When Is It Too Late To Back Out of Buying or Selling a House?

Disclosure: This article is not a substitute for legal advice. Please consult with a licensed attorney.

It’s not uncommon for people to change their minds about selling or buying a home. 

Buyers must be ready to borrow and spend hundreds of thousands of dollars on a long-term commitment and may find problems with the home itself or have difficulty getting financing. Sellers may have trouble letting go of a lifetime of memories made in their home or finding a new home to move to.

Either way, the closer a deal is to completion, the more difficult — and more expensive — it usually is for either side to cancel it.

When Can a Buyer Back Out of Buying a House?

An offer to buy a home typically doesn’t become a binding contract until both parties sign a purchase and sale agreement. Before the agreement has been signed, either party may cancel the sale without penalty, either by withdrawing or rejecting the offer to buy the home. 

Once both parties sign a purchase and sale agreement, which lays out all the terms of the transaction, a sale can be canceled without penalty only if a contingency in the deal isn’t met.

Contingencies are terms spelled out in the purchase and sale agreement that must be met for the deal to go through. For example, a home inspection contingency allows the buyer to back out of the sale if a professional examination of the property finds it unsafe or needs major repairs.

If you back out for a reason other than a contingency not being met, you’re essentially breaking the contract. At the very least, you would forfeit any earnest money you put down as part of making a strong offer on a home. At worst, both parties could be headed to court to resolve the issue.

“There are many reasons, and opportunities, for a buyer to back out of a home purchase,” says Nathaniel Hovsepian, owner of The Expert Home Buyers, a real estate investment company in North Augusta, South Carolina. “The consequences come when they try to back out after their due diligence period has ended. This can result in a forfeiture of their earnest money deposit, which would go to the seller.”

Can you back out of buying a house after making an offer?

Yes, it’s possible to back out of a house after making an offer. If you are having second thoughts, contact your real estate agent as soon as possible and let them know you want to withdraw your offer. The sooner you do this, the better.

If you receive a counteroffer from the seller, the ball is in your court. The seller is essentially declining the original offer and proposing a new one. If you decline the counteroffer, you’re free to walk away.

Can you back out of buying a house after signing a contract?

Yes, though whether it will cost you depends on the terms of the contract you sign.

If you cancel the deal because one of the contingencies outlined in the purchase and sale agreement hasn’t been met, you usually can walk away without having to pay penalties.

If all contingencies are met, canceling the deal usually will forfeit your earnest money deposit. And, if you can’t reach an amicable deal with the buyer, you could be sued for breach of contract.

6 Reasons Why You Might Back Out of Buying a House

There are many reasons you might want to back out of buying a home, from a change in the market or your financial situation to simply getting cold feet.

1. The home inspection reveals need for repairs

If the home inspection uncovers major problems with the property and forecasts pricey repairs, you might want to rethink the purchase. You can back out of buying the house if your purchase and sale agreement contains a home inspection contingency. If you agree to buy the home as is, you won’t have this option.

2. The home appraisal comes in too low

If the appraised value of the home is lower than expected, then you might be offering too much for the house — and your mortgage lender may refuse to approve your loan if you need to borrow more than the home is worth. If there’s an appraisal contingency in the purchase and sale agreement, and both parties fail to renegotiate the contract to reflect a low appraisal, the buyer may cancel the transaction.

3. The buyer is unable to sell their current home

You may need to sell the home you’re living in now to afford the one you’re making an offer on. A home sale contingency in the purchase and sale agreement makes selling your current home a condition of the offer you’re making to buy the new one. If you can’t sell your home, such a contingency would let you back out of the deal.

4. The buyer is unable to secure financing

Many offers are contingent on the buyer getting a mortgage. If you’re unable to secure financing, the purchase and sale agreement will let you cancel the transaction.

5. Problems with the property’s title

During the closing process, a title search will verify legal ownership of the property and disclose any liens that have been filed against it. If title problems are found, the seller may be unable to cleanly transfer ownership to the buyer in a timely fashion. A title contingency allows the buyer to cancel the deal if problems are found with the title. 

6. Change in buyer’s financial situation

If the buyer loses their job or has some other major change in their finances during the process of buying a home, they may find themselves unable to afford the home. In such cases, the buyer may not be able to get a loan and can cancel the deal if the contract includes a financing contingency.

When Can a Seller Back Out of the Purchase Agreement?

Sellers also face consequences for backing out of a purchase and sale agreement. If a seller backs out after signing the purchase and sale agreement — say, there’s a case of seller’s remorse — the buyer could sue for breach of contract. The seller also may be forced to return the buyer’s earnest money.

Sellers can add contingencies to the contract that benefit them as well. For example, the sale can be contingent on the seller’s ability to buy a new home. If they can’t find a new home, they could cancel the sale and stay in their current home.

Sellers also may cancel if the buyer fails to meet the terms of the agreement, such as being unable to close the sale by the agreed-upon date.

Can a seller back out of the contract after the home inspection?

While home inspection results can have a major effect on the sale, the inspection itself doesn’t let the seller cancel the deal.

More typically, if the home inspection reveals the need for major repairs, the buyer may ask the seller to make or pay for repairs or adjust the price to compensate. If the seller wishes to cancel the sale, they either can refuse in the hope that the buyer will cancel the sale, or negotiate an amicable cancellation of the sale with the buyer.

How To Get Out of a Real Estate Contract Before Closing

The best way to get out of a signed purchase and sale agreement is through unmet contingencies. 

As a buyer, you want to negotiate as many contingencies in the contract as possible so you have the greatest number of options for canceling the deal if something goes wrong. Sellers usually prefer fewer contingencies in the contract. Asking for too many contingencies may be a deal breaker for the seller, so it’s important to think about what you can and can’t live without and negotiate accordingly. Both parties should work with a real estate lawyer to draft a purchase and sale agreement that each side can agree to.

If all contingencies are met, getting out of a deal before closing is more difficult. Given the risk of a breach of contract lawsuit, it’s best to consult a lawyer for legal advice in such a situation.

You may be able to negotiate an amicable way out of the deal with the seller, though you’ll likely forfeit your earnest money or have to otherwise compensate them for their time and effort. If that doesn’t work, the seller could sue you for breach of contract, and the issue would be decided in mediation or at trial — both very expensive options.

Costs From Backing Out of Buying a House

If you back out of buying a house after signing a purchase and sale agreement, you may lose any earnest money tied to the offer. The average earnest money deposit can be as much as 3% of the home’s value. In expensive areas, this could mean tens of thousands of dollars.

If the parties are unable to negotiate an amicable agreement, a lawsuit is possible. Lawsuits are notoriously expensive and time-consuming, and the cost of resolving the issue in mediation or at trial could run tens of thousands of dollars.

FAQ: When Is it Too Late To Back Out of Buying or Selling a House?

Here are answers to some common questions about backing out of a real estate deal.

The Bottom Line on Backing Out of Buying a House

Buying a house is a big decision, and sometimes people have second thoughts. Whether you’re a buyer or a seller, you should know that it’s possible to back out of a real estate transaction. If you find yourself in this situation, keep your options open with contingencies, be confident before you sign, and know that the sooner you back out, the better. 

Rory Arnold contributed to the reporting of this article.