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Circumstances can change as you go via the house purchasing process. You may be aware of problems with your house, or you experience an unexpected change in your finances that make you ineligible for a home loan. When problems arise, you might ask yourself whether or not you can back out of buying a house after signing a contract.
If you are wondering if as a seller, can you back out of a purchase agreement? The answer is yes, although you could lose a substantial amount of money depending on where you were in the buying process. You are also bound to what the contract states if you’ve already signed it.
Your purchase agreement is the paperwork that outlines your purchase terms and conditions. It is a legally restricting contract between the seller and the buyer.
It’s imperative that you at least have a general understanding of the provisions included in the agreement so that you can contest anything you don’t agree with or walk away altogether. Let’s go over a couple of instances that you want to pay particular attention to.
Yes, you may sue the buyer who reneges on the contract as a seller. Sellers can sue buyers for breach of contract and monetary damages. A property seller may be entitled to “specific performance” if a buyer backs out. Specific performance lawsuits are used in real estate to push buyers or sellers to close. A seller may sue a buyer for specific performance to compel the sale.
Yes, buyers can change their minds about buying the house before officially closing on it. However, once both parties have signed the purchase agreement, it becomes a legally binding contract. You are then subject to any and all penalties outlined in the agreement if you then decide to not go through with the purchase.
The answer is yes, but you’d need to do so before signing anything. Once the seller and buyer sign the contract, the terms of the agreement are legally restricting.
One of the prime examples buyers see of this happening is the seller making a counteroffer that they did not want to accept. There is no consequence for walking away if you are not interested in the counteroffer.
Most purchase contracts allow you to back out if, following your home inspection, you feel the house isn’t appropriate for you.
First, carefully read your purchase contract to find out when your house inspections are due. Assuming you are still within the deadline, you should review the contract to determine how to notify the seller of your want to cancel.
If your contract is like others, you must tell the seller in writing before the deadline. Some states have forms you can use to notify the seller. You should get your earnest money back if you notify the seller before the deadline and in the manner indicated in the contract.
After a purchase contract has been signed by the buyer and the seller, the sale must proceed in accordance with the contract terms. At this point in the deal, walking away becomes much more complex.
Buyers will usually pay earnest money when there is serious interest in a house. Buyers can withdraw their earnest money at any time. It’s usually between 1% and 3% of sale price and held in escrow until the deal is closed. The actual amount depends on your market. Otherwise, the earnest money goes toward the buyers down fee or closing costs.
A buyer may choose to walk away at the last minute; perhaps the idea of paying a mortgage, interest, property taxes, and being solely responsible for maintenance fees has become overwhelming.
Buyers who want to walk away from a real estate contract typically forfeit their deposit. A buyer may be willing to lose $1,000 rather than complete a real estate purchase. On the other hand, if you’ve gotten down to the wire (as in having signed a contract) and you start to get cold feet about closing, you’ll want to consult with real estate attorney as soon as possible to see if it’s possible to avoid any hefty financial penalties for breaking the contract.
A buyer’s earnest money is also called a good faith deposit. It is money that he or she pays when there’s a serious offer on the table. It is pretty rare that a buyer will pay more than a few thousand dollars as a deposit, but the more money paid to remove the property from the market in preparation for sale, the more money a buyer stands to lose if they decide to walk away.
There are special conditions that will allow either party to walk away from a contract with minimal or no financial penalty. However, those conditions would need to be included in the real estate contract.