Entering into an agreement to purchase a home is one of the biggest and most exciting legal transactions most people undertake. Getting out of such an agreement can be one of the most stressful ones! Real estate transactions can fall through for all sorts of reasons, and people do back out of purchases for a variety of valid motivations. While buyers can opt out of a real estate contract at any time, the reason and timing will determine whether their earnest deposit will be forfeited.
Contingencies are Key
A binding, legal contract is a standard component of the home purchase process. Contingencies are passages within the contract that specify the conditions, agreed upon by the buyer and seller, that must be met in order for the sale transaction to be completed. These conditions typically include a home inspection and mortgage loan approval. Contingencies are especially important for prospective purchasers because they offer protection in the event the buyer is unable to complete the sale. Whether the buyer wishes to back out of a purchase inside or outside of the contingency period is the most important factor in determining who retains the money paid as an earnest deposit.
A change or heart, or circumstance, is generally a fairly straightforward event to deal with if it occurs inside of the contingency period or terms. Perhaps a home inspection uncovered the need for a repair or improvement the purchaser doesn’t want to take on; the buyer is well within his or her right to back out of the sale without any financial penalty. The same goes in the event that the buyer cannot secure a mortgage, or sell their existing home (as long as that has been spelled out in the contract). Simply put, backing out of a home purchase inside the contingency period is a common and easily-achievable occurrence. A buyer backing out at this point can count on getting their deposit back.
Things can get a bit trickier when a buyer wishes to rescind an offer for reasons not protected by contingencies, or after the contingency period has passed. In this case, the buyer should expect to forfeit any good-faith deposit they have made. In these scenarios, the best way to proceed is with honesty and as early as possible. Working with a seasoned real estate agent is also key to navigating this process. They have seen it all before and can help a buyer wishing to back out the best possible outcome.