Can You Back Out of a Home Offer?

Quick Answer

You can back out of a home purchase after you submit an offer, but there might be consequences if it’s late in the process or there are no contingencies written into the contract.

A couple listen to a realtor who is showing them a new home.

You can back out of a home purchase agreement. But there might be consequences―such as losing your earnest money deposit—if it's late in the escrow process or there are no contingencies written into the contract.

That said, you might be able to pull out without penalty if you get cold feet, decide the house has too many issues or the home isn't worth what you've offered to pay.

What Is a Home Offer Contingency?

A contingency is a clause in a home purchase agreement that outlines certain conditions the buyer or seller must meet in order for the sale to proceed.

Typically, the buyer outlines the contingencies of the sale in the offer contract they present to the seller. This way, the seller can understand the contingencies of the sale upfront and compare it with other purchase offers they may have received. An offer with fewer contingencies gives a buyer less opportunity to back out and may be more appealing to a seller.

Although there may be several other contingencies you can add, these three are generally the most common.

  • Home appraisal contingency: An appraisal contingency is a clause typically included in a purchase contract that gives the buyer the right to renegotiate with the seller or walk away from the deal if the lender-required home appraisal comes in much lower than the offer price.
  • Inspection contingency: An inspection contingency gives a buyer the right to walk away from the deal if they're not satisfied with the inspection results or if the inspection turns up unexpected repairs or damages. With an inspection contingency in place, a buyer can typically walk away without forfeiting their earnest money deposit.
  • Mortgage financing contingency: If a potential buyer can't secure financing to purchase the home, this contingency may give the buyer a way to walk away from their purchase agreement.

Depending on the contract's wording, you may only have so much time to back out of an offer, even with contingencies. In the case of a home inspection contingency, you may only have seven days to complete the inspection and send notice to the seller that they are canceling the contract.

In very competitive real estate markets, it can become customary for sellers to waive even the most basic contingencies in their offer. This is a risky move for buyers, but might be necessary to get a seat at the table when sellers are reviewing offers.

In some instances, you may not be able to back out (even with a contingency in place) without losing your earnest money deposit, which can be 1% to 2% of the purchase price. So, if the home's sale price is $350,000, you could potentially be out $3,500 to $7,000. That money could go a long way in making a few needed improvements in your new home.

Can You Back Out of a Home Purchase for Any Reason?

Because of high demand, low inventory and the chance of multiple offers coming in for a home, buyers and sellers often have to act fast and may not have a lot of time to mull over the terms of homebuying contracts. Both parties may feel pressured to sign the agreements, which may cause buyers to question their offer.

There are several reasons why a buyer may need to walk away from a home purchase agreement, even after the contract has been signed.

  • Job loss: If you suddenly lose your job and fear you can't make your monthly mortgage payments, you may decide to back out of your purchasing agreement—even if that means forfeiting your earnest money.
  • Can't qualify for a mortgage loan: You may take the steps to get preapproved for a home loan and still not qualify for a mortgage. If your agent included a financing contingency in your contract, you may be able to step away from the deal as long as you do so before your contingency expires.
  • A clouded title: A "clouded title" includes title errors such as unknown liens or easements, public record errors or a dispute over land boundaries. If any of these issues arise, you may be able to rescind your offer. That's because many title companies will refuse to insure a clouded title.
  • Can't sell your home: Some contracts will have a buyer's contingency clause stating that if they can't sell their home, they can walk away from the agreement if notice is given prior to the expiration date on the contingency.
  • Failed inspection: Most states require sellers must disclose anything that could affect the value to the property, such as structural damage or pest infestation. If the seller leaves things out of their disclosures, you can likely withdraw your offer. Or, if the seller reneged on an agreement to address needed repairs that surfaced during the inspection, you also can likely walk away.

Can a Seller Back Out of an Accepted Offer on a House?

A seller can back out of an accepted offer on a house, but it may be more difficult. If a buyer pulls out of a purchase agreement, they may only lose their earnest money deposit. But if a seller backs out after the purchase agreement that has been signed and the five-day review period has passed, a seller may face additional consequences.

This might include being taken to court by the buyer or the buyer's listing agent for monetary damages or lost commissions. But if the buyer doesn't stick to the terms of the contract or wants repairs made that the seller won't or can't do, the seller may be able to walk away without ramifications.

What Are the Potential Consequences of Backing Out of a Real Estate Contract?

While you technically can back out of a deal at any stage of the process, you might have to deal with the consequences if you decide to walk away too late in the process. That's because a purchase agreement is a legally binding agreement between the buyer and the seller.

Depending on the details outlined in the purchase agreement, you may stand to lose your earnest money deposit as compensation to the seller for the time the property was off the market. If all contingencies in the contract have been removed or finalized, a seller may sue a buyer for breach of contract and monetary damages. To ensure neither happens, it's best to notify your decision to walk away as soon as possible, for both yours and the seller's sake.

Deal or No Deal?

Events that change the direction of your homebuying plans can happen. If that's the case, you can back out of an accepted home purchase offer or agreement. Just keep in mind that timing is everything, especially when contingencies come into play, and be prepared to lose your earnest money deposit if you back out too late.

Buying a home can be exciting, but whether you decide to back out of your offer or follow through with the purchase, protecting your identity and your credit is important throughout the entire home purchase process. Stay on top of your credit with free credit monitoring from Experian.