Home Buyers Guide: When Can A Buyer Back Out Of A Sale?

The purchase of a home is dictated by a contract. To back out of a home purchase deal, you must use an out offered by the contract.

The purchase of a home is one of the largest financial transactions most people ever make. It is critical to be confident of your purchase before you place an offer on a home and enter into a contract to buy.

A simple case of buyer's remorse is not a valid reason to cancel a contract. If you back out of a purchase deal, without a reason allowed under the terms of the contract, there may be substantial penalties. For example, the seller may keep the deposit you placed on the home. Or, the sellers may be within their rights to sue you for monetary damages for breach of contract or to sue you to force you to complete the deal. All of these are viable options for the sellers and their real estate agent.

So, when is it okay for the buyer to back out of a home purchase?

Generally, a purchase contract stipulates conditions, or contingencies, which must be met in order for the home sale to be completed. These contingencies allow opportunities for a home buyer to legally cancel the deal.

A contingency commonly included in home purchase contracts is the financing or mortgage contingency. This states that if the buyer does not receive final mortgage approval from a lender, the deal will not be completed. But, how can a buyer use this contingency to cancel a deal? If the buyer has a change in his financial situation - for example a job loss - that makes him unable to complete the home purchase, he should immediately contact his lender. Very few lenders want to offer a home loan to someone who is unemployed, with no income available to repay a loan. In addition, most mortgage loan companies require the home to appraise for the loan amount or higher. So, if you are uncomfortable because it appears you paid too much for your home, a low appraisal and the mortgage contingency may help you to get out of the deal or to renegotiate a lower purchase price.

Another contingency that frequently results in the legal cancellation of a purchase contract is the inspection contingency. This generally requires the purchase to be conditional upon the results of home inspections. If something unsatisfactory is discovered during the inspection process, the purchaser has recourse to cancel the deal or to renegotiate. An example of this might be the discovery of a faulty roof during a professional inspection. The buyers may legally decide that they do not want a home with a leaking roof, since they may have neither time nor money to deal with it. Or, they may simply decide they still want to purchase the home, but only if the seller will give them a credit equal to the cost of a replacement roof.

Other contingencies may be specified in the contract, which will aid a buyer in backing out of a deal. However, sellers and their agents may be wary of a potential buyer who requests too many conditions. This is often the sign of a buyer who is not serious. However, if your seller will agree to it, you can certainly add a contingency to the home purchase that you will only buy it if there is a shooting star spotted in front of a full moon on the night before the closing date.

The buyer may also back out of a deal if the seller does not meet some conditions. The title to the home must be clear, agreed upon repairs must be made and the home's condition must be maintained until the closing or the buyer may be able to cancel the deal.

Because a home purchase is a legal transaction, it is critical to stay within the dictates of the contract when canceling the purchase, or risk substantial penalties.

© High Speed Ventures 2011