Can a buyer back out of a real estate transaction before closing legally? The answer is yes under certain circumstances.
Sometimes buyers have entered into a mutually accepted purchase and sale agreement but a situation arises where the buyer cannot go through with the purchase. Buyers may terminate a transaction due to a contingency.
What are Contingencies?
As a buyer, you may have the opportunity to investigate the property and contingencies give you the time to do that. A contingency essentially is a condition in the purchase and sale agreement that needs to be met.
Common examples of contingencies for buyers are:
-the transaction is contingent upon a buyer’s subjective satisfaction of a home inspection
-the sale is contingent upon the buyer obtaining financing
-the buyer is contingent upon selling their home first
For more information about being contingent upon selling your home before buying your next home, you might want to check out this post and video.
Contingencies and Timelines
Along with these contingencies are timelines. Contingencies don’t go on forever – there are deadlines. For example, if the buyer includes a home inspection contingency in their offer, the boilerplate language states the buyer has 10 days to do the home inspection and respond to the seller. If the buyer discovers a problem and they don’t want to complete the sale, as long as the buyer gives notice of disapproval and termination within the agreed-upon timeline, in this case, 10 days, then the buyer can contractually terminate the agreement.
No Contingencies, Then What?
In the current competitive market, buyers are waiving a lot of contingencies. This may help buyers win the bidding war but it also puts pressure on the buyer to complete the sale and they could risk losing their earnest money.
What happens if a buyer doesn’t have any contingencies left but they cannot go through with the purchase? In this case, the buyer would be in breach of the contract. If the parties agreed that a breach of contract would result in the forfeiture of the earnest money, then the buyer would terminate the agreement and forfeit their earnest money to the seller.
What’s a Buyer to Do?
My best advice for buyers in this fast-paced seller’s market is to be ready to make big decisions in a short amount of time. In order to make big decisions fast, I recommend that my buyer-clients do as much upfront research as they can on the property, neighborhood and location (I help with this too and Thurston County has great online resources for looking up permits, septic records and other pertinent information. Check out this post on my top websites for research.), buyers need to have their financing in order and be ready to go, and of course, buyers need to have the right mindset and be emotionally and mentally ready to go through the home-buying process.
I’m here to help you, too! It is a big challenge but when I am working as your buyer broker, it’s my job to help get you through the hurdles of buying a home successfully.
If we are working together and you determine you cannot go through with the purchase of the home, contact me immediately and then we can figure out the best exit strategy for you. Many times the answer is in the contract; sometimes you may need additional advice from a real estate attorney.
As your buyer broker, I support your decisions even if it means not buying the property. I’m here to help you work through the process.