When Is It Too Late to Back Out of Buying a House?

Can a Buyer Back Out Before Closing? Yes!

A miniature house sitting next to a gavel
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Walking away from a closing happens more often in buyer's markets than in seller's markets. Some buyers become frightened when prices seem to be too soft, while others are afraid of further declines in the market.

Other factors can come into play as well, regardless of the market. The fear usually begins to set in right after the purchase offer is accepted. Full-blown panic tends to set in a day or two before closing, and buyers might be inclined to pull the plug. A buyer can back out of a purchase agreement, but it will usually hit them where it hurts—right in the bank account.

Key Takeaways

  • Contract contingencies are a common way for buyers to get out of purchasing a house when the seller doesn't follow through.
  • Most real estate contracts are accompanied by earnest money, which is money given to the seller to show the intent to buy.
  • Buyers can back out of a home purchase at any time for any reason but are likely to lose their earnest money.

Contract Contingencies: A Way Out

Well-written purchase offers almost always include contract contingencies—items and terms that must be met or removed within certain periods, usually 10 to 18 calendar days. A contingency is a qualifier of sorts. It's like saying, "Yes, I'll follow through and buy your home, unless . . . ."

Some contingencies are pretty common. They might include:

  • The property passing inspection
  • The buyer being approved for financing
  • The property appraising at an acceptable value
  • The buyer being able to sell their existing home
  • The buyer being approved for financing

An inspection report with a poor rating can indicate that pricey repairs are on the horizon. If the buyer's request for repairs isn't granted, or if something else goes wrong with the home that they don't discover until a final walk-through inspection, they are likely to walk out. A low appraisal can affect financing, so a buyer might be unable to borrow enough to purchase the home through no fault of their own, because lenders don't like to loan more than an appraisal price.

It's not reasonable for a seller to insist that a buyer go through with the purchase in any of these circumstances.

There are deadlines by which these conditions must be met, and a buyer is entitled to walk away if one or more are not.

The Buyer Gets Cold Feet

Buyers sometimes don't walk away until the last minute. The reality of paying a mortgage, interest, property taxes, and maintenance costs might hit them at the eleventh hour. They might decide that they just don't want to tie themselves down like that after all.

Ideally, this will happen early in the process, but sometimes the initial dread doesn't dissipate with time.

Problems With Financing

Last-minute problems with financing can crop up after the contingency period has passed. A lender might issue a loan preapproval letter to the buyer, but this doesn't mean that it will give the buyer financing.

Buyers can face underwriting stipulations that they can't perform after the loan contingencies are removed. An experienced loan officer can fix many conditions for a loan's approval in advance and save the day, but not all loan officers are that adept.

The Buyer Finds Something Better

A buyer might keep looking at homes and going to open houses after committing to buying, and another home might turn into their dream home in the blink of an eye. This can mean goodbye to the first "dream home" and hello to the second. 

Life-Changing Circumstances

Unexpected job transfers, sudden pay cuts or demotions, an out-of-the-blue divorce or marital troubles, a severe illness, or any number of other circumstances can cause buyers to do an about-face on the brink of closing.

Unforeseen Events

Sometimes the situation has nothing to do with the buyer's whims or qualifications. The home itself could be destroyed in a tornado, hurricane, earthquake, or flood, or at least it might suffer enough damage to affect the sale.

Any number of natural disasters can create havoc and render a home uninhabitable. Most buyers would walk away under these circumstances, and rightly so.

The Results of Walking Away

A buyer's earnest money deposit (sometimes referred to as a "good faith" deposit) is money put down toward the purchase when the buyer makes an offer on a home. All earnest money deposits are negotiable. It's not unusual for a seller to accept $1,000 as a deposit on a $500,000 home, but the higher the deposit, the more money the buyer has at risk under the provisions for liquidated damages.

Earnest money is often at risk after contingencies have been released from the contract. Some contracts call for liquidated damages in the event of default after contingencies have been removed. Liquidated damages in a real estate transaction usually equal the earnest money deposit for the buyer.

The money the seller receives for the buyer's default is often limited to the actual deposit on hand if both parties have contractually agreed to liquidated damages. A seller might be free to sue for actual damages, which could exceed the deposit when liquidated damages aren't provided for in the contract.

Buyer Beware 

Buyers who want to walk away will often forfeit their deposit. One thousand dollars might not be substantial enough to force you as the buyer to follow through and close, though. Consult with a real estate lawyer if you find yourself in a position where you want to walk away from a real estate purchase at the eleventh hour for any reason.

Frequently Asked Questions (FAQs)

When can the seller keep a buyer's earnest money?

The seller can keep a buyer's earnest money if the buyer breaks the sale contract without a contingency or valid reason to do so. Contingencies are written into the initial sales contract and include things like inspections and appraisals. State laws govern specifics of other acceptable reasons, but they typically include such things as an inability to secure financing, a death in the family or other significant tragedy, or job loss.

How long does it take to get earnest money back?

State and local laws mandate different periods for returning earnest money when the buyer backs out for a valid reason. Most stipulate that it must be returned within a few days or a "reasonable time."