Backing Out of a Real Estate Deal

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When the buyer or seller is faced with certain circumstances, it is necessary that the deal is rescinded and the buyer or seller backs out of the deal. However, doing so is complicated unless there are certain provisions or if no paperwork has been signed for the arrangements to proceed to escrow, and then it is important all parties are aware of the conclusion.

When a buyer and seller have initiated a real estate deal, it is so that the property involved in purchased and sold according to the conditions between the parties. However, life sometimes interferes and the deal must be broken. This could occur when the buyer is unable to obtain financing or the seller has other obligations that cause him or her to end the sale. No matter which person must initiate the conclusion, the deal is broken and any paperwork started must be discarded. If other processes have started such as a loan through a bank, this could be eliminated if the buyer loses the opportunity to purchase the house.

Other parties are also often involved in these situations with an agent, real estate lawyer, broker and loan advisor. These persons must be contacted and communication about the back out should be explained in detail. The buyer may need to contact his or her lawyer to ensure earnest money is returned or that there are no penalties or additional fees or expenses incurred if he or she is the one that backs out. The seller may need to sit down with the buyer if he or she cannot continue with the sale. Other issues may arise, and these must be understood so that the arrangements may end on good terms.

Issues with the Deal

The deals that are broken between seller and buyer are most often completed due to problems such as with the inspection or appraisal. If there are defects found, the buyer may not be confident that they will be fixed and resolved before he or she moves in. Additionally, there are other issues that may be revealed through an appraisal that could require negotiations to continue the arrangements. However, when the buyer is disheartened after these processes, he or she may back out of the deal entirely and not even progress to the financial in securing a loan.

Sometimes, the property value is much lower than what the seller is seeking. If the buyer feels he or she is being cheated, the deal could end long before it progresses to escrow. Another issue could arise where renovations are needed such as rusty or damaged pipes and plumbing. If the land is unsuitable for living on, this could lead to other problems. Contaminants such as toxic waste or other waste may need to be cleared and any complications through the neighborhood or community could lead to the deal being broken. Before the seller is set on the sale finalizing, he or she must understand that the buyer’s worries need to be resolved first.

Backing Out and Clauses

Some contractual agreements between buyer and seller have conditions or clauses that prevent or permit the buyer or seller to back out before escrow closes and everything has been finalized. These are important for both parties when there could be an issue with financing the sale or if the seller has not secured another property to live in after the sale. If there are any issues, these conditions may kick in so that the buyer or seller is able to leave the deal with few or no complications. Then, the arrangement is cancelled and all parties are no longer involved.

While it is possible to back out of a purchase deal with real estate, it is important to do so before a contract has been signed. This is particularly important with larger buildings or in commercial real estate arrangements. The more money that is involved in these sales, the more certain the buyer should be before he or she signs anything to commit to the purchase. Once all inspections, appraisals and surveys have been completed, it is time to ensure financing is backing the deal. Then, paperwork is finalized and the deal is usually completed.

Legal Matters in Backing Out

When the buyer is unable to back out without penalties, it may be necessary to hire a lawyer to ensure the deal is broken with fewer complications. This may entail retrieving earnest money or similar matters for the buyer and seller.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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