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 salelosing your job, a medical emergency, a divorcethat might require you to change your plans. The good news is, yes, its possible to rescind a signed offerbut 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, youre legally bound to the contract terms, which typically include an up front deposit called earnest moneyusually amounting to 1-5% of the purchase price. Earnest money shows the seller that youre 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 wont elect to close the deal. Thats 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 wont 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 buyers earnest money deposit and sue for additional damages if they can prove that youve intentionally scuttled the deal, either by imperiling a loan decision by incurring large debts or quitting your job.
What if contingencies dont cover your reason for rescinding an offer?
Lets say your reason for rescinding an offer is unrelated to a contingency in your contractlike getting a dream job in a new city. What can you do then? Unfortunately, the fate of your earnest money is in the sellers 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, youll 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 yourearnest moneya costly decision to be sure, but better than buying a home youd rather not own.read more
