You submitted an offer and it was accepted. Everything seems to be going your way, except for one major detail: you’re not sure if this house is actually the right one for you.
Sound familiar? It happens. Buying a home is a big deal. Lots of buyers get cold feet when they go to buy a home, and some do end up walking away to explore other options.
If you’re unsure of the next steps to take, this post is for you. We’ve taken the liberty of explaining how to successfully back out of a home deal. Plus, we’ve outlined some potential pitfalls to watch out for along the way.
Is it possible to walk away?
Short answer: yes.
Technically, as the buyer, you’re free to walk away from purchasing the home at any time. All you need to do is to ask the agent you’re working with to draw up a termination agreement for you and the seller to sign. Once that’s done, you’re free to move on and find another home.
However there’s one huge catch to this method: your earnest money deposit could be at risk.
The earnest money deposit is the money that you put towards the home when the contract was initially signed. It usually ranges between 1-3% of the home’s sale price and is meant as a “good faith” deposit, or a method of assuring the seller that you’re serious about buying the home.
If you walk away from the transaction without cause, the seller gets to keep your deposit, which often adds up to thousands of dollars. Fortunately, though, there are a few potential clauses in your agreement that may make sure your deposit money finds its way back to you safe and sound.
How to keep your deposit safe
The easiest way to keep your deposit safe is to use one of your contingencies as a way out. A contingency is a clause in your agreement of sale that outlines something that needs to happen in order for the transaction to move forward. Usually, contingencies cover things like your inspections or the appraisal. However, some can also be unique to your particular property.
In order for the deal to move forward, each contingency outlined in the agreement has to be satisfied, meaning that both the buyer and the seller have to agree upon how that particular issue will be resolved. If an agreement cannot be reached, both parties are free to walk away from the sale, and any deposits are returned.
Here’s how to make it work:
Once your inspections have been completed, you’ll receive a report from each company, outlining any problems they found with the home, as well as suggested remedies. As the buyer, you’re within your rights to say that the amount of work that the home needs is beyond what you were anticipating and that you won’t be able to move forward.
If you need a mortgage to buy the property, the bank is probably requiring you to have an appraisal done on the property, or an assessment of its fair market value. If your appraisal comes in low, meaning that it’s worth less than the agreed-upon sale price, the bank will likely only agree to give you financing up to the lower amount. If that’s the case, it’s up to you to make up the difference in price. However, if you can’t come up with the money, or the seller is unwilling to renegotiate the price, you’re free to walk away.
Loan / mortgage contingency
Any sale that requires a mortgage also has a loan contingency attached to it. In this one, the lender agrees to provide you with guaranteed financing by a certain date. If they are unable to do so, you’re allowed to exit the sale. Keep in mind, though, you’ll have to be fully denied for financing in order to make this work. You can’t refuse to accept an offered loan based on interest rates or some other detail.
Home sale contingency
In a home sale contingency, the sale depends on whether or not you’ve found a buyer for your current home. If you haven’t found a buyer by the date specified in your contract, both you and the seller can choose to end the contract.
In this competitive market, however, home sale contingencies are rare, so you may not have this option.
The importance of following your contract
Even if you use one of the contingencies outlined above, there’s still a small chance that the seller can keep your deposit if you haven’t met the terms that were outlined in your agreement of sale.
In a real estate deal, your purchase contract details everything that each party agrees to do in order to move the sale forward. If you don’t hold up your end of the bargain -- either by missing important dates or failing to turn in the appropriate paperwork -- you can be considered in breach of contract, which would give the seller the right to keep your money if the sale falls through.
To keep your money safe, make sure you’re paying attention to your contract well before you want out.
Read through your contract, and make a list of all the important tasks and dates that you need to remember. Then, follow it closely. This is one instance where handing in work early is much easier than scrambling at the last minute.