What You Need to Know About Backing Out of a Real Estate Deal

When you sign a contract for the purchase of a home, you put down a deposit. It’s easy to think that if you end up backing out of a real estate deal, the deposit is all you will lose. Even that would be a tough scenario for most people, but the reality is, it could be even worse. A lot worse.

Circumstances change and some buyers no longer want to or are unable to close on a home. But they need to be prepared for the potential consequences. In this post, we’ll take a look at some of the possible scenarios.

The Consequences of Backing Out of a Real Estate Deal

So what can you expect if you do find yourself wanting to back out of a deal as a buyer? Every case is different, but the outcome typically depends on what happens with the property you were under contract to purchase.

If the seller ends up selling the home for a higher price than you had contracted for, you may not have an issue backing out of a real estate deal. They will likely sign a mutual release letting you out of the contract. In this situation, there may be no financial penalties for you.

However, if the house that you had committed to purchase sells for less than your contracted price, the situation can be quite different. Many buyers incorrectly believe that they would only forfeit their deposit if they fail to complete a deal. The reality is the consequences can be much more significant.

Of course, you need to be aware of these consequences before you make the decision to break your contract. Here’s an example of what could happen. 

1. You may forfeit the deposit that you provided when you signed the deal.
2. When the final sale price of the home is lower than your contracted price, you may have to pay the difference to the seller.
3. You might also be responsible for any damages that the seller incurred because you didn’t close. For example, if the seller had purchased a home and had carrying costs, you might have to reimburse accordingly.

As you can imagine, all of this can add up to big bucks.

A Possible Scenario

If you agreed to purchase a home for $900,000 and paid a $50,000 deposit with their purchase agreement.

Your circumstance has changed and you are no longer able to close on the deal.

The sellers of the home ultimately sold the property to another buyer for $800,000.

The clients now face potentially losing their $50,000 deposit and being held responsible for the sale price difference. The latter in this case is $100,000. Plus, they might be liable for any out-of-pocket expenses incurred by the seller as a result of the broken contract.

That’s potentially $150,000 (plus any expenses) that is essentially being thrown away.

Buyers need to be aware that a real estate purchase agreement is a legal agreement to purchase a property and backing out of a real estate deal is not easy. It should be treated as a binding contract so that no one is caught off guard with some large unexpected bills.

If you’re thinking about buying soon or just need some assistance, as always, your ThompsonSells team is here to help every step of the way!

Image credit: Debra Anderson via shutterstock.com