You’ve found a home that you’ve fallen in love with, submitted an offer, and it was accepted by the seller! It should be time to celebrate, but shortly after you celebrate your accepted offer, something causes you to have second thoughts. Is it too late to back out?
The answer to this question depends on whether or not the offer is still in the contingency phase (if there are any), or whether certain circumstances have arisen that may give you the liberty to back out of the deal even after the sale is firm.
You’ve likely provided a handsome earnest money deposit to show the seller that you’re serious about buying, and may be concerned that you may lose that money if you don’t follow through with the deal as promised. Without a valid reason to back out of the deal, that deposit could realistically be as good as gone. However, contingencies and legal protections may enable you to walk away from the deal.
Contingencies Can Give Buyers the Option to Break the Deal
If the offer is still in its escrow phase, that means the sale has not yet been completed. If contingencies were included in your purchase agreement, they need to either be fulfilled or waived by their respective expriry dates before the deal is sealed.
During such time, you may have the opportunity to walk away from the deal if any one of these contingencies is unsatisfactory. For instance, a home inspection might uncover issues with the home that you are either uncomfortable with or are unwilling to pay to have repaired. Or perhaps you’re having a tough time being able to secure financing to pay for the home, in which case your financing contingency cannot be fulfilled.
If the home is goverened by an HOA or condo corporation, you should make sure that your contract is contingent upon review of the complex’s Declaration of Covenants, Conditions, and Restrictions, or CC&Rs. If you are not satisfied with what such documents tell you about how the financial and legal health of the HOA, you have the right to back out of the deal.
Other contingecies can also help you break your promise to follow through with the sale, such as a home sale contingency that makes the transaction dependent upon the sale of your current home. If you are unable to find a buyer for your own property within the time frame stiuplated in the contract, the deal can be quashed.
The point is, if you are still within the contingency phase of your real estate contract, you likely have the right to withdraw from the deal without consequence. This is the best chance you have to walk away without having to pay any financial penalties. As long as you provide the seller with adequate notice during the time period of the contingency, you’re allowed to withdraw your offer and back out without having to sacrifice your deposit.
What If There Are No Contingencies to Rely On?
Unfortunately, once you’ve waived or fulfilled the contingencies on the contract, you’ll be putting your earnest money deposit at risk. Some real estate contracts allow sellers to request liquidated damages if the buyer is in default. These are damages in the amount that has been stipulated in the contract and agreed upon by all parties, and allows the the seller to collect this money as compensation if the buyer is in breach of the contract.
If both you and the seller agreed to liquidated damages, the money that the seller receives as a result of your default of the contract could be limited to the deposit.
If there are no liquidated damages stipulated in the contract, the seller can actually take you to court and sue you for the money they claim to have lost as a result of the quashed deal, which could be a lot more than the earnest money deposit.
That said, there may be extenuating circumstances that could be justification for backing out of a deal without being subject to ramifications, including the following:
• Seller’s failure to make agreed-upon repairs
• Seller’s failure to provide clear title
• Inaccurate boundary lines
• Undisclosed easements
• Job loss
• Military personnel being transferred
In cases such as these, you may have some protection against any legal liabilities if you decide to walk away from the deal. If the seller still chooses to come after you for damages, you may want to secure a real estate lawyer to help.
The Bottom Line
Buying a home is a big deal. Under no circumstances should you make the decision to purchase a home without having given it a lot of thought. While you may be able to back off from a deal for various reasons, you’ll just be wasting everyone’s time and effort – including yours.
Your best bet is to speak with a mortgage specialist and team up with an experienced real estate agent to make sure you’re ready – both emotionally and financially – to become a homeowner in order to avoid buyer’s remorse and any unpleasant circumstances that come with it.