4 Costs To Backing Out of a House Offer
Written by
Laura Beck
Edited by
T. Woods
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Buying a home is one of the biggest financial decisions most people make in their lives. It involves navigating a complex process and making a massive money commitment. Even after finding the perfect house and negotiating an offer, you might still get cold feet before closing the deal. But backing out of a real estate transaction shouldn’t be done lightly.
Unforeseen circumstances happen to everyone. Despite all your best intentions, backing out of a home purchase might be something you just can’t avoid. Before getting cold feet, you should understand the costs you might incur by withdrawing from your contract.
1. Loss of Your Deposit
When making an offer on a house, buyers typically submit what’s called an earnest money deposit as a show of good faith. This deposit, usually ranging from 1% to 3% of the purchase price, is held in an escrow account until closing. If you back out of the deal without a valid legal reason as outlined in the contract, you will probably forfeit this deposit to the seller. Depending on the home’s value, this could range from thousands to tens of thousands of dollars lost.
2. The Seller Could Sue You
If you back out of the sale, and the seller incurred losses as a result, they may take you to court to recover those damages. These damages could include the seller’s costs for taking the home off the market, paying carrying costs like mortgage payments and utilities, and potentially even the difference between your offer and a lower subsequent offer.
3. The Seller’s Opportunity Cost
When you make an offer on a home, you effectively take it off the market for other potential buyers. If you back out, the seller has lost valuable time and may have missed out on other offers during that time. This cost could be included as part of the damages the seller seeks from you.
4. Legal Fees
If the seller does decide to take legal action against you, you’ll probably need to hire an attorney to represent you, even if the case doesn’t go to court.
When Can You Back Out?
If you have made an offer and it was accepted, typically, you cannot back out without incurring the costs listed above. But there are a few commonly-accepted reasons that may allow you to withdraw your offer without any issues. These reasons must have been explicitly outlined in the contract, however. Simply having second thoughts or finding a better deal elsewhere is not usually considered a good enough reason for walking away.
If your financial situation changes, such as if you lost your job, your mortgage application could be denied. This would make it impossible for you to secure the loan you need.
The home inspection revealed major issues. Your contract most likely includes a contingency that allows you to walk away if something big was discovered during the home inspection process, such as structural defects, mold, termites, or other big problems that the seller isn’t willing to fix.
Likewise, if there are any issues with the property’s title, such as a lien or an ownership dispute, you may be able to withdraw your offer without running into trouble.
If the seller fails to meet their obligations outlined in the contract, such as making repairs they already agreed to, you may have the right to withdraw without penalty.
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