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You thought you’d found the house of your dreams, but since you submitted the purchase agreement, things have changed. Maybe you slept on it and are having buyer’s remorse. Maybe something didn’t turn out right with the inspection. Maybe your life plans changed at the last minute. Whatever the reason, your dream home has become a nightmare, and you want to wake up.
But just how do you walk away from a house purchase? Can it be done? Will you lose your earnest money? And where do you even start? Not to worry — we’ve got you covered. Read on for answers!
Step 1: Talk to your agent
Even if you’ve never done this before, your agent almost certainly has. That’s right — you’re not the first person to back out on a home purchase, so you don’t need to feel alone or embarrassed. Tell your agent your concerns and ask for their advice.
If you’ve been working with an agent throughout the process so far, it might even be the case that you’ve already started this conversation on some level. Real estate agent Rusty Johnson, who has nearly a decade of experience selling homes near Omaha, Nebraska, says that early in the homebuying process it’s important to, “sit down and talk with your agent and make a plan.”
A good agent will have been giving you advice along the way and should have some sense of whether you’ve been heading into a good decision or not. Let your agent’s knowledge and experience be your guide and your source of reassurance.
Step 2: Look at the purchase agreement
There’s almost always a way to get out of the contract, but the question you might be most concerned about is whether you can do so without losing your earnest money. Earnest money is money that you pay when you submit the purchase agreement, to show you are in earnest about buying the house. Depending on why you want to walk away, you might end up forfeiting this sum.
The specifics of whether or not that will happen can be found in your purchase agreement, so you will want to start by reading through it in detail (and asking your agent to clarify anything confusing) Johnson notes that some contracts are very specific about a buyer’s ability to terminate the sale due to inspection issues, which is done to protect the seller.
The way your contract is written and your ability to walk away may also vary based on the current market. If there are plenty of other buyers wanting the property, the seller is less likely to be hurt by someone walking away, especially at the beginning of the process.
Some of the more common reasons for walking away from a home purchase include:
If there’s something seriously wrong with the house and you don’t want to deal with it, you can walk away. Usually, there is a clause in the contract that allows you to do so.
For example, maybe a home inspection indicates that the electrical wiring is not up to code and would require extensive work to fix. Or perhaps the foundation is cracking. Keep in mind, however, that there’s almost always a time limit on the inspection contingency, so make sure you are walking away within those time parameters.
If the seller has built an add-on or put in an extra bathroom without obtaining the proper permits, you could end up liable for any fines and getting the permitting up to date.
The lender isn’t going to back a full loan for a house that under-appraises, and if the seller won’t reduce their price and you can’t make up the difference, you can walk away.
Often purchase agreements are contingent on the buyer obtaining financing. You may have been preapproved going into the contract, but for whatever reason the bank won’t approve your loan. This is one of the most common reasons for walking away.
Your house didn’t sell yet
Some people have to sell their existing house before they can purchase a new one, and if they don’t want to get a bridge loan, or aren’t working with a flexible lender, if that house doesn’t sell, they can’t afford to buy. This constitutes another type of financing issue.
If you are in the process of getting title insurance, sometimes the title search turns up some issues. There may be liens on the property, unpaid HOA dues, or incorrect legal descriptions. It may even be the case that the seller doesn’t have the right to sell.
Another common contract contingency is the ability to secure homeowners insurance. If you are unable to insure the home because the insurance rates are so high they’re unaffordable, or the company refuses to insure certain structures on the property, then this could be grounds to walk away. An insurance company might also require trees to be removed or something similar, which is another reason you could terminate the contract.
Life circumstances change
Death, job loss or relocation, and many other things can happen last-minute. You may have been ready to settle down in a new home when life got turned on its head and plans must completely change accordingly. There should be contingencies in your purchase agreement that give you the option to walk away from a sale under certain circumstances.
Forces of nature
Another unforeseen circumstance can happen in the form of a hurricane, earthquake, tornado, or flooding. Maybe the home you were about to buy is damaged or destroyed, or maybe the one you were about to move out of is and you have to deal with that first. In those cases, you can walk away from the house purchase.
One note: A pandemic isn’t considered a force of nature in a real estate purchase agreement. If a contract has to be modified due to a pandemic, it will have to use an addendum.
The seller failed to disclose something
This is another freebie. If you can prove the seller knew about an issue and didn’t tell you, you can run away with your earnest money.
You simply changed your mind
Perhaps another house came on the market and you like it better. Johnson says, “What we do see in a hot market is buyer’s remorse.” Be aware that you may very well lose your earnest money on this one if you walk away, though.
Step 3: Take immediate action to communicate your decision
The sooner you communicate your intentions, the better — for both you and the seller. Your real estate agent will send the listing agent details about why you are backing out in writing.
If you are withdrawing because of a contingency issue, because the seller failed to disclose a known issue with the house, or because of a force of nature, you will most likely get any earnest money back. If the reason you want to (or have to) walk away is because you changed your mind, however, you’ll probably forfeit the earnest money.
Once you’re past inspections and appraisals, the likelihood of getting your earnest deposit back decreases. In fact, in some states it’s even possible to be sued for walking away from a contract without just cause. That’s unlikely, however — a seller can’t list a house that’s part of a legal dispute, so they would have to sacrifice any chance of finding another buyer in order to sue you. Johnson adds that, “Most people don’t want to spend their time and arbitration mediation or spend money on an attorney.”
Past a certain point, there must be extreme circumstances for the seller to let you walk away with the earnest money — something like an illness, job loss or other catastrophic event.
Step 4: Back to the drawing board
Just because this house didn’t work out, that doesn’t mean you aren’t meant to be a homeowner. Keep looking!
Johnson’s advice is to, “Make your grocery list before you go shopping.” Sit down with your agent and figure out what it is that you are looking for. It’s quite possible that going through the process of almost-buying has made this much more clear for you. An agent can also help you understand which bumps in the road are normal and which are cause for alarm.
Try HomeLight’s agent search when you’re ready to find an agent that will work well with you.
Header Image Source: (Vladimir Kudinov / Unsplash)