Can a Seller Back Out of an Accepted Offer on a House?

The PropertyClub Team
Jun 4th 2020
Can a seller back out of an accepted offer on a house: This article will cover whether or not a seller can back out of a real estate contract before closing or cancel a purchase agreement.

Buying a home can be stressful, and there are plenty of moments during the sale of a home where something can go awry. We all dread the thought of having an offer accepted on our dream home, only for the seller to change their mind and leave you in the dust. Unfortunately, these scenarios are not uncommon, but more often than not, there’s a contractual clause that is intended to protect both buyers and sellers from situations where one party backs out of a sale.

It’s sometimes easy to understand why a buyer may decide to back out of a deal, and that’s more commonly what happens. Maybe a home inspection comes back with unfavorable results, or there’s a contingency in the contract that can’t be fulfilled by the seller. However, buyers often have more to lose, and more chance of huge disappointment, in the case where a sale falls through unexpectedly on the seller’s end. It can be devastating to put in an offer and think you’ve landed the deal, only for the seller to dash all your hopes and back out of the home purchase agreement. So, often buyers wonder, can a seller back out of an accepted offer on the house? And if so, why might this happen?

The importance of a home purchase agreement

In real estate, a purchase agreement (sometimes known as a buyer-seller agreement) is a contract between a buyer and seller that outlines the details of the transaction. Once the details of the home purchase agreement have been defined and both parties have signed the contract, the sale is then considered to be in the “under contract”. Purchase agreements are prepared by a lawyer and are usually written up by the buyer’s agent.

A well-written home purchase agreement will contain a set of contingencies that must be met and abided to for the sale to go through. These contingencies are important and should be carefully understood by both parties, as they define when a buyer or seller can back out of a sale without legal consequences. If either party backs out of the contract for a reason that is not stipulated in the purchase agreement, then there may be a potential penalty.

Reasons a seller might walk away from a real estate contract before closing.

To put it simply, a seller can back out at any point if contingencies outlined in the home purchase agreement are not met. These agreements are legally binding contracts, which is why backing out of them can be complicated, and something that most people want to avoid. There are, however, several common reasons why a seller might get cold feet and walk away from a deal. Here are some reasons why they might decide they no longer want to sell:

  • They get cold feet, usually because of emotional attachment to a house or concern about the new owners, and decide to take the house off the market.
  • They can’t find another home to move into. This one is common when their purchase falls through on a new home they were looking to purchase. Without anywhere to go, lack of replacement housing may mean a seller is no longer able to part ways with their current home.
  • A life event, such as a pregnancy or death in the family, may also prevent them from being able to follow through with the sale.
  • A low appraisal can be detrimental to a sale on the seller’s end, and if they’re unwilling to lower the sale price to match the appraisal value, this can cause the seller to cancel the deal.

Can a seller accept another offer while under contract?

Often, people wonder if a seller can back out should they receive a better offer from another potential buyer. This is an understandably worrisome scenario, particularly if you enter into a contract on a highly desirable home. You don’t want someone else swooping in and snatching it right out from under your nose! But not to worry, once an offer has been accepted and a contract signed, sellers can no longer accept another offer from a different party. 

Can a seller back out of a purchase agreement?

Remember, purchase agreements are put in place to protect both parties, as selling a home can be costly and time-consuming. If you have a contractual agreement with a seller, they are legally barred from entering into another home purchase agreement with a different buyer. Both parties should be aware of this, and agents should know how to effectively handle such situations. 

The above list may seem like understandable reasons for a change of heart when it comes to selling, but just because they might be reasonable, it doesn’t mean they are legal. Sellers have fewer legal options when it comes to backing out than a buyer does; it’s often harder for them to walk away without penalization. 

The most obvious reason a seller could cancel the sale is if the agreement was verbal, or the contract was never signed. These are mistakes that should be easily avoidable, especially with diligent agents involved. But mistakes do happen, so always be thorough and ensure that a transaction deal is written up and signed.

Probably the most common way for a seller to back out without legal consequence is by capitalizing on the buyers’ contingencies. In this instance, a seller may refuse to negotiate certain aspects of the contract, such as the home inspection contingency. If a seller refuses to pay the repair costs, this can push the buyer to cancel the contract on their end. 

Because the scenario where a seller can’t find a replacement home is common, there is often a new home contingency written into the purchase agreement. In this case, a seller can back out should they be unable to find a suitable replacement home. They may also be able to walk away during the attorney review period, which is usually a three to five-day window in which the contract can be canceled based on their attorney’s review. It should be noted that some states legally require an attorney review. 

A more risky method for a seller with cold feet is to over-disclose issues with the property in the hopes of deterring the buyer and encouraging them to cancel the agreement on their own terms. This is not always a good idea, though, as in some states anything that you disclose to one buyer, you are also legally required to disclose to others in the future.

Finally, a seller can try to get a buyer to agree to the cancellation, usually in good faith. If the buyer sympathizes with a certain situation, they may agree to the cancellation of the purchase agreement. 

All of the above are reasons that would allow the legal ending of the contract on behalf of the seller with no ramifications. But what happens if a seller suddenly backs out without abiding by the contractual contingencies?

Well, a buyer can sue for specific performance or for damages. In the case of specific performance, the court can order the seller to complete the contract, which would involve the selling of the home and transfer of title. However, this is not often the path most trodden due to the length of time and legal costs involved.

More often, a buyer will sue for damages caused by the breach of contract. These damages often include the fees that were associated with the sale (such as inspection fees), lost deposits, temporary housing costs, or any legal fees.

How to back out of a real estate contract the right way 

If you have a home under contract and you find yourself experiencing circumstances that require you to cancel the deal, there are ways in which you can do so while minimizing the potential for legal and financial repercussions.

It’s a good idea to first try writing a letter to the buyer, especially if you are experiencing some sort of hardship, as there is a chance the buyer will agree to cancel the contract. If that doesn’t work, it’s often more advisable (and cheaper) to offer the buyer some amount of money up front to pay for damages, rather than trying to negotiate through the court system.

The best way to avoid an upset or disagreement is always to think through before you agree to a sale, and to ensure that you have carefully read through the contingencies outlined in your home purchase agreement before signing. Make sure that you are covered in case you do need to back out of a sale suddenly.

In any situation that involves the potential breach of a purchase agreement, it’s best to consult with an attorney. Legally binding contracts can be confusing, and you don’t want to end up in a situation with severe legal and financial repercussions.