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When Should You Withdraw an Offer on a House?

There are times when it pays to back out of a deal.

[Updated: Mar 03, 2021 ] Jun 21, 2020 by Maurie Backman
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Real estate transactions don't always go as smoothly as we'd like them to. Even when there's a contract in place, there may be times when you, as a buyer, feel compelled to back out of a purchase agreement for a home that's under contract. Here, we'll talk about how to withdraw an offer on a house and when it pays to back out of that deal.

Reasons to withdraw an offer on a house

There are plenty of reasons you might choose to withdraw an offer on a house. These include:

  • Your seller is taking too long to accept the offer you've made.
  • Your mortgage doesn't come through.
  • The home you're looking to buy doesn't have a high enough appraisal.
  • Your home inspection reveals too many issues with the house and your seller refuses to address them prior to closing.
  • Your personal needs or circumstances have changed since the time you made the offer.

Ultimately, the amount of money you stand to lose by backing out of an offer will depend on where you are in your contract.

When is it too late to withdraw an offer on a house?

If you put in a purchase offer on a house and your seller takes too long to accept it, you're in the clear to back out. Unless that purchase contract is signed by both parties, it's not binding, so you can simply withdraw your offer in writing, present it to your seller or your seller's listing agent, and call it a day -- though it may be worth having your real estate agent reach out to the seller's agent to see why there's a holdup.

But let's assume you're already under contract -- that your seller has accepted your offer to purchase his or her home and there's a binding contract in play. What happens if you want to withdraw your offer at that point? The answer depends on the contingency clauses your contract contains, and whether those conditions are or are not met. Let's review these one by one.

1. Financing contingency

Most people can't buy a home outright. Rather, they need a mortgage to finance it. As such, your real estate contract will likely contain a financing contingency, which protects you in the event you're unable to secure a mortgage. (Keep in mind that this could happen for a number of reasons, even if you're pre-approved for a home loan.) If your withdrawal from your home purchase stems from a lack of financing, you shouldn't suffer any financial penalties.

2. Appraisal contingency

The home you're looking to buy must appraise for a certain amount in order for your mortgage to go through. After all, your lender won't give you a mortgage if the value of the home you're looking to buy is less than your loan amount. If that appraisal comes in low, you don't necessarily need to withdraw your purchase offer. Rather, you can try to negotiate a lower purchase price with your seller. If your seller comes back with a reasonable counter offer, you may be able to salvage your transaction. If not, you should have the right to cancel the contract on the basis of a low appraisal.

3. Inspection contingency

It's impossible to know what problems are brewing with a house until you complete a home inspection. In most cases, you can terminate the contract you've signed without penalty if your home inspection reveals too many issues and your seller isn't willing to fix them. For example, your home inspection might uncover a sinking foundation or a roof that's in serious need of replacement. These are substantial expenses that you, as a buyer, may not have bargained for.

Will you lose money if you withdraw an offer on a house?

You'll generally need to put down earnest money in conjunction with signing a home purchase agreement. It's common for a buyer's earnest money to equal 1% to 5% of a home's cost, which means you could be making a substantial deposit up front.

The good news is that your seller doesn't get to cash your earnest money check right off the bat. Rather, that earnest money deposit will go into an escrow account and stay there until your real estate transaction is complete. If the sale is canceled for a reason covered by one of your contract's contingency clauses, and you're therefore not considered to be in breach of contract by withdrawing an offer, then you should get your earnest money back.

Now if you do back out of a legally binding agreement for a non-covered reason, your seller retains the right to keep your earnest money. But that doesn't mean your seller will go that route. If it's a seller's market, and your seller is apt to have plenty of potential buyers once you back out, then he or she may just agree to refund some or all of your earnest money. This especially holds true if you're backing out because your personal circumstances have changed -- say, you just got a new job in a different city and no longer want to buy a home where you are now.

What happens when a buyer withdraws an offer on your house?

When a buyer's offer is rescinded, it can be a harsh blow. At that point, you'll need to consult with your real estate agent and attorney for next steps. If your buyer is backing out of a signed contract due to a covered reason -- meaning, one of the contract's contingencies isn't met -- then unfortunately, you may not have much recourse as a seller. But if your buyer is backing out for a non-covered reason, then you do have the right to keep your buyer's earnest money deposit.

Once your sale contract officially falls through, you're free to put your home back on the market and try to find a new buyer. But before you do, think about the reason why your contract was terminated. If it had something to do with your buyer -- a change of heart or financial circumstances -- then there's no need to adjust your strategy when listing your home. But if the deal fell through because your home didn't appraise high enough, or because an inspection uncovered too many issues, then you may want to either lower your sale price or make some repairs before listing your property again. Otherwise, you could wind up in the very same boat once you get a follow-up offer.

Think before you make an offer

It's easy to fall in love with a home at first glance and make an offer, only to change your mind after the fact. The basic rule of thumb is that you don't lose money in a real estate transaction if you withdraw your offer before a contract is signed or if you withdraw your offer because a contingency in your contract isn't met. Otherwise, you could lose serious money by virtue of being fickle, so make sure you're set with your decision before committing to a legally binding agreement.

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