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When Can A Seller Back Out Of A Contract?

6-Minute Read
Published on January 17, 2021
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Can a home seller back out of a contract to sell their property? The short answer is yes – under certain circumstances. In fact, it’s not uncommon for homeowners to get cold feet and want out of a real estate contract.

However, the choice to back out of a purchase agreement may come with added expense and potential legal consequences. Sellers who want out of an existing real estate contract should do their research and recognize that time is of the essence if they wish to save on steep legal fees.

Let’s explore whether or not you can back out of a real estate contract and some reasons you might want to. We’ll also take a look at the legality and consequences of some common situations.

Can A Seller Back Out Of A Real Estate Contract?

Yes, a seller can back out of a real estate contract. However, they have a limited number of options for withdrawing after a purchase agreement is signed. A homeowner who wants to back out of a deal will need a legitimate legal or contractual reason to cancel a home sale.

There are many reasons why a homeowner might change their mind about selling their home. Some property owners may want to backtrack for sentimental reasons. Others may sign a real estate contract only to determine in short order that the deal terms and deadlines don’t seem as attractive as they’d initially thought. If you want to back out of a deal, it’s important to act quickly and comply with the terms of your agreement to avoid legal complications.

Plan For Better Negotiations When Selling   

It’s common for concerns or disagreements to come up when negotiating a real estate contract. That’s one reason some states have a built-in attorney 3-day review period after signing a contract. This allows both the home buyer and seller to have an attorney look over the agreement. During this time, they can back out without consequences.

Knowing that conflicts come up and planning for them is part of selling or buying a home, one way to minimize disagreement is to add contingencies for the sale. This legal practice can allow a home seller (or buyer) to walk away from a purchase if certain criteria aren’t met.

Reasons Sellers Want To Back Out

Occasionally sellers may want to back out of a signed real estate contract – and they can, provided they comply with the terms of the agreement. This can be understandably inconvenient and frustrating for home buyers, but it’s a risk with any home purchase.

Some common reasons a home seller might back out of an accepted offer or purchase agreement include:

  • Emotional attachment: Sellers who lived in a home for a long time, or experienced major life events while living there, could get cold feet for sentimental reasons.
  • Unexpected events: A sudden illness, a job offer that falls through, or any number of other unforeseen events can derail even the best-laid plans.
  • Appraisal concerns: If a property appraisal comes in under the expected offer price, a seller might not want to lower the price or negotiate its terms. They may prefer to cancel the agreement instead.
  • Lack of housing: Sellers often list properties before they purchase a new home that meets their household’s needs. They may have trouble finding a new place to live in time to meet the terms of the accepted offer.

Times A Seller Can Legally Back Out Of A Real Estate Contract

Sellers who get cold feet have several options if they want to back out of a real estate contract after it has been signed. If you’re considering breaking a contract, you’ll need to make sure you’re doing it for a valid reason that won’t put you in breach of contract or incur legal penalties.

If you have any questions about the terms of a real estate contract – and what your legal options are – contact a legal professional such as a real estate attorney for advice.

  • Home sale contingency: A new home contingency lets you back out of a deal if you can’t find a suitable new home for yourself or your family. You’ll need to write this condition into the purchase agreement in order to use it later.
  • Attorney review: You can back out of a signed agreement if you’re within an attorney review period that was written into the contract (mandatory in some states).
  • Appraisal contingency: Appraisal contingencies account for situations when the appraisal comes in lower than expected for a property. If this happens to a buyer, their lender might deny their loan. If you aren’t willing to lower the sale price and the buyer won’t make up the difference in cash, the contract could be void.
  • Home inspection contingency: Prospective homeowners might make their offer contingent on a successful home inspection. If the inspection report contains findings that are unacceptable, buyers may request that you issue credits to deal with the issues or address these concerns by making repairs. If you aren’t willing to, that could end the negotiation and the home sale.
  • Buyer agreement: A sympathetic buyer who understands and empathizes with your situation may be willing to let you out of the deal without penalty.
  • Breach of contract: If a buyer doesn’t meet the terms of the purchase agreement, you might be able to back out of the contract. That said, there will be specific time limits as well as a grace period outlined in the purchase agreement. The buyer would need to be outside these limits in order for you to cancel.

These are just some of the legal reasons you may be able to get out of a purchase agreement. Let’s explore what could happen if you cancel an agreement for reasons that aren’t outlined in your contract.

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Consequences Of Canceling A Contract Outright

It might be tempting to back out of a contract when you have a personal reason for wanting to end the deal. Before you cancel a deal, you’ll want to consider alternate legal options. When backing out of a purchase agreement, a buyer may only forfeit the earnest money that they’ve put down as a deposit. However, sellers could face harsher consequences including:

  • Suit for specific performance: If you back out of your agreement, the buyer could sue you and ask the court to enforce the purchase agreement. If the court agrees with the buyer, the deal would move forward and you’d be obligated to stick to the original terms and proceed with the sale.
  • Damages: Buyers who feel they’ve incurred unreasonable and unwarranted expenses because a seller backed out of a purchase agreement might also sue. The buyer could be awarded damages for costs including storage costs, temporary housing costs, lost deposits, legal fees and more.
  • Listing agent sues for compensation: If you signed an agreement with a listing agent and backed out of the deal without cause – they could sue you for breach of contract. Your real estate agent puts in the legwork to find buyers and promote your home for sale. They’ll expect to receive commission if you agree to a sale and you could still be responsible for paying them if you back out.

FAQs On Backing Out Of A Contract Before Closing

Backing out of a real estate deal isn’t always a simple and straightforward process. Let’s take a look at some frequently asked

Can a seller back out of an accepted offer?

Accepting an offer on your home occurs when a contract is signed by the buyer and the seller. Home sellers can only back out of the terms of these agreements in select instances (and for a limited time period), subject to the individual rules, terms and contingencies defined in the contract.

Can a seller back out of a purchase agreement?

A home seller can also back out of a purchase agreement in specific circumstances. Again, terms and conditions associated with any given deal will vary. But there are certain situations where a property owner can back out of the arrangement, provided legal terms are adhered to.

What are the best ways to minimize risk?

A home seller should consult with an attorney and review all potential legal avenues before canceling a deal. If you want to end an agreement where you are in breach of contract, talk to a lawyer to see if offering a financial settlement preemptively could reduce your risk.

The Bottom Line

If you’re uncertain about selling your house, take time to step back and review your options. Consider whether a conversation with the potential buyer or a qualified legal professional should be in order. If you decided to back out of an agreement, try to understand how your decision will affect all parties involved in the transaction. If the buyer has done everything on their end to prove financial stability – and held to their end of the agreement – you’ll need to try to resolve the situation fairly.

Want to sell your home with confidence? Find a real estate professional with Rocket HomesSM today.

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto, RocketHQ, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.