Can you back out of a house offer? A guide to if and when you can walk away

Things can change as you navigate the home buying process. You may discover issues with the home you’re buying, or a sudden change in finances means you no longer qualify for a mortgage.

When things come up, you may wonder, “Can I back out of buying a house?” While it’s unlikely anyone will force you to close on a house you no longer want to buy, there can be financial – and, in rare cases, legal – consequences to backing out of a home purchase agreement after a certain point.

Let’s look at those consequences, including when they’re triggered and when you can walk away from a home purchase scot-free.

Can I back out of buying a house?

Yes, you can back out of buying a house. But here’s the colossal caveat: It depends on the stage of the home buying process. Buyers should practically commit the terms of their purchase agreement to memory. Because according to its conditions, backing out of a home sale may mean losing money.

If you’re thinking of backing out of a home purchase, consider the contingencies in your agreement, how much earnest money is at stake and whether you’re under contract.

Understanding the purchase agreement

Your real estate purchase agreement outlines the terms and conditions of your pending home purchase. It’s a legally binding agreement between a buyer and seller to proceed with a sale. These agreements are signed to protect the interests of the buyer and seller during a home sale.

If you have any questions or concerns about your purchase agreement, you should raise them when signing it to avoid any misunderstandings or issues that may delay the sale. Carefully reviewing this contract can be the key to knowing whether you can walk away from a sale without penalty.

When can I back out of buying a house?

Let’s explore a few scenarios when you can back out of a home purchase offer.

Before your offer is accepted

If you have cold feet or changed your mind, the best time to walk away is before a seller accepts your offer. If you experience a change of heart a few hours later, your real estate agent can withdraw the offer.

However, your time frame will likely be limited. Once you and the seller sign the purchase agreement, your offer becomes legally binding.

Buyers usually walk away at this stage for two common reasons. The first is that a seller makes a counteroffer the buyer rejects. The second is that a buyer makes a counteroffer that the seller refuses. In both scenarios, walking away from a counteroffer you aren’t interested in won’t trigger any penalties.

After the purchase agreement is signed

Once the buyer and the seller have signed a purchase agreement, they’re both legally bound to complete the sale under the terms outlined in the agreement, making backing out of the purchase more complicated.

Buyers will usually offer what’s known as an earnest money deposit. The deposit typically amounts to 1% – 3% of a home’s purchase price and is meant to signal to a seller that a buyer is committed to completing the home purchase.

Once the terms of the agreement are satisfied, the earnest money gets applied to the buyer’s down payment or closing costs.

When a buyer backs out of the sale for a reason not stipulated in the contract, the seller is usually entitled to keep the deposit. You may see this referred to as “liquidated damages” in your contract.

However, when most buyers make an offer on a home, they include contingencies that allow them to walk away under certain circumstances, even after they’ve signed the purchase agreement.

How to get out of a real estate contract

Your purchase agreement may include clauses, also known as contingencies, that stipulate the conditions under which a buyer can legally terminate the contract.

You typically have a limited amount of time to act on these contingencies. Once the deadline for a contingency has passed, you can’t use it as a reason to back out of a purchase penalty-free.

Let’s take a more in-depth look at standard home purchase contingencies.

Home inspection contingency

A home inspection contingency lets you back out of a home sale if the home fails a professional home inspection.

This contingency is vital. Home buyers are strongly encouraged to add it to their contracts. Without it, you may be legally obligated to buy a home with significant structural issues.

For example, let’s say you’re under contract to buy a home, and the inspector reports that the home has extensive plumbing issues and the entire system needs replacing. If you have an inspection contingency, you can either renegotiate with the seller and ask them to complete the repairs before closing or decide it’s not worth it and walk away with your earnest deposit.

If you didn’t have a home inspection contingency, walking away might mean forfeiting your earnest money deposit.

Appraisal contingency

An appraisal contingency protects the buyer if an appraisal comes in low. Without it, you may lose your earnest money if you walk away or have to make up the difference between the appraised value and the purchase price in cash at closing.

