest money. Common contingencies include:
- Home Inspection: You can back out of a deal if a home inspection reveals unexpected flaws that negatively affect the value of the property.
- Appraisal: If a home appraisal reveals the home value to be less than the purchase price and the seller won’t renegotiate, you can back out of the deal.
- The sale of your current home: Often, people need to sell a house in order to buy a house. This contingency prevents you from getting stuck paying two mortgages.
- Financing: If you are denied a loan from the bank to buy the house, you can back out with no penalty.
As the Washington Post points out, the seller can retain the buyer’s earnest money deposit and sue for additional damages if they can prove that you’ve intentionally scuttled the deal, either by imperiling a loan decision by incurring large debts or quitting your job.
What if contingencies don’t cover your reason for rescinding an offer?
Let’s say your reason for rescinding an offer is unrelated to a contingency in your contract—like getting a dream job in a new city. What can you do then? Unfortunately, the fate of your earnest money is in the seller’s hands. This is why you want to cancel your offer as soon as possible, as the longer you wait, the more it inconveniences the seller.
Consult with your real estate agent on next steps. Honesty is your best policy, as many sellers will be reasonable if your reason for rescinding the offer is due to a major, unexpected change in your life. Of course, you’ll have less traction if you just get cold feet about owning the property. In that case, you might have to bite the bullet and wave goodbye to your earnest money—a costly decision to be sure, but better than buying a home you’d rather not own.