Once you and the seller sign the purchase agreement, things start to get real. You now have skin in the game in the form of your earnest money<\/a> deposit, plus you have a legal duty to buy the home (barring certain circumstances).<\/p>\n\n\n\n\n\n HomeLight can connect you with the most experienced buyer\u2019s agents in your home shopping area. These top professionals can help you make the best buying decisions and protect your interests.<\/p>\n \n We talked to veteran real estate agent Laura Wallace<\/a>, who\u2019s worked with 80% more single-family homes than the average agent in Memphis, Tennessee<\/a>; she walked us through the ins and outs of what happens when a buyer backs out of a contract. Here\u2019s what you need to know.<\/p>\n There are several ways you may be able to safely back out of a real estate deal, depending on the terms of your contract with the seller. Basically, your options hinge on two things:<\/p>\n What are contract contingencies? They\u2019re protective clauses you put in your contract with the seller that allow you an out if certain conditions of the sale aren\u2019t met.<\/p>\n For example, if you can\u2019t get a mortgage<\/a> for the home, it\u2019s unlikely you\u2019ll be able to fulfill your end of the contract; without a mortgage, you can\u2019t pay for the house. So as a buyer, you should have a contingency in your contract to protect you in case you can\u2019t get proper financing for the home.<\/p>\n Contract contingencies are used in most real estate contracts, and it\u2019s not entirely uncommon for deals to fall through. According to the latest data from the Realtors Confidence Index (RCI), 76% of purchase contracts contain contingencies<\/a>, and around 7% of contracts are terminated<\/a>.<\/p>\n All in all, contingencies can protect you and your earnest money deposit if certain conditions of the contract aren\u2019t or can\u2019t be met.<\/p>\n Before you begin to make offers or sign any contract, you should talk with your real estate agent<\/a> and attorney (if you\u2019re using one) to decide what contingencies to include in the real estate contract.<\/p>\n There are four common buyer contingencies: financing, appraisal<\/a>, inspection, and home sale. They each have unique functions and features meant to protect buyers.<\/p>\n A financing contingency allows you to back out of the purchase contract if you can\u2019t get a mortgage for the home. If you think about it, this contingency makes a lot of sense. If you can\u2019t secure financing to pay for the home, that doesn\u2019t leave you any way to buy it. (Unless, of course, you have several hundred thousand dollars laying around.)<\/p>\n Say you make an offer on a home and it\u2019s accepted by the seller. Then, as you\u2019re in the process of completing your financing and closing on the home, you\u2019re laid off from your job. This could cause your lender to refuse you a mortgage.<\/p>\n Issues with financing are fairly common in home sales. According to recent Realtors Confidence Index (RCI) data, 27% of real estate contracts that are terminated<\/a> fall through because of financing.<\/p>\n If you have a financing contingency, you\u2019re protected. You can back out of the deal if your lender can\u2019t close your loan, plus you\u2019ll get your earnest money deposit back.<\/p>\n Appraisal contingencies are also related to getting your mortgage. In order to get a home loan, your mortgage lender needs to make sure they don\u2019t lend you more money to buy the property than it\u2019s worth.<\/p>\n To that end, during the mortgage process, your lender will send a neutral third-party appraiser out to the property to assess its value. The appraiser will also look at recent sales in the area to get \u201ccomparables\u201d so they can get an idea of what you should pay for your home.<\/p>\n If the appraisal comes in lower than what you agreed to pay for the home, you could be on the hook to make up the difference yourself, or have to renegotiate with the seller.<\/p>\n For example, let\u2019s say you offer $250,000 for a home, and your offer is accepted. The lender sends out their appraiser, and the appraisal company decides the home is worth $220,000. You\u2019re now on the hook for that $30,000 gap if you want to buy the home.<\/p>\n If you still really want the home, you could decide to pay the difference yourself, or renegotiate the price with the seller.<\/p>\n Or, if you have an appraisal contingency, you can walk away<\/a> from the contract, and you and your earnest money are protected. Appraisal issues are responsible for 9% of terminated real estate contracts<\/a>, so this can be a smart contingency to have in your agreement.<\/p>\n Just like your lender wants to protect their investment, as a buyer, you\u2019ll want to get a home inspection<\/a> to protect yours. A home inspector is hired by the buyer to go through the property, take a detailed look at everything, and inform you of any problems.<\/p>\n Issues like a damaged roof or a cracked foundation<\/a> can significantly affect the value of a home. With an inspection contingency, you have the opportunity to request repairs or credits (this is when a seller takes money off the price of the home so you can make the repairs yourself) for anything that comes up with the inspection. If the seller refuses, you can walk away without penalty.<\/p>\n Home inspection and environmental issues account for 20% of failed purchase contracts<\/a>, so this is an important contingency to protect yourself when you buy a home.<\/p>\n Buying a new home and selling your old one simultaneously can complicate things. What if you make an offer on a new home, but you can\u2019t sell your current home in time to complete the deal? Enter the home sale contingency.<\/p>\n A home sale contingency gives you a set amount of time to sell your current home before you close on the new home. If you aren\u2019t able to sell your current home in time, you can back out of your contract with the seller. That\u2019s because it would likely be impossible for you to actually purchase the new home without freeing up the money that\u2019s tied up in your current home.<\/p>\n Whether you’re looking to find a new home, or just exploring your options, it’s helpful to know how much your current home is worth. Get a ballpark estimate from HomeLight’s free Home Value Estimator.<\/p>\n \n If you back out of the contract for reasons that aren\u2019t stipulated by your contract or its contingencies, you could be out your earnest money \u2014 or, in extreme cases, you could even be sued by the seller.<\/p>\n There are few instances that could put you at risk of a seller-driven lawsuit.<\/p>\n![\"homelight](\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/logo-small-cta.png\"){kind=logo}
\n <\/div>\n \n Achieve Greater Buyer Confidence With a Top Agent<\/h3>\n
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<\/a>Can a seller sue a buyer for backing out of a deal?<\/h2>\n
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Common contract contingencies that let buyers back out of the deal<\/h2>\n
Financing contingency<\/h3>\n
Appraisal contingency<\/h3>\n
Inspection contingency<\/h3>\n
Home sale contingency<\/h3>\n
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<\/a>\n <\/div>\n \n Discover What Your Current Home Is Worth<\/h3>\n
When can a seller sue you for backing out of a home sale contract?<\/h2>\n
1. You don\u2019t exercise your contingencies within the timeline of the contract<\/b><\/h3>\n
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