If you’re using a mortgage to purchase a home, your lender will typically require an appraisal to determine a home’s fair market value. Lenders don’t want you to borrow more than a home is worth. You’ll be in a tough spot if the appraisal comes in lower than the home’s agreed purchase price.

If you’re determined to make the sale happen, you can offer more money to cover the difference. Or you can walk away if you can’t afford it or don’t think it’s worth it. With an appraisal contingency, you can back out of the deal and keep your earnest money.

Home sale contingency

If you own your current home, chances are that you’re trying to sell your home while trying to buy a new one. A home sale contingency ensures you won’t have to buy a new home unless you can sell your current one.

This contingency will give you a certain amount of time to complete the sale of your home. If you can’t find a buyer or your buyer backed out, you can walk away from the purchase without penalty.

Financing contingency

A financing contingency protects the buyer if they can’t secure financing to purchase the home. This contingency is vital if you plan on financing your home purchase with a mortgage.

When you buy a home with a mortgage, you typically get preapproved first to see how much money you can borrow. You’ll go through the final approval process once you’re under contract and the appraisal is complete.

Even if you were initially preapproved, a lender may deny your mortgage application if there’s a sudden change in your financial situation or your lender learns information that wasn’t part of your preapproval. When this happens, a financing contingency allows the buyer to back out of the purchase and keep their earnest money.

Title contingency

Title is a legal concept that refers to property ownership. If you hold title to a home, you’re the legal owner of the property.

Title searches are typically completed on the home during the home buying process to ensure there are no issues that may interfere with a new owner’s claim to the home. Common title issues include liens or unpaid property taxes.

If the title search uncovers an issue, a title contingency allows the buyer to back out of the purchase penalty-free.

When backing out comes with a cost

Outside of any contingencies or other stipulations in the contract, once both parties have signed the purchase agreement, they’re legally obligated to proceed with the home sale.

For buyers, you risk losing your earnest money deposit if you walk away. On a $200,000 home, this may mean losing between $2,000 and $6,000.

Can a seller sue a buyer for backing out?

Buyers are typically less likely to be sued for breach of contract than sellers who back out of a purchase agreement – but buyers should still tread carefully.

A seller can sue a buyer for backing out of a sale, but that’s rare. Your purchase agreement may even indicate that the seller is limited to keeping the earnest money as damages if you back out, and that by signing the agreement, the seller agrees not to pursue other legal remedies.

Buyers may have more room to sue a seller who fails to complete a transaction. When a seller backs out of a purchase contract, a buyer can have their earnest money refunded, and they may be able to sue for damages and even get a court to compel the seller to complete the sale.

While lawsuits are uncommon, if you’re thinking about backing out of a home purchase, it may be a good idea to consult with a real estate lawyer first.

Backing out of a house offer: FAQs

Here are a few of the most common questions buyers have when considering backing out of an offer they put on a house.

Can you back out of a house offer after inspection?

If you have a home inspection contingency, you can back out based on the inspection’s results – but only within the time frame specified in your purchase agreement.

Can you back out of buying a house before closing?

In short: yes. Buyers can typically back out of buying a house before closing.

However, once both parties have signed the purchase agreement, backing out can get complicated, especially if you want to back out and keep your earnest money deposit. Review your contract to understand the consequences of walking away.

Can a seller back out of selling a house?

It depends on where you are in the home selling process. It’s more likely that a seller will walk away if an offer doesn’t meet their home sale price. It’s harder for a seller to back out of a sale when there is a signed contract. And in some cases, it’s illegal.

The bottom line: Contingencies are your best bet

Sometimes, things don’t go according to plan.

That’s why including the right contingencies in your purchase agreement is so important. While you can back out of a home sale without a contingency, you risk losing your earnest money and opening yourself up to litigation. Contingencies offer buyers an exit strategy if they encounter common issues during the home buying process.

Buying your first home? Buy with an agent who can help you navigate the process and understand your purchase agreement.